Retention Marketing and Profit Optimization

Moderator:Jim Kjolhede, Satteron Enterprises

Panelists:Doug Miller, SatisFactsRichard Hughes, AMLI

Greg Lozinak, Waterton

Opening Comments

Doug Miller, SatisFacts

•Impact of revenue management on turnover?

•Net gain if renewals/retention a lesser goal vs. leasing?

•Rev management include turnover’s NOI impact? What cost used? Reward (perceived value = opportunity) factored in?

•Improved service, satisfaction impact on increase resistance?

•What drives satisfaction and retention?

•Why is national turnover down? Performance? Recession? What happens as renewal increases ratchet up?

•What have clients experienced during recession? How has satisfaction, perceived value and renewal likelihood changed?

Questions to Address

Impact of Satisfaction onPrice Resistance

•“From the perspective of the firm, the findings imply that increasing customer satisfaction is likely to decrease price elasticity of demand.”

•Author states firms considering investing time and resources to improve customer satisfaction reaps financial benefits - including customers’ increased willingness to tolerate price increases.

•Source: Customer Satisfaction and Price Tolerance. Eugene W. Anderson, National Quality Research Center, School of Business Administration, The University of Michigan. As published in Marketing Letters 7:3 (1996): 265-274 by Kluwer Academic Publishers, http://deepblue.lib.umich.edu/bitstream/2027.42/47216/1/11002_2004_Article_BF00435742.pdf.

Two for One Special: Impact of Boosting Satisfaction and Retention

•$4,166 positive NOI impact for each move-out saved due to improved service delivery•Improved satisfaction reduces resistance to rent increases•Increasing satisfaction lets you avoid NOI hits as well as achieve renewal increases

Shareholder ValueCorrelates Satisfaction

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Satisfaction Ranking

Improved

Satisfaction Ranking

Unchanged

Satisfaction Ranking

Declined

52%

21%

-28%

Relationship Between Customer Satisfaction and Sharehold Value (Auto Industry)

Change in Shareholder Value (1994-2004)

Source: "Satisfaction - How Every Great Company Listens to the Voice of the Customer" by Chris Denove and James D Power IV of J.D. Power and Associates. Published by The Penquin Group, 2006.

The Impact of Increased Resident Retention on NOI and Asset Value

Assumptions: AverageAverage rent* $1,009Average vacancy loss days 45Average concessions $634Calculations:Vacancy loss $1,513Concessions* $634Leasing staff time/cost $170Marketing / advertising / rental, referral / locator fees, leasing commissions $849Hard turnover costs (carpet cleaning, painting, repairs, miscellaneous costs) $765Maintenance staff time/cost $165Apartment Clean $71TOTAL $4,166Source: SatisFacts Research (www.SatisFacts.com)

Move-Out Cost: Challenging Market Conditions

* Source: Axiometrics (www.axiometrics.com); average asking rent and concessions as of Dec 2010

The Real Cost of Turnover / The Real Gain from Reducing Turnover

Run the Numbers…They Speak for Themselves

Calculate How Much Each Move Out Costs:http://www.multifamilyinsiders.com/home/apartment-turnover-cost-calculator

Calculate the Impact of Reducing Turnover on NOI and Asset Values:

http://www.satisfacts.com/tic.html

•Leveraging satisfaction and retention drivers delivers huge returns•Client turnover rate 9+ points below NAA IES•Impact on a 5,000 unit portfolio:

•$1.978 million higher NOI ($4,166/move-out)•$32,980,000 higher asset value (6 cap)•Does not include factor for reduced resistance to rent increases

•So, what’s more desirable?•Seeking to bump rents $50 when a resident moves out, or•Boosting satisfaction, saving thousands in move-out costs…plus achieving a rent increase

•Our view is the goal is not to lease apartments…•It’s to have apartments leased at maximum rent levels achievable via superior satisfaction

What Matters Most?

