What's your special? It is one of the first questions the prospect asks. What's your answer? Consumers are conditioned to look for 'deals' in every aspect of life. They can go online and get discounted airline tickets, vacation rentals and hotel deals. Cars are notoriously negotiated--so much so that some people car shop for sport, with buyers walking away if the deal they receive is not sweet enough. And, by the time this article prints, summer clothes will have been discounted several times in department stores and perhaps some fall items will be on sale already. From grocery store coupons to free cell phone minutes to the standard pitch of 'buy one, get one free' the consumer rules!
Not surprisingly, 'deals' are what prospects ask about first. Unfortunately, the unpleasant surprise is that many onsite sales people begin the leasing presentation by selling the special rather than selling the apartment homes.
With markets being soft over much of the country, prospects are pushing for concessions. Pressure from owners has property managers focused on occupancy percentages to the point that discounts and free rents appear to be the solution.
Softer markets create plenty of options for prospects. They have many available apartment residences from which to choose and low interest rates are making single-family homes an attractive alternative. As a result, prospects are looking a lot longer and at a lot more communities during the decision-making process. The days of closing on the first visit are long gone.
Rather than changing selling habits to meet the change in buying habits, the apartment industry has turned to marketing free rent in order to close. This not only devalues the product, it creates a bad cycle. Often there are no more leases being signed than there would have been otherwise, and certainly the discounts do not result in a greater number of renewals. In fact, higher concessions have a correlation with higher turnover--the person looking for the best deal often moves on to the next deal.
Instead of falling into the trap of giving free rent to stay competitive--change your methods!
Free Rent Is Anything But Cheap
Property Managers must keep in mind that the key is not just occupancy, but that it is all about income. Years ago I worked with a team of Regional Property Managers who compared traffic and occupancy statistics on a weekly basis. Over time, one regional manager always came out on top, regardless of seasonality, regardless of shifts in the economy.
Unfortunately, even though he always had the highest occupancy, his region's income fell from quarter to quarter and year to year. His focus was so occupancy-driven that he would do whatever it took to stay full, including giving greater discounts than the rest of the market.
He was always above market occupancy, but boy, did he drop the ball on income. As a fiduciary to the owners of the asset, he was focusing on the wrong thing and penalizing both the income and the value of the property.
It Gets Worse
The bad effect on income does not stop with new rentals. When concessions are offered to the public, consider that existing residents are aware of the free rent being offered to the folks who walk in off the street. They, too, are becoming more savvy about negotiating free rent and other concessions into their renewals.
If the management company forces the old line of not offering specials to existing customers, the good, reliable, rent-paying 'old' customers will be frustrated and the risk of turnover increased. So, if free rent is given to prospects, further damage is caused to the income stream by having to give concessions to current residents at renewal.
In a recent study performed for a client, occupancy is higher than the same level a year ago, but income is lower due to concession loss.
Can We Stop the Madness?
Some very successful firms do not offer concessions and do not appear to be threatened by new competition, even a copy-cat competitor. For example, when was the last time Starbucks offered a Buy-One-Get-One-Free mocha? When was the last time Disney reduced rates at their theme park gates? What about a discount on Microsoft XP software? Schwinn bicycles? Have those firms issued any apologies?
1. Well-Trained Staff. Starbucks and Disney have excellent training programs for staff at every level and their employees do not ever interact with a customer until they achieve a level of competency with the product and its uniqueness. The result: Enough confidence on the staff's part that they don't spend a second apologizing for price. So train until every leasing person on a team totally believes in the value of the product being marketed.
2. Teach Value. Sell what IS special rather than selling THE special. Train leasing teams on selling what is distinctive about the apartment homes, community and services, rather than concessions. It may seem easier to sell the special, but that results in a price war in which no one really comes out the winner. No two apartment communities are alike, and marketing the special takes away from what truly is special about a community.
All leasing team members should focus on what is unique about the community and apartment homes they manage, and should sell what sets them apart. At times, the community's distinction may be how clean an apartment is and how crisp the grounds are. But that is enough.
Jennifer Nevitt, an esteemed industry colleague, once positioned an apartment as 'So Clean You Could Eat a Jelly Donut Off The Floor!'
If a property is vanilla and nondescript, get creative. Differentiate it. Be distinctive. Every asset has its unique selling proposition. Take the leasing team and find it--it may actually be the wonderful team itself. Whatever it is, identify it and then capitalize on it. Create value by positioning the community where it needs to be. Make sure the unique qualities are presented in every prospect encounter, every ad and every marketing piece.
