The Price is Right, Part 2: Lucrative Pricing Strategies


Dec 7, 2016 | Marketing & Branding

A few months ago, we shared our thoughts on the challenges and benefits of implementing a competitive pricing strategy at your community. We all know that senior living is not a small expense, and can often be one of the priciest things an individual buys in their lifetime. It’s not just rent: it includes life enriching opportunities, health services and a lot more. While it’s fair to say that, at good communities such as yours, buyers get what they pay for, it’s still important that we, as marketers, understand the buyer’s perspective. And from their perspective, the cost of senior living can be staggering!

“There are many things to consider when you set prices for your community, and even more things to consider when you approach a conversation about prices with a prospective resident,” says Malissa Illiano, Senior Consultant & Director of Market Research at SageAge Strategies. “We have an obligation to our employees and our residents to charge what is reasonable to maintain a fair, healthy and enriching environment, but knowing that and doing it effectively are two very different things.”

Pricing your community competitively is one way to set your pricing structure, but it’s important to be aware of the underlying challenges – and benefits – that come with a competitive pricing structure. Today, we’ll look deeper at the ins and outs of competitive pricing and also examine other ways to think about how you might set costs for your customers.

Going Deeper Into Competitive Pricing Strategies

To boil it down, competitive pricing is setting the price of your service, product or offering based on what your competition (often local) charges for comparable things. In the case of senior living, most communities have providers that have been around for a while, so there is a set equilibrium established, thanks to market stabilization. That can also lead to price stagnation and a “race to the bottom” approach, but we’ll get into that a bit later!

Obviously, competitive pricing involves a choice of if we want to price ourselves higher, at or lower than the competition. A lower price could draw customers from the more expensive competition, but could also put us at risk for not being able to meet our overhead or for developing a reputation as a budget community. A higher price has similar challenges, in that it could isolate us from potential customers and lead to a lack of revenue, putting stress on the business financially.

What Other Pricing Strategies Exist?

Competitive pricing isn’t just the only option out there. You could also base your prices on one of the following strategies (as well as plenty of others out there):

  • Cost-plus pricing: Where a profit margin is added to the total cost of your product.

  • Markup pricing: Where a percentage is added to the total cost of your product.

  • Demand pricing: Where pricing is determined by establishing your optimal profit-to-volume ratio (i.e., you can sell less units if you sell more of them and vice versa.)

So, based on this, when does competitive pricing make sense?

For the most part, competitive pricing makes the most sense when the services offered by your competitors don’t differ much from the services you also offer. When it’s a matter of degrees separating you from the competition, competitive pricing is the way to go, but don’t settle on your costs just yet; it’s more subtle than that.

But What If You’re a Leader?

There is an exception to this: if your community is a market leader in the space, and can command more influence and attention, you are in a uniquely qualified position to actually set the price within your larger market. What might make you a market leader? Things like above-and-beyond customer service, amenities that are more luxurious than your competitors, better programming and other similar things can put you a leg above the competition and give you the right to command more.

The Challenges of Competitive Pricing

This all sounds great, but there are some downsides to competitive pricing, namely, that it leaves most businesses with very narrow profit margins. That means that if your costs suddenly go up in one area, you are at risk for not being able to cover them based on your competitive pricing model. What’s more, your customers aren’t likely to take well to a sudden jump in their fees simply because your food vendor decided to up your costs.

Another problem with competitive pricing is it can often lead to missed opportunities. When you are only looking at the competition, you are potentially missing out on discovering ways to make yourself more valuable.

So What’s a Community to Do?

The bottom line is, you should use competitive pricing strategy as one pillar in your pricing structure, but it shouldn’t be the whole pie. There are a lot of other variables to consider, such as what differentiates you from the competition, what specific customers you are targeting versus what your competition is targeting, psychological factors such as your goodwill in the marketplace and how customers respond emotionally to your community, what partnerships you have or could develop with other businesses in the market and a lot more.

Whether you’re new to the game or a long time player, examining your pricing strategy is a smart thing to do regularly to ensure you’re priced at a point that won’t give your customers the aforementioned sticker shock, while also not undervaluing your product.

SageAge Strategies is a multiple award-winning, strategic growth and marketing organization that can provide pricing insight expertise for your community. For more information, please call or e-mail Malissa Illiano at 717-695-6740 /

Contact us today!

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