While there are different schools of thought on the practice of offering discounts in senior living, many agree it can be a beneficial strategy to increase occupancy in a tough sales environmentโas long as itโs done the right way.
Move-in incentives can make the difference between being 88.6% occupiedโthe national average for senior housing communities in the second quarter of 2012, according to the National Investment Center for the Seniors Housing & Care Industryโor a more favorable 91-92%, says Jim Moore, president of consulting and strategic services firm Moore Diversified Services.
โGenerally, discounting with a plan that makes sense is a very good strategy, as long as you know what youโre doing,โ Moore says, adding that itโs become a widespread practice as the economic uncertainty has made many seniors hesitant to move.
The most common discount offered by senior living providers to prospective residents, he says, is reducing or waiving the move-in fee, which can range anywhere from $2,500 to $5,000. Other communities may offer a discounted rate for the first three months to encourage earlier commitments and move-ins.
But too much discounting can do more harm than good, such as offering across-the-board rate cuts, says Margaret Wylde, the president and founder of Oxford, Miss.-based market research firm Promatura Group.
โIf you drop the rate for the whole community, youโre undermining value of the product and youโre probably still underperforming,โ she says, because even if a community achieves higher occupancy, lowered rates could damage their value proposition and negatively affect performance.
โWhen pricing is low already and youโre discounting even further, it could create a more serious financial challenge before filing more units,โ agrees Moore.
ProMatura analyses have found that communities with the highest performance values arenโt always the ones with the lowest rates. Rather, they have the best-performing sales teams. โFrom my perspective,โ says Wylde, โyou donโt discount rates. You improve your personnel.โ
However, discounts can help boost move-ins, she continues, and the market seems to expect them now because itโs been going on for a few years.
โWe found, like many other operators over the last five years, that our clients are very sophisticated,โ says Greystone Communitiesโ corporate vice president Merna Smith. โThey perceive theyโve lost money in the real estate market, whether itโs a perceived or actual loss. To combat that, we started looking at incentives where it would be a win-win for both [us and them].โ
The key is to offer non-permanent discounts or incentives, says Moore, ranging from reducing or waiving move-in fees, helping incoming residents with their moving costs, or offering tiered pricing discounts depending on commitments and accelerated move-in dates.
โA moving allowance, waiving a fee, or a timeframe price concessionโwith those kinds of incentives, eventually you get back to original pricing,โ he says.
While Greystone does practice waiving that fee at times, says Smith, it can be much more beneficial to offer a tiered Continuing Care Retirement Community (CCRC) entrance fee discount, based on how long it takes prospective residents to commit to move in from the time they initially visited the community for the presentation.
โThe sooner they [commit], the more discount they get, and the sooner they move in is an added discount,โ she says.
However, Smith agrees with Wylde to an extent: offering discounts is not always the answer, and not every community offers them. Those that do, do so judiciously.
โThe caveat is that communities offering incentives need to track those dollars very, very closely,โ says Smith. In Greystone communities, theyโre not offered to everyone. Rather, sales counselors learn about each prospectโs financial situations, and based on those circumstances, theyโre able to tailor offers accordingly.
โEvery marketplace is different. In several, we donโt have to use incentives or tools,โ she says. โIn those that we have to, our sponsors understand: itโs much better to [offer that incentive and] be generating revenue and have that unit filled.โ
The strategy has generally been successful, she adds. Greystoneโs incentives have โbeen very much on the forefrontโ of its marketing strategyโand theyโve worked.
โI canโt imagine these last three years if we would not have implemented incentives of some sort. People were absolutely stalledโthey just could not move forward because of everything they were hearing on the news,โ Smith says.
Smith and Moore agree that while the economy is heading toward recovery, there will still be space for discounts.
โIn the next 18-24 months, the housing market will not have fully recovered, and the savings rates are probably going to stay very low, so the challenges that we face today are going to persist [for at least that long],โ Moore says.
โItโs going to be a weaning process, but already in our very successful communities, we find ourselves able to continue the process of withdrawing those [incentivizing] tools sooner rather than later,โ says Smith. โItโs going to be a gradual process that could take two to three years.โ
Source: Senior Housing News