With the economy the way it is and the real estate market not quite into “recovery” mode as of yet, many senior housing projects are struggling to find their footing and thus, achievedesired occupancy levels. This is particularly true of projects that have entry fees or endowments as part of their pricing or where monthly fee pricing is packaged in the “rent plus” district (higher than typical area market rents for similar square footage and amenities).
Antithetical as it may seem, now is a good time to give your product and program a solid review. Pricing is one component within the competitive landscape and frankly, looking solely at competing or comparable products within your market as a means of gauging pricing is a bit of a “fool’s paradox” – especially in down economic times. In short, if you assume your project is adequately priced because it falls within the range of your competitors or analogous industry products, you must assume then that they are adequately priced. If all providers think and act the same way, all you are doing is perpetuating the same illogical approach to testing your project’s value – not wise.
There are three components to pricing that should always be evaluated with “blinders” on. The equation must start with Fixed Costs + Variable Costs + Margin = Price. This calculation needs to be done “outside of” or sans influence from any information or review of industry comparables. Once completed and the price set, it now makes only a modicum of sense to check how the price fits within the market. The step that really needs to occur however, is to “value” the price. This step needs to occur across a wide ranging analysis of not just competitor prices but local economic factors, demographics within the target market of customers, amenities and services within the price and external to the price, and customer preferences.
In true market and product analysis, we know that customers exist across the entire range of prices for products; those who seek value or low price and those that seek products with premium prices. For example, within the automobile industry buyers purchase cars such as Hyundai and Kia as well as Mercedes, BMW and Bentley. True, the volumes are different but the reality is that each vehicle type serves essentially the same core set of needs (they travel from point A to point B). The pricing and product differentiation occur based not solely on a review of the competing car lines but based on a deeper analysis of customer needs, preferences, desires, demographics, economics, etc. Arguably, senior housing should be priced this way – on a “value” platform.
Down economies are perfect lenses through which “value” pricing can and should be reviewed. In a down economy, consumers remain but their willingness and ability to consume with an abandonment approach to value is gone or at least, significantly marginalized. Demand remains, though now, other factors influence what “demand” actually is present and under “what” conditions or terms. As most senior housing relies on seniors making a “lifestyle” move, the value of doing so must be right-sized with the value of your product – not the value stipulated within the industry.
Creating the right niche’ is all about getting four aspects of your product and pricing exactly (or as close to as possible) right. Fundamentally, this exercise or review should occur consistently and no less than annually as part of a strategic planning review and marketing plan review. The four aspects of product and pricing are:
- Core Pricing: Go back to the drawing board and set a “target” price by the FORMULA – Fixed Costs + Variable Costs + Margin = Price.
- Analyze the Price: Now that you know what your “price” is, analyze the heck out of it by looking “critically” at what it includes and how that compares across the market of “all” comparables (other senior housing, market rentals, home values, condominiums, etc.). What does the market truly demand in your target area (more upscale, more modest, more middle-class)? Who is your customer and what is their economic and socio-economic background? How does your price fit within the local economy (real estate, other goods)? For example, is your price higher than local living costs plus purchased services for things such as lawn care (in other words, can someone achieve a comparable standard of living by purchasing services ala carte)?
- Repeat Steps One and Two Until Equilibrium:Chances are, your initial price will not fit within the value proposition necessary for consumers to really glom onto your product. You will have to tweak your price up or down or add or subtract features to get alingment or equilibrium. Remember, within the pricing formula the only elements that can be adjusted are Variable Costs and Margin and both are tricky to adjust “down” without changing substantially, the value proposition.
- Sell the Value Proposition: If you have done the first three steps correctly, you are now prepared to create your niche’ and sell the Value Proposition. Your price and product fit the demographic, the target market and the competitive and economic landscape and you need to convey this message. Your customers want to know how your product and its price create “value” for them and how that value compares to all ofther options they may have and “surpasses” these other options. Again, it really doesn’t matter nor should it, how your value proposition compares to other industry comparables as you have priced and crafted your product for a distinct customer. Chances are the market is sufficiently deep enough with potential customers that you only need a fraction of the trageted possibles to achieve high occupancy and waiting lists.