Everyone wants to attract more renters in the door.  Is the right strategy to discount rent pricing or to spend more to stimulate awareness and drive traffic? Should we spend more in advertising to get more renters at today’s rent?  Is discounting as effective as changing the presentation of rent and fees?  How do you make any of these choices without information from marketing and yield management data at your fingertips?  Most multifamily companies don’t even have revenue management departments (about 9% do), and many that do keep them carefully isolated from marketing.  As an industry, we’re missing a big revenue opportunity that lodging and other industries have already tapped.

We are delighted that Kevin Geraghty from the digital marketing agency 360i and the author of “Revenue Management & Digital Marketing: Integrating two independent business processes produces marketing magic” has agreed to speak at the Apartment Internet Marketing Conference (AIM).  His experience with deeply integrating marketing with revenue management should provide important strategic guidance for revenue managers who are looking for next steps to increas the value they bring to their companies.

We’ve asked him to present advanced-level case studies from other industries about the integration of trackable digital marketing with revenue management.  Kevin worked a decade ago with our friend Jeffrey Roper (from M|PF Yieldstar) in the auto rental sector, and is now a principal at 360i, a leading digital marketing firm that serves consumer giants.

In his December 2008 article in Operations Research Management Science Today, Geraghty states the problem of having separate revenue management and marketing functions:

“Revenue management is very effective in extracting revenues from strong markets. This often makes up for a key weakness: over-reaction and lack of precision when demand is soft. The response to soft market conditions can be to make price cuts across the board to stimulate demand. In some cases this is appropriate, but in many cases it is extremely expensive. Unlike marketing spend, the impact of price cuts do not show up as explicit expenses. However, price cuts can have a devastating impact on profitability.

When marketing and pricing are integrated, the cost of a price cut is weighed against the cost of driving extra business. In many areas of marketing practice, the level of granularity available to marketers is insufficient to create a clear understanding of the impact a specific investment on tactical pricing and conversion. Direct marketing strategies such as paid search do have the granularity to target specific timeframes and geographical locations to offset the need for price cuts. When this is combined with competitive monitoring, a clear picture emerges of where and when to deploy paid search spend and which products to discount.  By using paid search in tandem with yield management, substantial revenue gains and marketing efficiencies can be realized. “

Last year at AIM, we heard from Kathleen Reidenbach, Vice President of Revenue Management and Distribution from Kimpton Hotels.  Her presentation (video excerpts available) carefully laid out why hotels integrate revenue management with marketing – because they are part of the same process of attracting the right customer and giving the customer the right offer, which may be priced to yield the optimal return.

In lodging, the executive with price information also has demand information and can determine which offers to “distribute” (advertise) in order to get more of the desired traffic.  They drive leads through their low-cost sources first, and then layer on more expensive traffic – if they have statistical support that the investment will yield higher-value customers coming in the door.  In this scenario, advertising is an investment that is justified by higher yield.  Special offers and discounts are structured and distributed knowing the total cost and expected acceptance.  Advertising response rates help to determine pricing.

The ultimate goal is total yield (revenue per available room night) not a heuristic occupancy benchmark.  (I know many people who would rather be 100% occupied with a $1,000,000 rent roll, rather than 95% occupied with a $1,040,000 rent roll.  But that doesn’t make sense to investors who just want their money.)

We believe that operations, marketing and revenue management leaders all can boost their personal and corporate prospects by focusing on the integration of revenue management and marketing.  This will in turn create better-yielding organizations if they treat marketing and pricing as part of a larger whole, under
common leadership.

Please come to the Apartment Internet Marketing Conference in Denver, Colorado April 29-May 1, 2009, we’ll talk more about it there!