Interviewed by Aaron Farney, Director of Unwired Logic
Aaron Farney: You started out in airline revenue management. Take us back to the beginning. How did you get into this?
Warren Lieberman: I got very, very lucky. I started with American Airlines in 1984. In the US, that was just a few years after the airline industry got deregulated. It was the very early days of revenue management.
I wasn’t there at the very beginning, but I was there early enough. There was a guy I worked with at American, Barry Smith, who probably knew more about airline revenue management than anyone else in the world. And it was a new enough area that there weren’t a lot of people interested. If you had an operations research background in the airline industry, you were likely more interested in scheduling, inventory management, network, and other large-scale physical optimization problems. I was always interested in optimization under uncertainty.
So I got a chance to work with Barry. Right place, right time. I got to learn from the best.
By the early 1990s, my interest was how do we take these concepts and make them work in other industries? There’s an enormous incentive, when you work in an industry, to just focus on that industry and get into more and more minutiae. I went the other way. By the early 2000s, I’d probably spent time in about three dozen industries working on pricing and revenue management.
The revenue management world is relatively small. When I say I had more cross-industry revenue management experience than anyone else, it’s simply because very few people were in that space. But over time, it served me really well.
Aaron Farney: What carried over from airlines and those other industries into self-storage?
Warren Lieberman: When we started in self-storage, we quickly realized that unlike airlines, hotels, cruise lines or rental cars, self-storage is not a high-volume business. A typical store might get 30 to 50 move-ins a month, spread across 20 to 100 different unit groups. So your normal methods of forecasting demand don’t work very well, and because of the relative stability of demand, you can easily be fooled into thinking that price elasticity models are better than they actually are in this industry. Unlike many industries, demand for self-storage is not price elastic, although lower rates may attract customers from further away. Very few people wake up in the morning and decide to rent a self-storage unit because they just heard they could rent a unit at a low price.
So, we thought about what really drives pricing decisions, and we developed technology specific to self-storage.
Let me go back to airlines for a moment. When I was at American, we knew people would pay more for an aisle or window seat than a middle seat. More for the front of economy than the back. But back then, everyone booked by calling a reservations agent or through a travel agent, and there was no easy way to monetize preferred seat selection. You don’t want to turn a three-minute reservation call into a fifteen-minute call by asking, do you want row 8 or row 22? Do you want a window seat in row 10 or an aisle seat in row 16? Once airlines moved onto the internet, it got much easier, because people know what an airplane is and they could look at the available seats and make a choice. They pick their row and seat and they’re done.
In self-storage, we introduced good-better-best pricing, also known as value pricing, and we got a patent on the way we do it. We recognized that people will pay more for things other than space. We enabled self-storage operators to offer higher prices than they would otherwise have made available, and customers who valued convenience were allowed to pay more to choose the better located units within a unit group. Simultaneously, customers who were price-sensitive were able to choose the less convenient units in each unit group at a lower price, which was the price that the operator would have offered in the absence of value pricing.
People in the industry kind of knew it. They might price units near the elevator a bit higher, but they’d take a specific set of units and put them in a special unit group. We figured out a way to let pricing float between units based on what else is available within the same unit group. If there are 8 units available out of 100 in a unit group, which is the best of the eight, which is the middle, which is the least desirable? You price them accordingly.
All of a sudden, you’re letting customers choose whether they want to be price-sensitive, and you save your best units for the people who value them. It turns out that when the better and best units are priced 10 to 20 percent above the base price, about 30 to 35 percent of customers will pay more to obtain a more convenient unit; at some stores, that can rise to 50 percent.
The decision to offer three prices came from understanding customer psychology. Giving customers too many choices can be overwhelming, and many customers will decide not to continue with their purchase (or rental). Now, if you go to operator websites, many have physically changed. The lowest price is on the main page, and then there’s an upgrade screen showing the three options. And these options are for units that were previously rented for the same price. That didn’t exist 10 years ago.
Aaron Farney: I’ve spent most of my storage career in Asia, and more recently some time in Australia and Europe. Not many operators there are doing value pricing yet. How prevalent is it in the US versus other regions?
Warren Lieberman: We work with clients around the world. I’ve got a client in the Philippines with six stores. They are making millions of Philippine pesos more each month. That sounds bigger than it is because of the exchange rate, but trust me, it’s thousands of dollars US per month.
Companies are very skeptical before they understand it. And if they go to other companies that are not working with us, they might not get the straight scoop on how it works, because we use certain techniques that nobody else uses.
But when a company tries it out, their revenue from new move-ins, depending on how they implement the program, goes up anywhere from 4 to 10 percent. That’s an enormous amount of extra profit, because this is a fixed-cost business. If you increase revenue from new move-ins, 98 percent of the incremental revenue drops to the bottom line. Incredibly highly leveraged.
