UL: Please tell us more about yourself and your company, Prorize.
The science of pricing and the application of revenue management has been a constant passion and focus throughout my career. After graduating from Texas A&M University with a Ph.D. in industrial engineering, I joined a pricing and revenue management company called Talus (now Blue Yonder). There, I was fortunate to have the opportunity to pioneer some of the first revenue management systems of their kind for the airline, hotel, gaming, media, and apartment industries. After Talus, I joined Zilliant as chief pricing scientist, creating new price optimization solutions from scratch. I also taught graduate-level classes in revenue management at the University of Texas at Austin and the Indian School of Business. In 2006, I left all this behind to start my revenue management firm – Prorize.
Pricing is complicated and multi-faceted. Markets are very dynamic. Many companies do not know what to do when their competitor changes prices or when demand is down. They often overreact or do nothing and miss revenue opportunities. For example, in the self-storage industry, companies tend to drop rates across the board if the prices are high and occupancy is low. How to react to changing market conditions can be a guessing game without the proper inputs.
We use data, science, and facts to ensure that our customers don‘t overreact to changes in the market. We provide detailed information, demand forecasts, and rent recommendations to give them confidence in their pricing strategy. They can either manually approve the changes or set up rules for automatic approval. Our clients typically see a minimum of 10 percent additional revenue growth and improved efficiencies using our platform.
In 2017 we won the Franz Edelman Award, a prestigious international Data Science award previously won by the United Nations, Intel, UPS, Hewlett-Packard, and General Motors, among others. We won for our work with senior living and self-storage revenue management platforms. To date, we are the only revenue management company ever to win this award, and we are very proud of this achievement.
UL: What is the source of the data you use for your forecasts and models?
We use multiple data sources. First, clients provide their historical unit, rental, and promotional data. Some use third-party management software, and we have an automated 180-degree integration set up with most of them. Other customers have proprietary internal systems that we use to source data. If there are any data gaps or issues, we work with our customers to understand them and find solutions.
We also obtain competitive data through web scraping. One of our partners, StorTrack, scrapes competitive rates daily from around the world and feeds them to us automatically through an API interface. We also get demographic data from government sites and from other companies that collect this data. Demographic data matters because demand often depends on location, population, or the type of customer you want to attract. Still, around 90% of our essential data comes from the customer‘s historical data.
UL: Do you typically work on one–off projects or ongoing partnerships?
We don’t work on one–off projects. When customers agree to work with us, we start with a business discovery process by confirming the executives‘ vision and expectations, understanding current and future pricing plans, and evaluating the data and technology environment. Once we have all this information about their business, our scientists take over and configure the system specifically for our client, making the platform accessible in the cloud. This system is optimized daily and connects to the price execution system on the web. Currently, our self-storage platform provides daily rent recommendations to over three dozen major operators in 19 countries across five continents. Our clients have anywhere from 10 to hundreds of stores, so we have a lot of experience and accumulated knowledge on pricing best practices in the self-storage industry.
UL: Can you tell us about the self-storage industry in North America?
It’s a very robust industry in the United States. The exact number of stores is unknown, but about 50 to 60 thousand stores operate around the country. Almost 11% of U.S. households use self-storage, so the awareness in the market is very high. It’s fascinating to see how much demand is out there, typically generated when people move to another city, have a new construction or renovation project, or when there is a natural disaster.
The industry is also recession resilient; when people lose their jobs, they are often displaced or in need of downsizing, which creates demand. The self-storage industry has recently started gaining the attention of major investors.
UL: What about other regions, especially Asia or Japan?
A big difference between Asia and the United States is the lack of negotiation in the U.S. Here, prices are centrally set, and there is hardly any negotiation. In Asia, in places like Singapore, negotiation is an integral part of the market, and people expect a discount. Awareness is also lower internationally when compared to the U.S. market. Some countries in Europe don‘t even have a word for self-storage! The U.S. self-storage market is also a lot more standardized and saturated. Other countries have more growth opportunities simply by adding more facilities. Space can also be an issue. If you look at countries like Japan and Singapore, space is at a premium, and places for new construction are limited. As a result, we‘re seeing a lot of conversions of existing buildings into self-storage facilities. After the U.S., the most mature market for self-storage is Australia, followed by Europe, then Asia. Japan is a little bit different than other countries in Asia.
UL: You mentioned that Japan is different than other countries in Asia. Can you elaborate a little bit on that?
Japan has had a deflationary environment until very recently. Culturally, people are more cautious about raising prices for existing customers unless they have a good reason to do so. To my knowledge, prices are also not negotiated as much in Japan as elsewhere in Asia.
UL: Do you have general advice for self-storage operators on how to approach their pricing strategy?
We are in 19 different countries, and what we see, on average, is that 50% of customers move out within six months. It varies by market, and in some markets, this can go to eight months, but the fact is that half of your customers will move out in a short period. In truth, 20 to 30% of your customers will move out within three months. So, first, be careful with what discount you give up-front. If you provide too much to increase demand, you may find yourself sitting on the cost when those customers move out early.
Customers who stay more than six to eight months are getting value from the services you provide. They are indicating that they need your services; otherwise, they wouldn’t keep using them. If somebody’s getting value from your services, this is an opportunity to monetize. Do not be afraid to increase existing customer prices periodically. In today‘s inflationary environment, people have come to expect higher prices – a unique opportunity.
Another piece of advice is simple; understand your product. Not every unit is the same. Say, for example, you have a 3–square–meter unit: It can be close to the main gate or far away and up a flight of stairs. Those units have different values. Differentiate your products through pricing. Some operators only use price differentiation for unit size; as a result, their best units sell out fast, and they are stuck with the less desirable ones going unrented. Customers have different price sensitivities. Use it as a tool for the salesperson to say: ‘Look, this is a ground floor, drive-up unit; it is more expensive. Take one on the second floor if you want a cheaper unit.’
Finally, I recommend that operators display prices on their company‘s website. Many would be reluctant to do this because the competition would see it. Yet, the market is changing. Millennials, and Gen Z, don‘t want to pick up a phone and call to ask about the price. We observe an increase in demand and conversion rates after operators start displaying rates on the website. You don‘t have to show everything, but your website should have some price information. In the early 2000s, I had a similar conversation with one of the largest apartment chains in the United States. At first, the client was very hesitant to be one of the first to display the apartment rental rates online. In the end, they did so, to great results. Today, every major apartment operator in the U.S. shows their rates online. You can also reserve apartments online without seeing them in person.
Not long ago, no one would have believed this could happen, but the world is changing and becoming more digital. Pricing is no different; it is simply a part of the more significant trend toward digitalization. You‘ve got to show pricing on your website. This will improve demand and conversions, especially if you have the right pricing algorithms to adapt to the constantly changing market conditions.
UL: To wrap up, what are your plans for 2023 and beyond?
We are growing very fast. Our goal is to become the starting point for pricing and revenue management for the self-storage industry. We’re constantly improving our solution, capitalizing on the latest advances in artificial intelligence, machine learning, and forecasting. We believe that the ability to forecast demand is critical for pricing. We want to continue growing in the self-storage industry and look forward to expanding our footprint into other rental sectors, such as apartments and senior housing. Our long–term vision is to be the leading pricing solution provider for the rental industry.