Lease Renewal

Service Request Process

Communication and Culture of

Responsiveness

Retention DriversThe realities of what drives retention relate to the office staff, communication,

and a culture of responsiveness

Problem Areas with the Greatest Impact on Renewal Likelihood

Rank Satisfaction Topic1 Office staff: Promptness of response to calls and e-mails

2 Office staff : Follow-up on completed service requests

3 Office staff: Responsiveness and dependability

4 Office staff: Courteous and professional

5 Apartment: Appearance and condition

Source: SatisFacts Research

Impact of Outstanding In-Unit Maintenance Problems on Overall SatisFaction (n = 50,000)

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0% 20% 40% 60% 80% 100%

Residents w/Outstanding Maintenance Problems

Ov

era

ll S

ati

sF

ac

tio

n (

1-5

sc

ale

)

15

Source: ©SatisFacts Research

Fewer Outstanding Maintenance Issues =Higher Satisfaction

Impact of Overall SatisFaction on Likelihood to Renew

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0%20%40%60%80%100%"Very Likely" to Renew

Ov

era

ll S

ati

sF

ac

tio

n (

1-5

sc

ale

)

16

Higher Satisfaction = More Likely to Renew

Source: ©SatisFacts Research

Service Request Process PerformanceDrives Satisfaction

2008

2009

2010

0%10%20%30%40%50%60%70%80%90%

100%

Maintenance cleaned up when

doneService request

completed properly the first

time

Maintenance problems still

existOffice follow up

after request completed

90%

76%

29% 34%

92%

80%

26%41%

93%

82%

23%

46%

2008 - 2010 SatisFacts Index: Service Request Process

Percent "Yes" to Yes/No Questions. ©SatisFacts Research (www.SatisFacts..com).

Continual three year

Improvements in all best practice metrics

Clients Prove Best Practice Focus Drives Increased Satisfaction and Reduced Turnover

2008

2009

20103.80

3.90

4.00

4.10

4.20

4.30

4.40

4.50

ApartmentOffice

courteous, professional

Office responsive, dependable

Office prompt

response to calls/emails

Maintenance staff

courteous, professional

Speed service requests handled

Quality of maintenance

work done

Overall average score

3.92

4.21

4.034.00

4.31

3.93

4.04

3.98

4.01

4.30

4.154.13

4.41

4.104.16

4.07

4.06

4.35

4.214.19

4.46

4.184.24

4.12

2008 - 2010 SatisFacts Index: Best Practice Trends

Satisfaction Five Point Rating Scale: Exceptional (score of 4.50+), Superior (4.00-4.49), Average (3.50-3.99), Warning (3.00-3.49), Red Flag (below 3.00). ©SatisFacts Research (www.SatisFacts..com).

Continual three year

Improvements in all best practice metrics

Client Focus on Best Practices Reduced Controllable Factors Impacting Renewals

2009

2010

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

FinancialValue

Buying HomeStaff Related

or Controllable

ApartmentRelocation,

Status Change

35.7%

27.2%

13.9%

53.9%

79.2%

13.2%

40.8%

21.0%

11.0%

46.1%

73.0%

18.8%

2009 - 2010 SatisFacts Index: Response Categories -Why Not "Very Likely" to Renew

Aggregated Percent Selecting Response Option. ©SatisFacts Research (www.SatisFacts..com).

Significant decreases in controllable non-renewal

reasons – notably value

and staff-related – driven by

improvements in best

practices

Clients Prove Turnover is Controllable!

2007

2008

2009

2010

10.0%

20.0%

30.0%

40.0%

50.0%

"Very likely" to renew"Not likely" to renew

43.6%

20.3%

43.6%

16.4%

44.5%

14.7%

48.3%

13.1%

2007 - 2010 SatisFacts Index: Renewal Likelihood

Percent Selecting Response Option. ©SatisFacts Research (www.SatisFacts..com).

Consistent four year positive

renewal likelihood score trends

correlates with continual

improvement in all best practice

metrics and perceived value

Doug Miller, SatisFacts ResearchMain: (866) 655-1490 x100Direct/Cell: (410) 598-1400Email: dmiller@satisfacts.comWeb: www.satisfacts.com

Contacting the Panelist

THANK YOU!!!

Richard Hughes, AMLI

2 Questions:

“Is there an economic advantage to renewals?”

“What are the primary drivers of renewal intent?”

Renewal Leases

•Consolidate Renewal and Profile Data•Cohort Analysis•Correlation Analysis•Regression Model•Logit Predictive Model

Proposed Steps

•“Yes or No” questions need to become 1 or 0

•Add additional data about that lease:

– Demographic– Community Information– Transaction History– Social Media (Gasp! a real life use!)

