Transcript Value Propositions and Markteting 10 23 12

Economic Value Propositions and
Marketing Strategy
Reginald M. Hislop, III Ph.D.
Larksfield Place Retirement Communities
The Value Proposition
 All non-essential consumption is psychological and financial
 Value is a function of getting (perceived or real) equal or
higher utility (benefit) from the product purchased at a price
that the consumer feels is equal to or less than the utility
received.
 Pricing then must “maximize” the value proposition for the
consumer. There must be some direct, tangible correlation
to the utility received and this correlation should be pricing
that is equal to or lower than the demonstrated utility
(benefit).
Senior Housing Value Proposition
 Real estate is the least tangible value today – the demand for
space is very elastic. Newer, nicer space does not equate to
greater utility (benefit) for the customer
 While “need” on the part of the senior for different
accommodations exists, the need can be met via many
alternatives at different prices
 Value is both current and future as utility (benefit) may
increase (should) over time. The sale may be current and the
benefit is extracted over-time.
Economic Value
 Tangible and Intangibles are Key – Real Quantified and
Emotional/Psychological
 The Relative Weight between Tangible and Intangible is
Product/Service Specific (e.g., homes, automobiles,
insurance).
 Consumer Psychology, Sociologic Factors,
Financial/Economic Factors Influence Purchase Decisions
 The Greater the Elasticity of Demand, the More Weight
Consumers will Give to Non-Financial/Non-Economic
Factors.
Price and Demand
Elastic Demand
Inelastic Demand
Principle of Elasticity
 Adequate to surplus supply of comparable products at
various price points = Elasticity
 Stable to limited supply of a product with alternative or
replacement products priced higher = Inelasticity
 With elasticity, when prices for a given product rise or
remain stable compared to prices for comparable products
falling, demand for one product shifts to the lower
priced/lower cost option.
 Demand can be impacted even when prices remain stable if
the financial condition of the consumer changes – consumer
shifts to lower cost alternatives
Buyer Psychology and Consumer
Confidence
 Consumption is a function of demand for a particular good
or service that is available in sufficient supply at a price that
the consumer is willing and able to pay
 Consumer confidence is all about the willingness and the
ability (real and perceived) of consumers to purchase goods
and services – how one feels about spending one’s resources
on (typically) non-essential (food, gas, etc.) items.
 For Certain Services, Consumption is driven by need and
demand becomes more inelastic as psychology of
Consumption shifts to need satisfaction.
Regional and Local Economies
 While national economic news dominates the airwaves, real
estate is truly locally and regionally dominated
 What is true in some locations is not true universally
 In current recessionary period, some regions/locations
performed better while others fared miserably (Southwest,
Las Vegas, etc.)
 Regions and locations that performed better evidence less
employment volatility, more government/institutional
employment, a broader supply of moderate priced housing,
less speculative development/new construction
Government Policy
 To sustain mortgage liquidity, the federal government and the
Federal Reserve have maintained Fannie Mae and Freddie Mac
intact – the primary buyers for mortgages
 The Federal Reserve has continued to buy Treasury securities as a
means of maintaining capital market stability and price stability –
key as mortgage rates are tied proportionately to Treasury yields
 Tried, and failed, to stimulate residential real estate demand by
first time buyer tax credits – bumped the market temporarily
 Key issue for future policy: Job creation, tax rates, confidence in
continuing favorable lending/borrowing environment (Fed
Reserve)
Credit and Banking Dynamics
 Interest rates are currently favorable
 Terms and conditions have tightened due to defaults and
federal policy changes – regulations now require more
verifications and credit requirements from borrowers
 Market for mortgage-backed securities very lackluster requires more banks to originate and “hold” their mortgages
or sell to the Government (Fannie and Freddie)
 Fewer overall lenders – less competition, less product
 Tighter appraisal requirements and erosion of higher level
market comparables – price/value compression
National Economic Trends
 High unemployment and limited wage inflation
 Continued investment market volatility and overall wealth
reduction for Seniors – value losses will not be recapped in
their lifetime.
 New banking and financial sector regulations
 Uncertainty regarding tax rates and tax policy
 Large and growing amounts of cash “sitting” awaiting a
change in investment climate
 Global market insecurity and volatility – impacts U.S. in
terms of trade, currency, investment
Demand for Senior Housing and
Elasticity
 Demand for housing in general, is fairly constant.
Influencers of demand include;
 Location
 Price
 Type (single, congregate, etc.)
 Supply is stable to growing. Today, supply of available units
for housing is greater than demand.
 Economic Axiom: Supply exceeds demand, prices fall in
order to increase consumption. With housing, cycles for
absorption (consumption) are longer – can’t efficiently
reduce inventory.
Elasticity and Senior Housing
 Many alternatives exist at different price points
 Remain at home
 Smaller home or condo
 Rental
 Add services to complement remaining at home
 Move-in with relatives
 Supply of senior “housing” units in most areas is adequate to
surplus with the exception of moderate to low income
housing.
 Supply of senior housing units tends to exist at price points
equal to or above the median market cost/price of
alternatives.
