Senior Living Business: CCRC Pricing Strategies: Observations & Ideas
...And Did You Ever Consider Giving Away Your Product For Free?
Providers understand that they can’t simply apply a progressive increase to their pricing each year. Rather, they actively consider what the market will bear, including local real estate values, as their baseline. But it’s a lack of willingness to take action that sometimes causes problems, according to Mary McMullin, President of New Life Management & Development in La Canada, California. “People are slow to change their pricing, because they feel it diminishes their value,” she said. “But my question to them is: Is their product still strong enough to charge the premium price that it once commanded?”
McMullin strongly recommends re-pricing—rolling prices back—rather than offering short-term pricing incentives, although a lot of providers have recently been throwing incentives at the market to see what might stick. First of all, an incentive needs to be large—offering a $2,000 or $5,000 discount won’t make a difference to most buyers. And it must be meaningful—relevant to what people in that area want. Do they want help with closing costs on the sale of their house? Do they want moving assistance? What will get people in the door faster?
Most importantly, any incentive must be limited. It has to end at a date certain. Once the incentive has expired, one of the hardest things for sales teams to do—because they don’t want to give up a sale—is to tell customers that they can’t get the benefit anymore. “But they must,” she said. “Otherwise, the incentive loses all meaning.”
Assess the competition
When setting prices—or re-pricing—it’s always important to assess your competition. Providers should break down and compare a competitor’s price by square foot, of course, but then be sure to review the comparable amenities, the type of health-care contract(s) provided, and any recent renovations to the property. A community that provides full life care, for example, won’t (and shouldn’t) be in the same price range as one that offers fee-for-service health care. The entrance fee may be the same, but the monthly fee for a life-care community certainly should be higher.
McMullin also advises providers to look at which types of units the competition is selling, as well as the quality of those units, to gauge what the market is willing to pay and for what type of unit. Then you can either adjust your price or decide that you won’t; but at least you’ll base your decision on knowledge. “Too often I see providers simply compare entrance fees and decide they need to adjust their price,” she said. “But when they really look into it, they find that they have a different refund program or a different health-care contract or have recently renovated. You really have to compare each element.”
A cost-of-vacancy calculator can determine how much in monthly fees a provider is losing on vacant units. The loss will depend on the maturity of the community. Older communities may be losing monthly fees, which are their bread and butter. Newer communities may be foregoing entrance fees, because the price is too high or units need renovating and, as a result, stay empty month after month. In either case, real money is being lost...Want to read more? Click here for a free trial to Senior Living Business and download the current issue today