Senior Living Providers: Discounting Can Boost Occupancy, But Is it Worth it?

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 environment—as long as it’s done the right way.

Move-in incentives can make the difference between being 88.6% occupied—the national average for senior housing communities in the second quarter of 2012, according to the National Investment Center for the Seniors Housing & Care Industry—or a more favorable 91-92%, says Jim Moore, president of consulting and strategic services firm Moore Diversified Services.

“Generally, discounting with a plan that makes sense is a very good strategy, as long as you know what you’re doing,” Moore says, adding that it’s 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.

“If you drop the rate for the whole community, you’re undermining value of the product and you’re probably still underperforming,” she says, because even if a community achieves higher occupancy, lowered rates could damage their value proposition and negatively affect performance.

“When pricing is low already and you’re discounting even further, it could create a more serious financial challenge before filing more units,” agrees Moore.

ProMatura analyses have found that communities with the highest performance values aren’t always the ones with the lowest rates. Rather, they have the best-performing sales teams. “From my perspective,” says Wylde, “you don’t discount rates. You improve your personnel.”

However, discounts can help boost move-ins, she continues, and the market seems to expect them now because it’s been going on for a few years.

“We found, like many other operators over the last five years, that our clients are very sophisticated,” says Greystone Communities’ corporate vice president Merna Smith. “They perceive they’ve lost money in the real estate market, whether it’s 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].”

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.

“A moving allowance, waiving a fee, or a timeframe price concession—with those kinds of incentives, eventually you get back to original pricing,” 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.

“The sooner they [commit], the more discount they get, and the sooner they move in is an added discount,” 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.

“The caveat is that communities offering incentives need to track those dollars very, very closely,” says Smith. In Greystone communities, they’re not offered to everyone. Rather, sales counselors learn about each prospect’s financial situations, and based on those circumstances, they’re able to tailor offers accordingly.

“Every marketplace is different. In several, we don’t have to use incentives or tools,” she says. “In those that we have to, our sponsors understand: it’s much better to [offer that incentive and] be generating revenue and have that unit filled.”

The strategy has generally been successful, she adds. Greystone’s incentives have “been very much on the forefront” of its marketing strategy—and they’ve worked.

“I can’t imagine these last three years if we would not have implemented incentives of some sort. People were absolutely stalled—they just could not move forward because of everything they were hearing on the news,” Smith says.

Smith and Moore agree that while the economy is heading toward recovery, there will still be space for discounts.

“In 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],” Moore says.

“It’s 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,” says Smith. “It’s going to be a gradual process that could take two to three years.”

Written by Alyssa Gerace

This article is sponsored by the Assisted Living Federation of America (ALFA) as part of its efforts to advance excellence and explore topics impacting the future of senior living. For more information about ALFA, visit www.alfa.org.