Where is the Most Optimal Price Position for Your Seniors Housing Community or New Development?
And How to Avoid Making Costly Mistakes Due to Lack of Strategy
One of the important decisions a seniors living community can make is its price positioning. Once a decision is made, whether to price high or price low, it can rarely be changed and the pricing set affects the overall business model from quality, branding, market positioning and more.
Most importantly, pricing dictates what market segment it will serve.
In his book, Confessions of the Pricing Man, Hermann Simon contrast two grocery stores to make a case that it’s not which pricing strategy you implement, but how you execute it.
Discounter Aldi’s Return on Sales is More than Double the Returns of a Traditional Supermarket
Deep discounter Aldi has over 10,000 stores worldwide and competes with high end stores such as Whole Foods. Aldi’s core strategy is simple: Offer an acceptable level of quality at very competitive prices. Most of their product is private label costing 20-40% less than popular brands. What’s interesting is that Aldi has much higher returns than competitors who have higher prices.
In fact, Aldi’s was able to double the returns of a traditional supermarket using these three strategies:
- Higher efficiency
- Lower costs
- Capital management
The gross return per square meter of floor space is 30.3% higher than its higher priced competitors. But how?
Here are a few examples of what effective regional directors and owners can consider that the author explained in his book:
- Reduce Personnel Costs: Aldi saved the equivalent of 8.2% of sales on personnel costs. They put bar codes on all sides of its packages so cashiers don’t have to search for it creating greater efficiency.
- Excellent Negotiation Skills: They save in procurement with strong negotiation skills to win favorable pricing from suppliers.
- Faster Inventory Turns: Aldi turns its inventory over almost three times faster than competitors.
- Manage Capital More Efficiently: Collect money quickly but pay suppliers much later and invest this float to earn short-term interest.
In simple terms, Aldi uses their aggressive low-price strategy to earn consistently higher returns than the rest of their sector.
WHAT CAN WE LEARN FROM THIS STUDY FOR THE SENIORS HOUSING INDUSTRY?
As I was writing, my brain was flooded with ideas on how we might apply these same strategies to the seniors housing industry. In fact, it reminded me of a webinar NIC just hosted titled The New Growth Opportunity in which experts advocated for an approximate cut to annual rental rates by $10K per year which would in turn allow for many more seniors to afford it ($50K versus $60K average per year), thus creating faster absorption and higher occupancy as an industry.
At the same time, seniors housing operators are challenged with laser focus on expenses while growing occupancy.
To make this happen, we are going to have to think out of the box as we are already doing more with less than ever; and now it’s being advised to cut rates, reducing cash flow even further.
If we want to tap into more seniors and increase occupancy, we must find a way to make it affordable.
Chapter four presents lots of examples to study and learn from; for instance, IKEA, H&M and Zara, Dell, Amazon and more. There are also success strategies with focus on being the price leader. I chose to focus on low prices due to the trend toward affordable care senior care models. Dive in, work ON rather than IN your business today and move just a bit closer toward your own company transformation.
In conclusion, when it comes to making critical decisions like pricing adjustments, we must also think of personnel efficiencies, cost reductions, and capital management. At Bild & Co, we help clients improve occupancy, implement efficient operations and create long-term growth strategies. To learn more, BOOK AN APPOINTMENT with myself or Jennifer Saxman, expert Senior Housing Sales Consultants or you can DOWNLOAD Zero Lost Revenue Days to better understand Bild & Co’s PROVEN systems and how we drive occupancy, revenue and net operating income for our clients.
We recommend further reading on How Operators can Drive Operational Efficiencies so that More Seniors can Afford Senior Living.
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