Harvard Case - Revenue Maximization: Apartment Rental Units
"Revenue Maximization: Apartment Rental Units" Harvard business case study is written by Karen Shastri, Steven Onaitis. It deals with the challenges in the field of Accounting. The case study is 7 page(s) long and it was first published on : Feb 24, 2017
At Fern Fort University, we recommend a multi-pronged approach to maximize revenue from apartment rental units, focusing on operational efficiency, strategic pricing, and targeted marketing. This strategy will involve implementing activity-based costing to identify cost drivers, adjusting pricing based on market demand and unit characteristics, and leveraging data analytics to target specific customer segments.
2. Background
Fern Fort University is facing a challenge of maximizing revenue from its apartment rental units. The university owns and operates several apartment buildings, primarily catering to students and faculty. While occupancy rates are high, the university is seeking ways to increase its revenue per unit. The case highlights the university's current approach, which relies on a simple cost-plus pricing model, and the need to adopt a more sophisticated strategy to address the competitive market and changing student needs.
The main protagonists in this case are the university's administration, specifically the department responsible for managing the apartment rentals, and the students who represent the target market. The case study focuses on the university's need to optimize its revenue generation from these units, considering the competitive landscape and evolving student preferences.
3. Analysis of the Case Study
To analyze the case, we will employ a framework that considers strategic, financial, and operational aspects:
Strategic:
- Market Analysis: The university needs to understand the competitive landscape, including competitor pricing strategies, amenities offered, and target market demographics.
- Value Proposition: The university should clearly define its value proposition for students, highlighting the unique benefits of its apartment units. This could include location, amenities, safety, and community features.
- Differentiation: The university should explore ways to differentiate its offerings from competitors. This could involve offering unique amenities, flexible lease terms, or targeted services.
Financial:
- Cost Analysis: The university should implement activity-based costing to accurately identify the cost drivers associated with each unit. This will provide a more precise understanding of the true cost of providing housing and inform pricing decisions.
- Pricing Strategy: The university should move away from a simple cost-plus pricing model and adopt a value-based pricing strategy. This involves considering market demand, unit characteristics, and the perceived value of the offering.
- Financial Performance Measurement: The university should establish key performance indicators (KPIs) to track the effectiveness of its revenue maximization efforts. These could include occupancy rates, average rent per unit, and overall profitability.
Operational:
- Asset Management: The university should optimize its asset management practices to ensure efficient utilization of its apartment units. This could involve implementing preventive maintenance programs, streamlining tenant onboarding processes, and implementing technology solutions for property management.
- Customer Service: The university should prioritize excellent customer service to enhance tenant satisfaction and encourage renewals. This could involve providing responsive maintenance services, clear communication, and personalized interactions.
- Employee Incentives: The university should consider implementing performance-based incentives for employees involved in apartment management to motivate them to achieve revenue maximization goals.
4. Recommendations
1. Implement Activity-Based Costing (ABC):
- Objective: To accurately determine the cost of providing housing services and identify cost drivers.
- Action: Conduct a comprehensive ABC analysis to allocate costs based on activities related to each unit. This will include factors like maintenance, utilities, administrative costs, and marketing.
- Timeline: Implement ABC within the next quarter.
2. Implement a Value-Based Pricing Strategy:
- Objective: To optimize pricing based on market demand, unit characteristics, and perceived value.
- Action: Conduct market research to understand competitor pricing, student preferences, and the value proposition of different unit types. Adjust pricing based on factors like location, size, amenities, and market demand.
- Timeline: Implement the new pricing strategy within the next semester.
3. Leverage Data Analytics for Targeted Marketing:
- Objective: To identify and target specific customer segments with tailored marketing campaigns.
- Action: Utilize data analytics to understand student demographics, preferences, and online behavior. Develop targeted marketing campaigns through various channels, including social media, email, and university events.
- Timeline: Develop and implement targeted marketing campaigns within the next semester.
4. Enhance Customer Service and Tenant Retention:
- Objective: To improve tenant satisfaction and encourage renewals.
- Action: Implement a customer relationship management (CRM) system to track tenant interactions, provide personalized communication, and offer responsive maintenance services. Develop a tenant satisfaction survey to gather feedback and address concerns.
- Timeline: Implement a CRM system and conduct tenant satisfaction surveys within the next semester.
5. Implement Performance-Based Incentives:
- Objective: To motivate employees to achieve revenue maximization goals.
- Action: Develop a performance-based incentive program for employees involved in apartment management. This could include bonuses based on occupancy rates, rent collection efficiency, and customer satisfaction scores.
- Timeline: Implement performance-based incentives within the next quarter.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with the university's mission to provide a high-quality educational experience for its students, including affordable and comfortable housing options.
- External Customers and Internal Clients: The recommendations address the needs of both external customers (students) and internal clients (apartment management staff).
- Competitors: The recommendations consider the competitive landscape and aim to differentiate the university's offering.
- Attractiveness ' Quantitative Measures: The recommendations are expected to lead to increased revenue, improved occupancy rates, and enhanced financial performance.
- Assumptions: The recommendations assume that the university has access to relevant data, is willing to invest in technology solutions, and is committed to improving customer service.
6. Conclusion
By implementing these recommendations, Fern Fort University can achieve its goal of maximizing revenue from its apartment rental units. This will require a shift from a cost-plus pricing model to a value-based approach, a focus on operational efficiency, and a commitment to understanding and meeting the needs of its student tenants.
7. Discussion
Alternative approaches to revenue maximization could include:
- Developing additional amenities: Adding amenities like fitness centers, study rooms, or laundry facilities could attract more students and justify higher rents.
- Offering flexible lease terms: Offering shorter lease terms or allowing subleasing could appeal to students with changing schedules.
- Partnering with external companies: The university could partner with external companies to offer services like meal plans or transportation.
However, these alternatives may require significant investment and could impact the university's core competencies.
Risks and Key Assumptions:
- Market Fluctuations: The success of the recommendations depends on the stability of the student housing market.
- Student Preferences: The university needs to stay updated on evolving student preferences to maintain its competitive edge.
- Investment Costs: Implementing the recommendations will require investment in technology, data analytics, and employee training.
8. Next Steps
Timeline:
- Quarter 1: Implement activity-based costing and performance-based incentives.
- Semester 1: Implement value-based pricing strategy, targeted marketing campaigns, and a CRM system.
- Ongoing: Continuously monitor key performance indicators, adjust strategies based on market trends and student feedback, and explore opportunities for further optimization.
By taking these steps, Fern Fort University can effectively address the challenges of maximizing revenue from its apartment rental units and ensure a sustainable and profitable future for its housing operations.
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Case Description
In the summer of 2016, a real estate investment company was planning management and budgeting for apartment rental units in Pittsburgh, Pennsylvania, a U.S. city with a large student population. The company needed to determine the various unit agreement terms-by year, by semester (fall, spring, and summer), and by month-using software to find optimal rents. Using Excel's Solver tool, the optimal rents needed to be determined and incorporated into a projected profit and loss budget for fiscal year 2017.
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