CH 7: The Pros and Cons of Bundled Versus Unbundled Pricing In Senior Communities
How Independent Living, Assisted Living, Memory Care and Active Adult Communities can leverage unbundled pricing to gain increased market share and the recovery of diminishing margins.
I recently booked a flight for my husband David and I to Israel. The flight itself was $1,600 per person and consisted of two different airlines, Air Canada and United. Those flights DID NOT INCLUDE SEATS. How is it possible that one can book a flight across the world yet not have seats? That would be an additional $625 per person!
How Unbundling Fees Make Airlines a Bundle of Cash
While on the phone with American Express booking my flights to Israel, the agent shared his angst over booking flights for individuals who simply don’t understand that buying a ticket no longer means getting a reserved seat, checked baggage or in some cases even a beverage.
Most airlines now offer UNBUNDLED PRICING that drives revenue, profits and allows them to list the lowest fares possible to its 4.3 billion passengers. The result? Airline profits are at a record high, with 2018 profits topping $38 Billion.
The benefits to the carrier are clear: An airline can quote a low base fare and then add extras, dramatically boosting its profits. SENIORS HOUSING CAN DO THE SAME.
Consider the ancillary services you pay for on flights: Reserved seating, checked baggage, Wi-Fi access, movies, alcohol, extra leg room, first class, business class, united economy plus, early boarding, snack boxes, purchased points and more. Some passengers even sign up for credit cards on flights.
TAKE LUGGAGE FEES FOR INSTANCE
During the first nine months of 2007, domestic airlines collected $340 million in baggage surcharges. The next year, most major airlines began charging passengers for the FIRST checked bag, lifting the take to nearly $2 billion in the first nine months of 2009. Delta Air Lines led the flock with $550 million in collected baggage fees (when combined with now-merged Northwest Airlines), followed by American Airlines ($346 million) and US Airways ($309 million). In 2018, that number more than doubled to $4.9 billion with American leading with a staggering $1.12 billion.
The benefits of those practices are less clear to the consumer. On the one hand, it’s nice to pay only for what you use. If you don’t want to check a bag, don’t need a confirmed seat assignment and pay with cash, your seat costs less. Another item to note is that no airline lowered its fares after it unbundled its services; it just asked passengers to begin paying for something it used to include in a ticket.
WHAT CAN INDEPENDENT LIVING, ASSISTED LIVING, MEMORY CARE AND ACTIVE ADULT COMMUNITIES LEARN FROM THE AIRLINES TO HELP OPERATORS GROW OCCUPANCY AND INVESTORS REBOUND FROM DIMINISHING MARGINS?
In pondering my research on airlines, what most surprised me is how much revenue is generated from services that cost very little. The problem is the lack of communication and transparency (or as Southwest would say, Transparency) with its passengers. If our industry follow suits, proper communication is critical so that you do not upset or aggravate your clients.
Brainstorm ideas on how you might unbundle pricing at your communities. Here is a list of items that immediately come to mind for me. Keep an open mind (no one ever thought an airline ticket wouldn’t include a reserved seat either):
- Meals or meal plan options
- Transportation
- Activities of Daily Living
- Housekeeping
- Personal Training
- Alcohol
- Pet walking
- Home health offerings
While it may seem unheard of today, I imagine tomorrow that won’t be the case.
UNBUNDLED PRICING COULD OPEN THE DOOR TO AN ENTIRE MIDDLE MARKET OF SENIORS WHO CAN’T AFFORD SENIORS HOUSING RATES AS THEY STAND TODAY
If a prospect has a budget of $3,000 per month and can move into an apartment where she can age in place and add services as needed, she may be more inclined to move sooner, than later. Alternatively, if she can’t afford the rate that includes services she doesn’t need but are included in your current rate… MEANING BUNDLED PRICING, she may never move due to the inability to afford it.
Similar to airlines, seniors housing communities can quote a low monthly rental base and then add extras, dramatically boosting its profits.
It may seem impossible to consider such options, but it could be a game changer. Unbundled pricing isn’t for everyone, but airlines are social proof that people respond to both bundled (Southwest) and unbundled pricing (United, Delta, Frontier, etc.). The goal of this book club is to challenge your thinking and the status quo. Consider the products and services used in your own life, that were once bundled and now unbundled:
- Cable: The bundled pricing offered by mainstream cable companies has given rise to platforms such as Netflix, Hulu and Amazon Prime; allowing consumers to pay for what they actually use.
- Cellular Service: Bundled unlimited plans are great for families like mine where there are five people consuming lots of data and minutes compared to the unbundled plans that allow for a much lower price point and needs of a single individual.
- Insurance: Companies like Progressive and Geico are no longer only known for auto insurance; they now offer packages for home, boats, life, rental, and disability insurance.
I’ve barely scratched the surface to the content in this Chapter, Hermann dives into the pros and cons of various pricing models and further discusses penetration strategies that will provoke thought on new developments and their associated lease ups. While complex, this is for sure a chapter worth reading.
Have questions or wish to discuss this topic? Email me at tbild@bildandco.com and share what’s on your mind. I’m currently booking individual Executive Sessions for those CEOs looking to spend some time working ON rather than IN the business and brainstorming alternative pricing strategies. All retreats are held in beautiful Clearwater, FL and have a 100% money back guarantee. To carve out a day together, feel free to email or call me at 1.800.640.0688 to schedule our time together.
To your success,
Written by: Traci Bild, CEO of Bild & Co
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