Developing an Economic Value
Proposition: Step 1, Pricing
Your Facility
Monthly
EXTRAS:
Utilities
Food
Maintenance
Insurance
Taxes
Other
TOTAL:
Single Family
Rental
Competition
Step 1, Pricing; cont’d.
Your Facility
Entrance Fee per
Month Impact
Cost to Move
OTHER:
Security Deposit
Decorating
Other
Incentives/Offset
Fee Inflation
TOTAL:
Single Family
Rental
Competition
Pricing, Conclusion ?
 Totals from both pages creates the Price component for
Demand/Consumption. This value is critical going forward.
 How does price compare to the market alternatives?
Favorable? Unfavorable?
 Can price be changed to mitigate the discrepancy?
 What other factors need consideration in each alternative?
 Can these other factors be quantified? If so, how?
 Can price be positioned as a competitive advantage, even if it
is high?
Refine and Re-Define
Your Facility
TOTALS:
ADD(LESS):
Security
Social
Care/Health
Transport
Etc.
Single Family
Rental
Competition
Value Proposition: Step Two
 Analyze the wealth profile of your target market. What is
the economic condition of your target market? What is it for
your target consumer? What has changed in the past two or
so years for this market and consumer?
 Analyze the economy in your target market and vicinity.
What is employment? What is happening to real estate
values? What are rental occupancies like? What are taxes
doing? What about utility costs? Dig sufficiently deep!
 Qualify the economic conditions of your current
customers. No need to be intrusive but how are they doing?
How do they feel about your pricing/value proposition and
their financial condition?
Strategic Pricing
 Critically analyze the data!
 Holding your pricing and value proposition as the constant, how
does your product compare? Where is your target consumer,
market and vicinity at economically? Do you offer a greater
benefit in terms of the market?
 Objectify your analysis. Weight the values based on the
information received from your current consumer and the
options available. For example, the greatest weight today
should be given to a senior remaining at home and acquiring
needed services “ala carte”. How does your product compare?
How do your current customers compare to that scenario?
Value Proposition: Step Three
 Using price as a baseline, begin to build value by addressing
the non-financial elements.
 Examples of non-financial elements are;
 Security
 Convenience
 Activity
 Socialization
 Religion
 Culture
 Other
Value Proposition: Step Four
 Integration of Price and Non-Financial Components.
 Weight to non-financial is given based on your identified
current customer values – quantify!
 Compare! Where is the current market and what influence
weighs heaviest.
 Price
 Non-financial
 Identify opportunities for improvement!
 Pricing
 Services/Other
Value Proposition: Build It!
Your
Community
Price per month
Inclusions
Non-Financial
Factors
*Location
*Security
*Activity
* Religion
Closest
Competitor
Freestanding
Home
Other
Rental
Yikes! We Don’t Stack-Up Well
 Marketing: If after the analysis your options fall in the
middle to lower middle range of the universe of all other
options, re-tool your marketing and sales approach to
communicate the value proposition. Sell the price/utility
advantages that you have!
 De-Aggregate Your Pricing: If you price is too high, is it
possible to reduce the price by removing some features or
amenities, providing them on an ala carte or preferred
customer basis?
 Enhance Value: Add benefits or features within the existing
price framework or on an incremental basis where more is
perceived as a bargain.
Yikes!, cont’d.
 Re-Allocate Prices: Subsidize your margin levels by
increasing prices on “scarce” or “in-demand” units thereby
lower prices or improving value on less sought after units.
 Price Options: Consider developing pre-pay or finance
options, especially where entry fees are concerned.
 Flatten the Increases: Using simple funding equations, it
is possible to flatten increases or limit the impact to no more
than “X%” per year.
 Entry Fee Alignment: Change the allocation of refund
provisions, monthly fees and entry level rates to create
different “customer” focused entry fees.
Yikes!, cont’d.
 Bundle/Unbundle: By bundling or unbundling care
services, guarantees of care, other services (meals, etc.), you
can create customized packages that target market segments.
 Others: I am less enamored with these as they are too
gimmicky and less permanent but, they are worth discussing.
Free Rent Free Cable
Free Trips
Free Stuff (televisions, appliances, etc.)
Unit Upgrades
Free Moving Services
Free Decorator Services
Custom Unit Finishes
 Why?: One time events such as above don’t change the value
proposition and often, are viewed as substantiation for higher
prices.
Marketing: Using Your Value
Proposition
 Sell strengths, downplay weaknesses (or fix them if you can).
 Four major components of Communication!
 Oral
 Written
 Web
 Other Media
 Craft for each audience!
 Direct consumer
 Influencer
 Staff
Conclusion
 The demand for senior housing is very elastic
 The economy and especially the residential real estate
economy has a profound impact on the current and future
outlook for senior housing demand
 Consumption is a function of creating a solid value
proposition for your product – aligned with market
economics, price vs. demand against the available supply, and
the range of options available to the customer.
 Strategic Pricing is about creating the best value
proposition for your target market, positioned against the
range of alternative products – customers receive more
utility than they pay for!