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The Pricing Psychology of Setting Rents

Apartment Marketing Leasing
November 2017

Leverage the power of consumer psychology to convert leads, grow revenue and create satisfied customers.

When it comes to deciding whether the price of an apartment is agreeable, prospects aren’t exactly Vulcans.       

Rather than making their leasing decisions through a sentiment-free, methodical assessment of reams of data, most apartment shoppers – like consumers everywhere – are fueled by emotion and the desire for shortcuts. Understandably, they want to feel like they’re getting a deal, but they also want to arrive at this conclusion quickly without having to sift through gobs of information.

At OPTIMIZE2017, Rainmaker’s annual user conference, a session explored the psychology behind consumer behavior and how apartment companies can calibrate their marketing, pricing and leasing tactics accordingly. In that session, several concepts underpinning consumers’ quirky or irrational purchasing behavior were explored.

First and foremost: The human brain tends to make judgments based on contrasts. Meaning when they decide to spend money, they need to feel they are getting a good deal based on estimates of what the price of something normally is or should be. Secondly, through the process of anchoring, consumers unwittingly allow a number – even one that seemingly is unrelated to the transaction at hand – to influence their buying decisions.

With that as background, here are five ways operators can achieve optimal results by leveraging apartment shoppers’ purchasing behaviors. It’s important to note that the tips outlined below still result in outcomes that customers justifiably perceive to be perfectly fair.

Ask for More Than You Intend to Get. 

A reference price is one that forms a starting point in the minds of buyers. Regardless of how it is derived, consumers want to achieve a better outcome compared to this price and, in fact, are especially averse to an outcome that is unfavorable to this starting point. Consumers want to feel that their purchases are in what’s called the “gain domain” instead of the “loss domain.”

With that in mind, consider setting an artificially high asking (reference) price, knowing that ultimately prospective residents will be offered a rent lower than that. Operators often will create a reference price that is perfectly acceptable and consistent with what the market will bear. But why not be a little aggressive? Through anchoring, the ultimate offer will still allow prospects to feel they’re in the gain domain, because they will be paying less than the reference price. 

Be Descriptive and Quote the Price Last.

To help set a high reference price in prospects’ minds, give them plenty of appealing details about the apartment in either the online description or when talking to them onsite. Consider the following hypothetical ILS summary of a New York apartment:

“Apartment A is 716 square feet and located on the 20th floor. Lots of features and upgrades. $3,000.”

Now read this one:

“Apartment A soars 20 stories above Manhattan’s trendy West Side, with dramatic views of Midtown Manhattan, the Empire State Building, and the Hudson River through double-paned, wraparound, floor-to-ceiling windows. 716 square feet of generous living space includes a large foyer and a kitchen featuring white granite countertops, sparkling white General Electric appliances, a built-in microwave and custom maple wood cabinetry. As an added bonus, this apartment has a washer and dryer right in the unit! Now renting for $3,000.”

The second example is much more likely to create a higher reference price than $3,000 in the prospect's mind. And then, hopefully, when a prospect sees the unit can be leased for “only” $3,000, he or she will feel the price is a relative bargain. 

Use Competitors’ Prices When Pursuing Renewals. 

Price increases at renewals definitely present challenges. The renewal process starts by putting the resident in the dreaded loss domain because you’re asking them to pay a higher rent than the one they’ve been paying for the past year. 

But an operator can change the frame of reference by looking at its competitors and going back to the resident and saying, “Well, here’s a comparable apartment that is actually going to be priced 5 percent more than your renewal offer.”

That is a way to influence the reference price upward a little bit and try to get the resident, as much as the leasing professional can, away from thinking about the previous price of their apartment.

Don’t Charge Separately for Community Amenities. 

Charging residents separately for community amenities through move-in fees puts residents and prospects in the loss domain, much the way that discount airlines do. Travelers often are thrilled with the cheap price of a discount airline’s ticket only to realize they will be paying much more than they initially thought when all the fees for checked bags, carry-on items and other added services. Charging separately for amenities would have much the same effect on prospects and residents, who would certainly not welcome these expenses after forking over their monthly rent.

Create a Positive Purchase Context.

Make the community’s leasing office and lobby as clean, attractive and stylish as possible. When these areas make a strong, positive impression on prospects, it can raise their reference price for an apartment before they even see it – and better position the community to put the prospects in the gain domain through the offer.
To further create that positive context, consider using leasing teams and even maintenance team members. Are they as professional as possible and making those positive lasting first impressions? Everything from attire and eye contact to knowledge and friendliness – be sure they are making every prospect interaction one that will help create even more positive purchase context.

Dan Skodol, Vice President Revenue Analytics at The Rainmaker Group.