Aaron Farney: Right. If you have a facility with 500 units, it’s very hard to add inventory. You have to squeeze what you can out of what you have.
Warren Lieberman: That’s right. So you’ve got value pricing for the people moving in, and then you have more advanced capabilities for figuring out who should get a bigger rent increase and who shouldn’t.
This is going to sound counterintuitive. When companies start working with us on rent increases, not only does their effective rent go up, their churn goes down.
How do you get more money and less churn? Because we have a better understanding of who should not get a big rent increase. So we can be more aggressive with the people who should get one, and less aggressive with the people who shouldn’t. It succeeds at both ends of the spectrum.
Aaron Farney: Where are operators leaving the most money on the table?
Warren Lieberman: It depends on the store. If a store is 98 percent occupied, they don’t have a lot of move-ins each month. Value pricing will help, but that’s not where the money is. In a highly occupied store, it’s really about managing your rent increases well.
For a lease-up store, one that’s just getting off the ground, value pricing is a gold mine. Rent increases, not so much, because you are not raising rents on that many customers.
When you’re in the 70 to 90 percent occupancy range, both of those matter, along with understanding what kind of move-in concession to offer and managing it.
Generally speaking, storage is not a price-elastic market. If you offer a lower price, people don’t wake up and say, I’m going to put my stuff in storage. What does happen is you may draw people in from further away. So your willingness to lower rates depends on what your competitors do. If you lower your rates and everyone else lowers theirs, you’re in a cycle where it doesn’t matter. Everybody’s making less money.
So it’s an intriguing game: understanding who your competitors are and how they respond. You don’t always want to take drastic action on price. And that’s where good-better-best comes in. Once somebody has decided to rent at your store, the question becomes, do they want the good unit, the better unit or the best unit? Based on location, a rate lock, a discounted smart lock, 24-hour access, or whatever additional features the company wants to offer. There are all sorts of ways to implement it.
Aaron Farney: I run into this in Japan, especially with smaller operators. Some are very proud of 100 percent occupancy, and I always tell them, you’re too cheap. You should always have a few unit sizes available. Do you see operators bragging about 100 percent occupancy?
Warren Lieberman: We do. Now, I’m not going to say I disagree with you, but this is where I might present something a little different.
When we run into highly occupied stores, I’m fine with the owner being proud that they’re 98 or 100 percent occupied with little or no availability. What we tell them is, if you’d like to make a lot more money, let us help you with your rent increases. We can keep your occupancy high, and you’re going to make a lot of money. That’s really where the game is.
So I never worry about telling somebody they shouldn’t be that full. There’s sometimes more opportunity, but I’m just as happy to give them smarter ways to do rent increases without significantly increasing churn.
I also have to say, some companies, as part of their philosophy, don’t want customers paying more than the current street rate. I’m fine with that, if that’s the way they want to run their business. My responsibility is to make sure they understand how much revenue they’re forgoing. And sometimes when they see it, they say, all right, maybe I can go 20 or 25 percent above. I’m not going to go 70 percent above.
As a pricing expert, my goal is to make sure you as the operator understand how much revenue you can make and where the opportunities are. But you’re the business owner. You decide how to run your business. I’ll help you generate as much revenue and profit as we can, subject to you running it the way you want. Everyone has different ground rules.
Aaron Farney: You’ve mentioned revenue uplifts in the range of 9 to 14 percent. What separates the operator getting 14 percent from the one getting 9?
Warren Lieberman: And it can even be more than 14 percent. It depends on where you’re starting.
The operators achieving 10, 12, 14 percent take pricing very seriously. They’re data-driven organizations. They look at how well they’re doing and adjust their strategies. They watch the churn rate from rent increases. They ask whether they should be more aggressive or not.
Think about this for a second. Say your average rent increase is 8 percent, and you get it to 9. It’s only one percentage point, but it’s 12.5 percent more revenue from rent increases. That’s a big difference, especially if you can do it with minimal churn.
If you’re working off your gut, the financial impact of some decisions is too hard to see without the tools to analyze the data. That’s why we stress performance metrics, so companies can see the impact of their rent increase strategies.
Aaron Farney: There’s chatter in the industry about regulation. Teaser rates like 50 percent off for two months, then a rate increase, then another one a few months later. Do you think there’s a real risk the government steps in and regulates how operators manage rates?
Warren Lieberman: I think there is reason to be concerned. Let me give you an example.
If I told you you could fly from London to New York and a coach seat is $79, what’s your reaction?
Aaron Farney: Pretty good.
Warren Lieberman: You know it’s a really low rate. Most people would. Now, if I told you that you could rent a 10x10 self-storage unit in downtown New York or downtown London for $79, and you’re not a self-storage expert, what would your reaction be?
Aaron Farney: I’d have a hard time knowing whether it was a good deal.