•Fire up your spreadsheet

Consolidate Renewal and Profile Data

•Group supplemental data into ‘Buckets’ (Cohorts)

•Examine the propensity to renew (average of those 1’s and 0’s)•Create charts to impress senior management

Cohort Analysis

Asset ageProperty Age

0

2000

4000

6000

8000

10000

12000

14000

0 - 2 3 - 4 5 - 6 7 - 9 10 - 14 15+

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Count

Renewal Variance

Lease Term

Lease Term

0

2000

4000

6000

8000

10000

12000

14000

16000

0 - 2 3 - 5 6 - 8 9 - 11 12 - 14 15 - 17 18 - 20 24 +

-60%

-40%

-20%

0%

20%

40%

60%

Count

Renewal Variance

Percentage Rent Increase Rent Increase

0

2000

4000

6000

8000

10000

12000

-15% to -10%

-10% to -5%

-5% to 0%

0% to 5%

5% to 10%

10% to 15%

15% to 20%

20% to 25%

25% +

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Count

Renewal Variance

Completed Service Requests

Service Requests

0

1000

2000

3000

4000

5000

6000

0 1 - 2

3 - 4

5 - 6

7 - 9

10 - 14

15 - 19

20 +

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Count

Renewal Variance

•Allows us to understand the relationship (association) between variables•Association in not causation

– Install “Data Analysis tool pack” in Excel– Tools > Data Analysis > Correlation

Correlations

Correlations

1. Race 2. Color 3. National Origin4. Religion5. Sex6. Disability7. Familial Status (families with children)8. Age9. Marital Status

Never, Ever Offer Based On:

•Allows you to combine variables into a descriptive model

– Shows how much the whole model describes the data

– Shows the impact and relevance of each variable

•Can be used to create a predictive model

Regression Model

Regression Model

•Branch of economics that addresses discrete choice problems •An extension of the existing regression

– For any customer for any price point will give their probability to sign a renewal based on data previously analyzed

•True micro-marketing, leveraging consumer level data into actionable results.•Better, more robust revenue management

Logit Model

•There are many drivers of satisfaction and retention•Which might make the chart on the right meaninglessThe plural of ‘anecdote’ is not (good) ‘data’

TakeawaysReasons for not renewing

Employment22%

Corporate Lease Expiration

6%

Change in Household

Composition12%

Transfer On-Site7%

House Purchase / Rental19%

Other12%

Downsizing6%

Price9%

Unit Satisfaction4%

Skip / Evict3%

THANK YOU!!!

Greg Lozinak, Waterton Residential

• RevMan – People vs. Machine

• Why Choose RevMan Software• Roll Out Methodology

• Affect On Rental Rates & Occupancy

• RevMan vs. CRM – Impact On Retention

• Lessons learned

AGENDA

REVMAN – PEOPLE VS. MACHINES

• Delivering the right product at the right price to the right person in a way that maximizes revenue under a give set of constraints

• Variables:• Demand• Unit type availability• Net rental price• Lease term• Days vacant• Seasonal trends

• Revenue management software makes this process more efficient

WHY MACHINE OVER PEOPLE

• Establish structure & discipline around pricing process

• Establish consistent process across portfolio

• Transparency

• Eliminate variability of people

• Establish efficiency

ROLLOUT METHODOLOGY

• January 2009 – “Test” new leases

• August 2009 – New lease rollout complete

• October 2009 – Begin rollout of renewal pricing

• March 2010 – Rollout of renewal pricing complete

AFFECT ON RENTAL RATES

REVMAN VERSUS CRM• RevMan doesn’t always equate to low retention rates

• Great customer service doesn’t always equate to high retention rates

• Goal - provide a level of customer service that creates value for resident

• Pre-RevMan retention rates – 50 – 65%

• Post-RevMan retention rates – 42 - 46%• Rolled out renewal pricing as market was recovering

• Better economy – more options• Philosophical change in renewal pricing

• 2009/Early 2010 – ceiling on renewal pricing with no floor• Late 2010/2011 – floor on renewal pricing with no ceiling

LESSONS LEARNED• Using a revenue management tool doesn’t mean you can turn your brain off

• Let the tool do what it’s supposed to do

• Senior executive sponsorship & peer level sponsorship

• Pricing team

• Establish parameters • Who can change rents

Contact Info:Greg Lozinak, Waterton ResidentialDirect: (312) 948-4550Email: glozinak@wallc.comWeb: www.watertonresidential.com

Contacting the Panelist

THANK YOU!!!

Moderator Questions to the

Panelists

Audience Questions to the

Panelists