3. Teach Tools. Give leasing professionals tools. When someone walks in the door and says, 'What's Your Special,' again, what response is given? When the phone conversation starts, make sure team members are ready to respond with a definite answer that gives them confidence. Try something like:
* 'We've worked hard to make sure our rates are fair and in line so we don't have to confuse you with specials that make it hard to tell what you're really paying. So what size apartment home are you looking for? I'm sure we can find something within your budget!'
* 'Our rates and specials for our apartment homes vary based on availability. Can you tell me what size you're looking for and when you plan to move? (Once they identify floor plan size and date, SELL!) So you're looking for a -- bedroom home around the end of the month. I can help you with that ... (Begin asking relationship building questions!)'
* 'Do you have a budgeted figure in mind that you're trying to stay within?'
* 'Our rate on the -- floor plan starts at $--, and is a great deal, and includes -- and --. If you compare our prices with what you might find on special, we come out ahead when you consider all we offer.'
Team members might come up with even better responses once they get thinking. At a staff meeting have the entire team work together to come up with definitive answers that they can firmly and confidently give to prospects. One suggestion is to use a wipe erase board or the Post-It Flip Chart paper stuck on a wall that serves as a big visual of what their answers are as they brainstorm solutions. Then, give them a written reminder of the 'standard' responses till they become automatic.
4. Rehearse! Help staff work through these 'lines' with effective and fun role-playing. Call it a 'special' dress rehearsal where weekly (or daily in this competitive time) the team rehearses the phone conversations and site visit scenarios. Give a visual cue to reinforce the responses that are most effective in overcoming the requests for specials. It can be as simple as a typed version of the 'standard response' taped under the phone receiver. And after rehearsing, listen to the leasing team during actual phone conversations and showings and reinforce their successes and coach them a little more if necessary.
5. Reward Good Behavior. The regional manager referred to earlier in this article with the high occupancies paid bonuses based on each lease in order to achieve high occupancy while his owner's income declined day by day. The owner's interests would have been served better by a bonus program that rewarded leases that did not have concessions. Or, what about a bonus system that was based on income improvements rather than occupancy improvements? Make sure the bonus structure looks out for the best interests of the owners.
6. Concessions. What can you do besides give away rent? What can we sell instead of concessions? What can we give instead? At Sales & Marketing Magic's Brainstorming Conference last fall, apartment professionals from all over the country worked to solve problems such as how to avoid the concession pitfall. One of the many creative solutions developed at the conference was to offer upgrades (yes, we've all heard that), but with a unique marketing motif that positions the asset to appeal to the renters' individuality. The program gives the leasing team a way of adding value to the apartment home, rather than discounting its value.
Awards programs are another alternative to concessions. Giving vacations and other rewards requires a cash outlay, but can be an incentive to attract residents. Cornerstone recently offered a drawing for use of a Jeep for a year, and is currently offering a contest to win $100,000 from a drawing as a rental incentive.
If All Else Fails ...
Unfortunately, in a market that is giving two to six months free rent, a concession of some sort might be the only recourse. If offering discounts is absolutely necessary, do not be the leader. Train people to sell the apartment home and community first, and offer an incentive (consistently, keeping in mind fair housing) at the end of the transaction, not in the beginning.
An incentive is different from a concession or discount, which devalues the asset. An incentive (not just semantics) is defined as something that 'induces action, motivates and incites the passions.' Now that's what we want when someone comes in to lease.
Remember: an incentive can be something other than free rent. Perhaps it is maid service for the length of the lease, cable and Internet services at no additional charge or some other added value.
This spring, a very skilled property manager lobbied me heavily for concessions where literally every property in the submarket was giving something away--everything from one month free to a big discount off the monthly rate for the length of the lease. We decided to stick to our rents, hold fast to our qualifying criteria and show off our product. Some of the comparables are newer, but having recently shopped them all, we knew ours was the only one with all the details being 'white glove' perfect.
The property manager (Martha) met with the next prospect, who was very interested and began the 'what's your special' process. Martha surprised even herself by selling the fact that no other apartment they looked at would be as well cared for, and that was a sample of how we'd take care of them after they moved in. Guess what? That person leased on the spot. And that success was a confidence-builder for the whole team.
Consumers may be on the look for deals, but please remember to look out for the interests of the property and its owners. Maximizing income by minimizing concessions is a critical component of how that is done. The behavior of the customer cannot be changed, but our own behavior can.
Mary Gwyn, CPM, is a speaker, trainer and consultant. Her firm, Apartment Dynamics, High Point, N.C., builds value for the most dynamic firms in the country through marketing and management solutions and team development strategies. She can be reached at 336/884-8845 or e-mail MGwyn@AptDynamics.com.
