Retention marketing and profit optimization: three strategies of success.(Conference notes)

Resident satisfaction and renewals may play a larger role than many apartment professionals know in building a successful revenue management program.

While the financial benefits of revenue management strategies have been widely discussed, the relationship between resident satisfaction, data collection and pricing strategies is less understood.

At this year's Apartment Internet Marketing Conference, three industry experts shared perspectives on the important role renewals play in maximizing income.

Retain What You Have

The economic downturn elevated the importance of revenue management, but it doesn't always come in the form of automated pricing software. Doug Miller, President of SatisFacts Research, views satisfaction levels as an important component of revenue management. "The goal is to have apartments leased at maximum rent levels, which is achievable through superior satisfaction," he says. "The concept of retention has moved up the food chain."

Combined data from SatisFacts and Axiometrics, a leading apartment-research firm, estimates turnover costs at $4,166 per unit. From Miller's perspective, by boosting satisfaction, communities avoid this NOI loss while achieving desired renewal increases because satisfied residents are less likely to resist pricing changes. Based on these estimated turnover costs, a 5,000-unit portfolio that reduces turnover rate by 9 percent can improve NOI by nearly $2 million and asset value by roughly $33 million.

Waterton Residential is one company where the ultimate goal is to deliver customer service that creates value for the residents, according to Greg Lozinak, the company's Chief Operating Officer. But, he says, there needs to be a balance between retention rates and driving rents.

"When you look at customer service and revenue management, they're not intertwined per se; they move in parallel," he says. "If I take really good care of my customer, I'll be able to get greater value for it, whether it is on the retention side in a down market or if we're driving rents in an up market."

Let the Data Speak

Richard Hughes, Vice President of Revenue Management for AMLI Residential, believes apartment companies can use resident data analysis to create models that predict a resident's likelihood of renewal and incorporate those models into their revenue management systems.

Hughes acknowledges data collection in the apartment industry has historically been difficult and often inaccurate, limiting a community's ability to establish best pricing strategies. However, thanks to the improved collection, aggregation and analysis of resident data, the age of empirical marketing is upon the apartment industry.

The easiest way revenue managers can begin to predict renewal intent is to consolidate renewal and profile data (such as a resident's demographic information and transaction history), conduct cohort (group) analyses and correlate the findings. Digging even deeper, a regression model combines all this information to determine how much impact and relevance each variable (such as length of stay, number of adults in unit and demographics) has on a resident's intention to renew.

Hughes shared a "logit" or logistical regression model, "where marketing and pricing come together."

"With a logit model, for any price point for any consumer with mapped ancillary data--demographic, psychographic or transactional--we can tell you the percentage propensity for renewal," Hughes explains. "That's fantastic from a revenue management standpoint because it allows us to create bespoke pricing, where each individual can get their own price."

Using this exceptionally optimization-friendly data, pricing software can determine individual rents for each resident based on unique environmental factors. By combining data in new ways, apartment companies can make their revenue management systems better and more robust.