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A Pricing Revolution

Reflections on Winning the 2017 Franz Edelman Award

Ahmet Kuyumcu, Co-founder and CEO, Prorize LLC

"There are two fools in every market; one who asks too much and one who asks too little!" - Old Russian proverb

In 2011, we received a call from Holiday Retirement (Holiday) to create a revolution in pricing for senior living industry. Holiday is the second-largest senior-housing operator in the US with over 300 facilities and an annual revenue of approximately $1 billion. Holiday’s then CEO, Kai Hsiao, had a vision to implement a data-driven pricing approach to benefit Holiday, its residents and the growing senior living industry. Hsiao and several members of the Holiday executive team were familiar with the impacts of implementing revenue management (RM) techniques from their past experiences in the hospitality industry and were questioning whether they could be applied to the senior living industry.

After significant exploration, Holiday selected Prorize, then a two-man pricing-consultancy shop, to create software that would analyze available data and make pricing recommendations for their senior housing apartments. Even though we were a small company, both my partner and I had extensive experience pioneering RM solutions for multiple businesses, including the apartment rental industry.

The key challenge to achieving a cogent solution for senior living, as opposed to the apartment rental industry, is that senior living is a care business. The decision to move into a senior-living facility is a very emotional process and many believed that scientific pricing would simply not work for this situation.

However, Hsiao believed the opposite and considered pricing optimization a strategic imperative for Holiday. Understanding the often-poignant sales situation, the requirement was to use data and facts to generate right prices so that Holiday could shift the sales conversation away from bargaining to finding well-suited homes for real people to spend the rest of their lives. Our goal was to develop a practical RM solution to consistently recommend the optimal price for each apartment, allow Holiday to remain profitable, and enable them to continue to provide services that residents enjoyed and valued most.