Warren Lieberman: That’s right. If a website says the rate is $79, you’d think, fine, it’s $79. The fact that it should be $400 would never cross your mind. People don’t have an intuition about it. Not a lot of people use self-storage.
When you rent a unit, there’s a lot going on. You’re signing a lease, you’re thinking about why you’re moving. If I casually mention it’s an introductory rate and might go up in three or four months, you’re still thinking, 79, maybe 89, maybe 99. Fine, whatever. Then two or three months later you get a notice that your rent is going up to $299. Your reaction is, what the heck are you talking about? You didn’t expect it.
That’s why you should be concerned. This is not an industry where people have an intuitive feel for what prices should be. If a company is not really, really clear about how the rate will change, and that it might change a lot, people are surprised. And that brings regulation.
Name me any other industry where you pay X dollars on a subscription basis and three months later it doubles. There is none, at least none that I am aware of.
I don’t want to badmouth any operator. But operators know that if they put 50 percent off for three months on a website and take the disclaimer off, they get more demand, because people don’t realize it’s a temporary rate. So why would an operator intentionally take that disclaimer off, knowing they’re likely to raise rents by 50 or 100 percent in three months? That’s where you start to ask whether something else is going on.
I won’t comment on any operator’s practices. But that’s why this industry is a little different.
Aaron Farney: I’ve never heard it explained like that. In Europe and Asia you see $0 move-in or 50 percent off for three months, and it’s fairly obvious the rate is temporary.
Warren Lieberman: Exactly. If you say $1 move-in, people ask, what’s my regular rate? They understand that $1 can’t be the monthly rate and that the actual rate starts in the second month.
And thank you, Aaron. The fact that you hadn’t heard it explained like that tells me maybe I am a pricing expert after all.
Aaron Farney: There was a similar discussion in the residential market not long ago.
Warren Lieberman: There was a big lawsuit in the US about this. The issue was privately held information being used behind the scenes to help dictate prices in markets where only a few companies operated.
I know some of the people who designed those revenue management systems. Based on what the government alleged, I have a very different view of how a revenue management system should be designed. We make sure that when our clients use our software, they’re not going to be subject to a government lawsuit, or anything that even smacks of potentially illegal or unethical practices.
Aaron Farney: You have a lot of experience in the US. What differences do you see as you work in Europe, Asia and Australia?
Warren Lieberman: There are certainly cultural differences, and we pay attention to them. We don’t go in assuming what worked in the US will work elsewhere. Often it does, but we don’t assume it.
If an operator isn’t certain about something, we say, let’s test it. We give them a way to dip a toe in the water and try something they can undo easily.
Say they haven’t been giving rent increases to anyone in their first year. We’re not going to tell them to raise rents at four months. Maybe we start at 10 or 11 months, and only with some of the customers. They were afraid a lot of customers would move out, and only 5 percent do. Now they’ve learned something.
So we give them options to learn as they go. It’s less scary, and it doesn’t threaten the business.
Aaron Farney: Are operators outside the US more skeptical or conservative?
Warren Lieberman: In certain countries, absolutely more skeptical and conservative, but not everywhere. We have clients in Australia, and for the most part they’re very similar to the US. There are differences, I don’t want to say they’re the same. But Australian customers respond very well to value pricing. The company may communicate it a little differently, but the concept works very well.
Aaron Farney: Let’s talk about AI. Is it starting to show up in your world?
Warren Lieberman: In a word, absolutely. We just introduced two AI capabilities into our system, and we’ll introduce a third in about two months.
The first is AI that better alerts companies to price changes made by the competitors they care about most. You might say, at this store I care about Company A, in this market I want Company B. We can tailor all of that, and then AI re-prioritizes as you tell it, this alert was really important, this one wasn’t. It learns and customizes the alerts it sends. Otherwise you’d have to specify an enormous number of rules, those rules might change, and you might not even remember what the rules are. As the business environment changes, this can be difficult to manage. You’re much better at saying this mattered and this didn’t. That’s great work for AI: deciding what to bring to your attention.
The second is a large language model capability inside the revenue management system. Remember, we’ve maintained data for operators over the years that doesn’t exist elsewhere, even in the PMS. We hold a repository of data that doesn’t exist anywhere else in the world. Now you can query your own data and ask whatever question you’re interested in without creating a new report.
Even with that, we’ve spent, and are still spending, time training the AI to interpret words correctly and respond in the right format. That’s why we’ve pre-programmed questions. Otherwise you can go through six or seven iterations of a question before you get what you actually wanted.
Aaron Farney: What about the engineering side?
Warren Lieberman: Software engineer responsibilities are changing quite dramatically. If you write good specs, an AI agent can write the SQL programming code. It can be developed much faster. But now you really have to validate that the AI agent wrote code that does what you need. Validation and QA become really, really important.
