How to Win Big in a Downturn with Revenue Management

Watching pricing performance since the downturn started and reflecting on all the things we’ve done with our clients over the past three months reminds me of a key lesson I learned about pricing and revenue management (PRM) in the 2002-03 and 2008-09 recessions. The opportunity to outperform competitors with PRM is actually GREATER in a downturn than in growth conditions.

That may sound a bit odd until you consider a few realities of PRM and recessions. For example, we should recognize the psychological bias that PRM systems are there to help increase rents. In reality, they exist to maximize rental revenue. Most of the time, that means controlling the pace of rent increase, but there are times when maximizing revenue means lowering rents to grow or protect occupancy. Not surprisingly, a recession is one of those times.
“Outperformance” does not necessarily mean sequential growth. My experience from the two past recessions was that LRO helped our sequential reduction in rent to be materially lower than the competition. We outperformed the competition, but it didn’t feel good because revenue was still down. Growing revenue by 4% when comps are up 3% feels great while reducing revenue by 2% when comps are down 4% doesn’t feel all that good, even though the latter is outperforming comps by an extra 100bps!
When PRM Systems Come Into Their Own
Since the current downturn started, on this blog, we’ve counseled system users not to blindly “trust the system” as they manage through unusual market conditions. It’s critical to understand how the ……