(First in a two-part series on the challenges of creating a good data platform and what rental...
Intelligent Pricing Inputs Drive Intelligent Reactions
Intelligent pricing inputs ensure we’re reacting to the right things. After two decades of legacy system use, the industry has learned lessons about what should and should not be part of any contemporary PRM system. For example:
1. Comp DataUsers should have the option of whether, and how much, comp data is included in their pricing algorithm. Where they can collect accurate data and, as a matter of corporate strategy, want to include that data then they should be able to do so. Where users don’t trust the data, or as a matter of strategy, do not want to include comp data, then the algorithm should work equally well without comp data.
2. Availability Rather Than OccupancySystems should target availability rather than occupancy. Availability is a much better metric for pricing systems to rely upon than occupancy for two big reasons:
- Availability is forward-looking while occupancy is backward-looking. Just as we drive a car looking out the front window and not the rearview mirror, so too should we price based on what’s happening ahead of us rather than what’s happening behind us.
- There are many confounding variables in occupancy that have little or nothing to do with pricing. Make-ready times, hold times and customer move-in and move-out behaviors can all affect occupancy and create lags that make occupancy look worse or better than is appropriate for a pricing decision. Availability is directly affected by pricing decisions and thus provides a much more meaningful link between pricing decisions, customer reactions and thus optimal revenue performance.
3. The Importance of Leasing VelocityGood pricing systems understand and incorporate the importance of leasing velocity, specifically the pace of leasing (as opposed to “closing” or lease-to-guest card ratios). While availability is perhaps the most useful metric to rely upon for pricing decisions if we only had access to a single, it leads to some misleading rules of thumb. For example, an 8% availability where we have recently been leasing 1% of our physical inventory each week is a much better situation than a 6% availability where we have been leasing only 0.5% of our physical inventory. Yet operators focusing on availability alone will be very nervous, and maybe even lower prices, in the former situation; and they may raise prices in the latter situation when the pace of leasing doesn’t actually justify such a move.