The RENTmaximizer Pricing System

By on Mar 1, 2015 in Uncategorized

Logo_RENTmax-WhitePaperIn speaking with Yardi® clients about their revenue management challenges in recent years, we have been surprised to hear how many of them spend considerable time approving the prices coming from their systems. This led us to ask the question: If you have to approve prices from your pricing technology, do you really have a pricing system?

Historical Pricing Systems

Years ago, the multifamily industry’s pricing process was completely manual and frequently relied on “gut instinct” and trial and error. We did this largely because we did not have a lot a data and/or technological processes behind the scenes to help us gauge what the “true” price might be. In the late 1990s, the airline industry pioneered revenue management technology by carefully examining its large data volumes about demand (people who were looking to purchase airline seats to travel from point A to point B), inventory (the size of plane and number of seats on it), and market conditions (what other airlines were charging to travel from point A to point B). Airlines built sophisticated historical models of expected demand against anticipated inventory, matched those historical trends against current data, and began to balance seat prices against the demand, inventory, and market conditions.

This technology eventually found its way to other high transaction volume industries such as hotels, rental cars, and others in the early 2000s. Between 2003 and 2004, the multifamily industry began adopting the airline industry’s revenue management technology.

When you look at the sophistication of this technology in the airline industry today, you find it has changed and evolved dramatically. If you price an airline ticket today and then price it again within the hour, you will find significant pricing changes. Does this process rely on a person manually approving prices across each airline’s thousands of inventory of seats? Certainly not. Why, then, does this same technology as applied to the multifamily industry require a person to approve prices daily? It appears that the technology from the airline industry has not kept up with the times and is still stuck in its initial technology paradigm from 2003 and 2004.

RENTMaximizer Revenue Management System

One of the fundamental design elements of the Yardi RENTmaximizer™ revenue management system is to remove the need for human intervention wherever possible. The revenue manager support team has many configuration options at its disposal in order to establish a performance level that meets the strategic objectives for pricing your property. By establishing those criteria, the system makes small incremental movements in price, not the large, volatile price moves that sometimes occur with legacy pricing systems. This removes the need for people to sit and approve the decisions made by technology. Additionally, since Yardi RENTmaximizer is an expert system, it is constantly learning. The system learns how to map its pricing approaches to your property strategy more intelligently as time goes on. This allows you to focus on managing your overall business and saves you from paying double for technology. Paying a vendor license fees for technology, then needing to dedicate staff to keep an eye on it makes no business sense.

Efficiency Through Technology

Technology is supposed to make us more efficient in how we apply our expensive human labor. When you pay double for technology plus for someone to approve that technology’s output, you are not getting efficiency out of the technology. This is akin to a pilot having to approve the actions of the autopilot prior to the autopilot making the adjustments. While the pilot should check the overall progress of the autopilot once in a while to make sure things stay on track, requiring constant supervision and approval makes no sense.

We encourage our clients to be actively engaged in their pricing activity. We think it is critical for a person to keep watch over any automated system to ensure that its inputs are in line with the pricing strategy for a property. However, we do not believe it is an efficient use of a person’s time to be trained or to have to keep up to date with the technical nuances and options the technology uses to convert the strategic vision into actual pricing action. That is why Yardi supplies a technical specialist who is well-versed in the pricing engine technology. We feel that our clients’ time is more valuable in making sure the overall pricing activity supports the company’s business objectives.

Real Time Data for Decision Making

Yardi RENTmaximizer takes a trend- and rule-based approach to developing pricing, so the system can use current data without relying on historical trends. This approach eliminates the need for dramatic adjustments to return the system to a stable condition when current reality does not match the expectation of historical norm. Such corrections were typically followed by another large correction to keep things in balance as reality caught up to the historical model. This was the approach of first-generation revenue management systems. Yardi RENTmaximizer bases its analyses on current, actual conditions and trends in order to make pricing decisions in an environment that considers the “health” of the property today.

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