Managing your self-storage rates are vital for keeping your margins comfortable, but it isn’t all about numbers. Learning about the role of psychology in consumer choices is extremely valuable in choosing where to adjust your pricing, and will help you make your business more enticing to potential customers. That being said, here are some basics in understanding how to use consumer psychology to help your bottom line.
The first and easiest psychological trick is to adjust the actual digits in your pricing. Charm pricing is when you reduce your product’s value so that the price ends in the digit 9. For example, if the actual price of a product is $3.00, change it to $2.99. While this might not seem drastic, studies have shown that consumers will perceive the two prices to be quite different, even when the saving is only one cent. As a result, they will think they are getting a good deal, and will be more inclined to purchase the product. Studies by MIT and the University of Chicago have also shown that when placing the two prices side by side, charm priced items are more effective at converting interest into a purchase, sometimes even outperforming a lower price that ends with a regular digit.
While it’s not known entirely why consumers are attracted to charm pricing, the dominant theory is that the consumer has a perceived gain of getting a good deal. Another theory is that having a number ending with 9 rather than a clean 0 gives a level of specificity that the customer might perceive as the product being accurately priced.
While charm pricing is useful, it isn’t applicable to every product or service. This is especially true if you are offering a premium service. When customers look for a luxury product or service, they often don’t want to feel like they are getting a deal, as it reduces its perceived value. Having your prices be slightly higher than your immediate competitors might seem counter-intuitive, but there are several benefits. Most obviously, it raises your companies profit margins if done right, and it can also increase the brand value of your company. All of this is to say that premium pricing will only work if your product has a unique selling point that (i) separates you from your competitors; and (ii) is worth the higher price .
Concessions and discounts
One extremely common technique to close sales is to offer concessions or discounts to potential renters. Whether these are move-in deals or other discounting, they should be in your arsenal when tackling how to price your rates for customers. Doing this effectively means having well-trained staff that know when to use these offers to entice and when to hold back and save them for further down the line. Another factor is creating governance rules that your staff can follow when considering whether it’s necessary to offer a concession. Coming up with these rules will require you to gather data about when concessions have been offered relative to the unit size. Doing this will allow you to see potential areas where you can increase revenue and which offers are causing a loss in profit.
Reviewing and strategy
As with most aspects of facility management, make sure you constantly review the strategies you have been employing. Check to see if the charm or premium priced items have been helping the bottom line and continue to gather more data about which concessions have the most potential to increase your margins. Looking at the effects of your previous strategy will inform you on what changes to make for the next time and means that you’ll be more effective in increasing profits.
Self-storage pricing and rates are constantly changing due to undercutting from competitors or more businesses entering the market. It’s important that you are aware of the changes in the market, and have it inform your own company’s rates. It takes time to fully understand how to adjust your rates to increase your profits effectively, and there are a variety of factors you need to keep in mind, but by setting and following these best practices, you’ll begin to implement a pricing strategy that can make marked changes in your business and its profitability.
Related Article: How to Handle a Price Increase