How Holiday increased revenue from new leases by 10%

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Prorize co-founder and CEO Ahmet Kuyumcu, Ph.D., and Holiday Retirement COO Scott Shanaberger.
Prorize co-founder and CEO Ahmet Kuyumcu, Ph.D., and Holiday Retirement COO Scott Shanaberger.

What started around 2011 as an effort to find a better way to establish appropriate unit rents has led Lake Oswego, OR-based Holiday Retirement to consistently realizing a 10% revenue increase from new leases and receiving an international award for implementing a revenue management system that was new to the senior living industry.

The 2017 Franz Edelman Award for Achievement in Operations Research and the Management Sciences, presented Monday evening in Las Vegas by INFORMS, an international association for operations research and analytics professionals, “is the realization of the hard work and collaboration of many people,” said Holiday Chief Operating Officer Scott Shanaberger.

He acknowledged Prorize, the Atlanta-based revenue management firm that helped the private owner and operator, which has approximately $1 billion in annual revenues, develop what it calls the Senior Living Rent Optimizer system.

“Prorize was part of the groundbreaking revenue management system that many large multifamily companies have been using for many years,” Shanaberger told McKnight's Senior Living, explaining his company's reason for choosing to work with the firm.

“They wanted to know whether the concepts that apply in hotels and airlines could be used to price their residences,” Prorize Co-founder and CEO Ahmet Kuyumcu, Ph.D., said.

Prorize, Kuyumcu said, performed an analysis that indicated that the concepts, indeed, could benefit senior living, and then Holiday tested them, comparing them to the company's existing approach.

“The revenue lift that they got from that A-B testing was a huge benefit to Holiday,” Kuyumcu said. Holiday rolled out the system across its communities in 2014, “and they've been using our system ever since, and there's been a lot significant revenue improvements,” he said. In fact, Holiday Retirement consistently has experienced a 10% revenue increase in new leases since the new system was fully deployed, according to INFORMS.

Optimizing rent

Previously, an inconsistent pricing structure throughout Holiday's 300 senior living communities resulted in frequent price negotiations between corporate and local staff members, and between local staff members and customers, which led to revenue loss and a negative customer experience, according to the company.

“The SLRO enables a consistent and proactive pricing process across Holiday while simultaneously providing optimal pricing recommendations for each apartment unit in every one of our communities,” Shanaberger said. “It gives Holiday control over our corporate pricing process, eliminates inventory devaluation and maximizes long-term revenue.”

The model, Kuyumcu said, considers factors such as housing prices in a particular market, the competitiveness of the market, the number of competitors within a certain-mile radius, the median age of the population surrounding a community (considering prospective residents and their family-member influencers) and historical sales at that location.

At the unit level, he added, the price formula is affected by variables such as a unit's location within the community, whether it is on the same floor as the dining room, and the views out the unit's windows.

“Our mathematics,” Kuyumcu summarized, “tried to balance between what kind of availability Holiday has versus what the market bears and tried to find equilibrium for that.”

The goal wasn't necessarily to justify higher rents, he said. “In fact, initially we charged lower, because they had market rates that were very high, and it was almost wishful thinking that they were going to sell it,” Kuyumcu said. “They weren't able to sell it, so they were giving a lot of discounts. Instead, what we say [now] is, ‘Let's just give the right rent to start and forget about the discounts.' ”

The result is an improved experience for both sales professionals and prospective residents, he said.

“Once we had the right price, we changed the selling process to say, ‘This is the going price,' ” Kuyumcu said. “So they were able to convert and sell that much easier. ...So we changed that business process, putting the price as a secondary discussion point instead of the first. The first discussion we wanted to do with the residents was more related to what do they need, what are they looking for, what kind of activities are they interested in, do they want to be close to the dining area, or do they want to be away?”

Impressing the judges

As an Edelman Award finalist, Holiday was up against five other organizations, including the American Red Cross and General Electric.

Anne Robinson, chairwoman of the award committee, said the nine judges found it appealing that in Holiday's entry, analytics were being applied in a new way, especially given “the critical time for the retirement community, as our collective population is aging,” and that the new system resulted in demonstrated improvements for Holiday as well as its prospective residents.

“This was really a win-win type of situation,” she said.

Additionally, Holiday's implementation of the system impressed the competition judges, said Robinson, who is executive director for supply chain strategy, analytics and systems for Verizon.

“This was not a rush job,” she said. “They really tested the models well to make sure that they were the right ones. They also recognized that they were introducing this thought process change into an industry that hasn't seen a lot of this, so you have a sales force that's not used to thinking this way and talking this way. So they did extensive retraining of their staff and really enabled an entire cultural shift of their company to be able to leverage these new techniques and change the conversation. That's a hard thing to do.”

In addition to hardware and bragging rights, the award comes with a cash prize. In accepting the award, Robinson said, Shanaberger indicated that Holiday would donate its $10,000 winnings to the Alzheimer's Association, having seen how the disease affects residents and their families.

Accepting the Edelman Award. Pictured, from left: Jeff Alden, Edelman Award team coach and technical fellow with General Motors; Utku Yildirim, Ph.D., co-founder and CPO of Prorize; Ahmet Kuyumcu, CEO and co-founder of Prorize; Scott Shanaberger, COO of Holiday Retirement; Amber Hyde, pricing manager for Holiday Retirement; Melanie Murray of Brookdale Senior Living (formerly with Holiday); Matthew Maron, VP of business intelligence at CubeSmart; Peter Hansen, VP of global customer success for Prorize; and Arnie Greenland, Edelman Award team coach and professor of practice at the University of Maryland. (Photo courtesy of INFORMS)

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