In Series – “Confessions of the Pricing Man: How Price Affects Everything”
For this blog series, I will be dissecting a book titled Confessions of the Pricing Man: How Price Affects Everything by Hermann Simon. Order the book and read along with me or just enjoy my summaries and how it applies to our amazing industry.
The Strange Psychology of Pricing
Chapter three in Confessions of the Pricing Man focuses on behavioral and neural economics, exciting new areas of study with fascinating results in explaining buyer behavior. In the competitive environment of seniors housing, we need every advantage possible so let’s dig in!
In today’s blog I’m going to prioritize two specific areas I feel are most impactful to you, as an executive, in our pricing study within seniors housing:
- Creating scarcity
- Offering pricing alternatives
Creating Scarcity: The Buzz of Hamilton
Have you seen the play Hamilton yet? If not, I bet you’ve at least heard of it and the frenzy surrounding purchasing tickets. The play has achieved a cult like status and with limited shows and seating; created scarcity. In fact, my husband David had to purchase an entire season and subscribe as a member to the performing arts center to get just two seats to this coveted show. In a sea of competition among hundreds of other plays from the Waitress to American Psycho, Hamilton did a fantastic job of creating demand for a play that otherwise could have been well, just another play!
One of the most underutilized and effective tactics to drive sales is to create the perception of scarcity. When consumers believe something is available in a limited supply it can create a stronger urge to buy. In seniors housing this can be done too, here are some examples that can be used within your own communities:
- While you may have six open IL apartments, here is how you can position: “Out of 120 apartments we only have six left and of those, only two are on the ground floor which is ideal for your mom as you stated she was not a fan of elevators I would like to show you those first as I think one or the other would be ideal if we can get it secured.
- Perhaps you have four vacant two-bedroom apartments to sell, but just one of them is by the elevator. “We only have one two-bedroom apartment left in close proximity to the elevator and I know you were concerned about the walking distance within the community and the challenge that may present.
- It could be you have five studios left, which simply are not the most desirable (at least in your salesperson’s opinion): “We only have two studios left with the lake view and patio access. I know the view was important to you and I want you to see how beautiful and calming it is.” Once these are sold, find something valuable about the final three including the fact that there are just three left!
- What about those few remaining shared apartments? “We happen to have two of our shared apartments available which we expect to go fast. A shared apartment provides a great savings yet with all the benefits the community has to offer you.”
You will notice in creating scarcity it also removes the temptation of prospects to ask for discounts as these apartments are positioned as incredibly valuable. Take some time to consider how you might use the concept of scarcity in your organization to drive urgency. Also, how can you systematize this concept and embed into your training for long-term implementation?
Sell More by Offering Additional Alternatives
This is one of my favorite sales strategies that has great potential in the seniors housing space. I’ve used it for decades at Bild & Co but in truth never considered implementing it with our clients until reading this chapter.
The introduction of additional alternatives to pricing, meaning package options, can significantly increase sales and shift demand toward higher priced choices. In behavioral pricing research this finding is one of the most astounding so we for sure want to focus in on it.
An Example of Alternative Pricing: How a Company Increased Average Revenue Per Unit From $32.80 to $40.50, a 23% Increase in Fees
An example used in Chapter three is from telecommunications. In the first test, respondents could choose between two plans, one with a basic monthly price of $25 and one with a fee of $60. Some 78% of respondents chose the less expensive plan while the remainder picked the more expensive one. The average revenue per user was $32.80.
In the second test, the respondents choose among three plans priced at $25, $50 and $60. The highest and lowest prices stayed the same. In this test, only 44% of respondents chose the cheapest plan, compared with 78% in the first test. Almost as many, 42% went for the new $50 plan and the remaining 14% chose the most expensive plan. The average revenue per user increased to $40.50 or 23% more than in the first test which is considerable. Imagine the impact a 23% jump in average revenue per resident could make in your own organization.
Being in sales my entire adult life, I’ve seen this strategy work time and time again. Whenever three options are presented, most consumers will pick the middle or the highest option, rarely the lowest. If you want to further understand the hypotheses as to why this strategy works, refer to page 36 in the book for more examples. What I primarily want to point out is the power of small changes in the assortment of price structure and the impact on revenue and profit without any increase in cost. While you may have many options available at your communities from which to pick, are your salespeople sitting down and mapping out three specific options from which to choose based on their discovery with each prospect? What we typically find is that communities have two or three different apartment types with different pricing structures based on levels of care and programming. These are not mapped out in package options but rather listed on price sheets and simply shared verbally. Let’s take a closer look at this topic.
How to Use Alternative Pricing in Senior Living
We know that pricing within seniors housing is incredibly confusing. When visiting three to four communities, understanding pricing can be daunting for consumers. My challenge to you is to step out of the box and consider how you are presenting prices altogether. Here are some ideas to get your thoughts flowing:
Example: We have three apartment living options I would like to share with you based on our last few conversations and that I feel are most ideal for your mom’s current health and your concerns regarding rising costs over the next few years…
- Good: Apartment living where she will still get two meals per day, weekly housekeeping, and transportation and be in a safe environment where you can pay for your mom’s care as her needs develop giving you flexibility in the monthly rate now. . $2,960/M
- Better: Apartment living, complete care all inclusive, unlimited meals, transportation, housekeeping and storage space which allows us to care for your mom in every capacity so you can be the daughter again. $4,850/M
- Best: This plan includes everything in the Better and is all Inclusive but also has a rate lock for five years that provides peace of mind as I know you are concerned about your mom outliving her finances. Beyond the five years the rent increase will not exceed 2% (compared to an average of 5% in senior living per year). $5,250/M
- With this example, the family would pay more per month but have peace of mind. As an operator you receive more revenue now in exchange for the rent lock.
How might you take your current rental plans or pricing structure and repackage them into three options, in hopes that people will choose one of the top two tiers that prove to be a win-win? Can you further tie the package names into your Company brand? Take a moment and brainstorm. If you would like to participate in a focus group with Bild on pricing, please send an email to firstname.lastname@example.org for consideration. Also, share your ideas on our LinkedIn and social media pages, we want to hear from you.
While some seniors housing providers are now accepting credit cards and others have no plans to do so, it’s critical to address it in this blog. While merchant fees can negatively impact the bottom line, I would at least consider accepting a credit card for the initial deposit to secure an apartment. Rarely do people carry a checkbook and the inability to deposit immediately further extends the sales cycle. What if accepting deposits via credit card cut off just eight days from your average sales cycle? The impact is substantial, and your flexibility further demonstrates your ability to offer convenience to your customers.
Whatever you decide to do, proceed with caution and do it in a test environment – never roll something like this out company-wide without first seeing how people respond. Take some time to consider how you can create scarcity within individual communities and how you might package pricing into three options and present in such a way that simplifies the overall buying experience and creates greater value for families and the company.
Take Action Before Chapter 4
Questions or comments? Post them in our social media feeds or email me directly at TBild@BildandCo.com
Written by Traci Bild
Author of Zero Lost Revenue Days & 7 Steps to Successful Selling
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