Competition in the self storage industry is heating up, with REITs threatening to take away business from independent self storage owners. There are many ways to compete against REITs, including your pricing strategy. However, deciding prices for storage units can be a daunting task. You want to be competitive, but you also want to be sure you’re bringing in enough money to cover operating costs and any capital expenditures. But, rather than put all the focus on your needs, it helps to consider what the customer wants – and that’s value and convenience. By implementing a value based pricing strategy, you can offer this and empower customers throughout the rental process.
What is Value Based Pricing?
Value based pricing takes a tiered pricing approach to unit rentals. Typical tiers for units might be "Standard," "Best Value," and "Premium" (to customers, this reads as good, better, and best). At each level, price increases but so does value. So, rather than just price units based on size, value based pricing looks at other features tenants might find valuable and increases rates based on that. For example, a unit next to the entrance, exit, elevator, or security cameras would be priced more than one that is not, even though the unit size is the same. This allows those looking to save money to sacrifice convenience while allowing those who value convenience and security to pay more.
While the concept of customer value based pricing for storage units is relatively new, the model has been successfully implemented across many industries, such as the airline industry. When you’re booking a flight, for example, you generally have three options: economy, business, and first-class.
As you move up the tiers, pricing goes up but so does value. So, at the lowest economy tier, you pay the least amount of money but receive the narrowest seats with little legroom, you cannot choose your seat, and you cannot check luggage. At the business tier, considered a “happy medium,” seats are wider with more legroom and you’re able to choose your seat and check a bag. Finally, at the first-class level, you pay the most but get a wide, lie-flat luxury seat of your choice, checked luggage, in-flight entertainment, and a meal.
The big takeaway is that value based pricing empowers customers. It allows them to put a price on what they value. Remember, just because you prioritize an amenity due to cost or perceived value doesn't mean customers do as well.
An Example of Self Storage Value Based Pricing
Mark Helm, the author of Creating Wealth Through Self Storage, presents a good example of how to put value-based pricing to work at any self storage facility (he also uses airlines as an example!). Check it out:
…Let’s say your 10x10’s are $90. The Manager may say something like “Yes, our 10x10’s are $90. Let me show you one.”
Then on the way to the unit, the Manager may say something like “Here is a 10x10 that is one of our premium units. It costs a little more than what I am going to show you because of its ease of access.” Or they can say it’s “because you can drive right up to it,” or whatever the reason its location makes it premium. “If you are interested in upgrading, this unit is available, but let me show you your unit.”
Think of being at the gate of an airport about to board a crowded plane for a 4-hour flight and you can upgrade to first class for an additional $50. Would you do it? I would do it every time. My wife would never do it. She would downgrade if possible.
This example clearly demonstrates how value-based pricing puts the customer in control, allowing them to spend more or less depending on what they value in a self storage unit.
7 Benefits of Value Based Pricing
Value-based pricing offers many benefits you may not have considered. Here are seven ways this pricing strategy can improve your self storage business.
1. Satisfy a diverse customer base
With value based pricing, renters who are price-sensitive can choose the standard or “good” option, while those who want a more upscale choice and will pay more for location, security, RV and boat storage, or climate control, for example, can choose the premium or “best” option. Others can take the happy medium route and go with the best value or “better” option.
2. Easy upselling
When price increases between tiers are relatively minimal, upselling becomes easier. It’s just like when you order a small drink and are offered a medium for 25 cents more – why not? (of course, in self storage, a tier jump will be much more than 25 cents!).
3. Increased revenue
This goes hand-in-hand with upselling. When a prospective tenant can easily see that they can have the best of all choices for just a small increase in spending, they’ll be encouraged to go for the top tier, increasing your revenue.
4. Less discounting
Many self storage facilities must offer one-off discounts and special offers to reel in new customers. However, with a tiered pricing strategy, anyone who wishes to pay less can clearly do so or they can downgrade rather than move out of the facility if money gets tight. In addition, if inventory is limited at the tier the customer wants, he or she will feel more urgency to complete the transaction.
5. Differentiation from competitors
If competitors haven’t embraced value based pricing and their online rental system only displays one price based on unit size regardless of features and benefits, you’ll be at an advantage. That’s because, of course, people like to have options.
6. Less hard selling
Instead of managers simply acting as salespeople, selling units at one set price and then raising rates strategically (which can result in move-outs), value based pricing turns them into problem solvers. They can advise prospective renters on their best rental option based on their needs and financial situation. This improves the customer experience which is critical for acquiring positive online reviews, long-term tenants, and good word of mouth.
7. Easier online renting
Self storage owners can present their tiered pricing structure and what features are available at each level on their website. A 3D map showing each unit size and location, with different colors for each tier, makes it easy for visitors to understand the layout and tier benefits, make a decision, and convert online rather than having to tour the facility. Pricing can also be dynamic, allowing owners or managers to easily adjust them based on occupancy rates and/or demand.
Implementing Value Pricing for Self Storage
If you’re building or buying a self storage facility, you’ll still want to begin with a self storage feasibility study conducted by a self storage consultant. This will include an analysis of the competition and compare self storage rental rates so you understand their storage rental pricing, cost structure, and amenities.
If you’re already running a self storage facility and are simply thinking of implementing a value pricing strategy, here are the steps you should take when moving to a value-based pricing strategy.
- Conduct market research about competitors' self storage rental prices and how they cost out their features. After all, things may have changed since the initial feasibility study.
- Organize and price your unit sizes, location, amenities, and so on.
- Grandfather in existing tenants (this may be a necessity depending on the contract), or set a date that the new pricing structure will go into effect and let them know their new rental fee based on the newly created tiers.
- Highlight the tiered pricing structure on your website and consider including a 3D map that shows each size and location, with units displayed in different colors based on their tier. Allow visitors to the site to rent directly from the map and create filters for value-add features (much like you would find on a hotel room reservation page).
- Train managers and employees on the new tiered pricing structure and on how to upsell new tenants to higher tier levels. You want them to be salespeople and problem solvers.
Learn More About Storage Unit Pricing with Storelocal Consulting
Like what you read here? If you’re new to Storelocal, there’s more where that came from! We are a community of independent self-storage owners and operators who have come together to increase our competitive advantage in the marketplace, leveraging new and existing resources to lower our operational costs and increase profits! As a member or prospective member, you can also gain valuable insights through Storelocal Consulting. Whether you are a new self-storage owner or are considering buying, selling, or expanding your facility, we want to help.