I’ll give you one that not everybody is thinking about. We have a production system. Every night we download data from the web and from the PMSs, and we have to run our model. There’s a short window after the download to process everything so it’s ready before stores open in the morning.
If you’re not careful, the AI agent might write really good code, but instead of joining two or three tables with some pre-processing, it joins six or seven. Joining tables takes a lot more time. So when you inspect the code, you have to catch that, and either give it new instructions to be far more CPU-efficient, or say, I used the agent to generate it, now I see what’s going on, and I’ll rework it myself for what we need.
Aaron Farney: We’re seeing the same. AI coding works very well for a senior developer who writes the spec and validates the output. With junior people it’s riskier. Sloppy output, security holes, code that doesn’t do what you intended. On sales calls, are prospects asking, why should I use you when I can build this with AI, or hook up Claude to do my pricing?
Warren Lieberman: We do. Just recently I met with a client whose senior management had someone very, very good with AI. He used AI agents to recommend rent increases. We have a rent increase module, so they compared and discovered significant differences between what the AI agent recommended and what the Veritec system recommended. So they asked us, why are our rent increase recommendations different?
As we looked at it, we saw that the data they were pointing the AI agent to wasn’t as comprehensive as the data in our system. The AI agent was making a lot of mistakes because it didn’t have the data, and nobody realized it. Had they gone ahead with using the AI agent, they’d have raised rents on people they really didn’t want to raise rents on.
When we walked through why the lists differed, we could show them our system has a lot more data, and that data matters for achieving what they actually want. That exercise also increased their understanding of and trust in how our system works. So yes, we are absolutely in the world of, why should we continue to use you?
Aaron Farney: AI is very good at giving you a confident answer, even when it’s wrong.
Warren Lieberman: That’s right. If you ask an AI agent something, you get an answer it believes is right. But I tell people, if you ask an AI agent who’s the best revenue management company in self-storage, a lot of what comes back is the marketing material those companies have put out. Is that what you really want to believe? If you don’t do your homework, it’s very easy to get misguided.
Aaron Farney: We spoke just before the show in Atlanta, where you were on a pricing panel with another revenue management expert. What did you want that session to bring out?
Warren Lieberman: That session included a pricing expert from a different revenue management company, myself, and a moderator. I know the other person, and I know we have very different perspectives on pricing and revenue management in this industry. My hope going in was that the questions would draw out those differences.
Here’s one. We believe pretty strongly that whoever is responsible for pricing at a company needs to be held accountable. If everything is done automatically in the background, nobody is really accountable. The head of pricing loses touch with what’s going on. Other systems, and I believe this was true of the RealPage system, are designed to only allow for automated implementation without requiring a lot of manual overhead when the pricing analyst wanted to override system recommendations.
So our philosophy has always been: you should be able to review, understand and implement prices as effectively as possible. We designed our system so that the company could benefit from the expertise of their pricing analyst and the expertise of the system. We’ll give you great recommendations. Most will be just fine, but there may be some that you want to override. However, if you choose to automate, you’re making that choice, and you should be accountable for those automatic changes. So you need to have strong auditing capabilities so you don’t lose touch with what the system is doing.
And unlike airlines, where you manage millions of prices, in self-storage you don’t. The price you have today doesn’t change whether you move in today or tomorrow. It’s not like a flight. So we’ve designed the system to let you manage, oversee and understand your prices very efficiently. We believe in human expertise combined with the system.
As I mentioned, others focus much more on automation. If you don’t want a pricing analyst, by all means, they might be a better choice for you. But if you have a pricing analyst and you want that person thinking, our belief is a knowledgeable person working with a good system will deliver better results than the person alone or the system alone. That’s a philosophy not everybody shares, and it’s exactly the kind of difference I wanted on the table.
Aaron Farney: Anything else you’d want operators to take away?
Warren Lieberman: I’ve built my career on pricing and revenue management, and I think it’s fascinating. I love that we can help companies become more profitable without it being about cutting costs.
The main message is: be data-driven and understand customer psychology. Put those two together and you can grow revenue in a wide variety of ways. And no two operators have to operate the same. You can bring your own philosophy, culture, community spirit, whatever you want. It might affect your revenue, but you can be successful on revenue and profit in any of those spaces, as long as you pay attention to the data and to customer psychology.
A lot of companies implement a simpler version of good-better-best, because simpler versions exist. Then the question becomes: do you want 70 to 80 percent of what’s possible, or all of it? You get to choose. But when you’re talking about a couple of percentage points, the gap between the two is significant revenue left on the table.
There’s a lot of room in this world for all of us to succeed. It’s a lot of fun, and we’re excited to be part of it.
A note from Unwired Logic: if you sell technology into self-storage, get a free Sales Blueprint of how your pipeline runs and where it leaks.
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