Return to the Brecht Associates Site Assisted Living Market Saturation - Omens and Options by Sandra M. Fein Performing numerous market feasibility studies throughout the country provides a unique perspective about the characteristics common to markets approaching saturation in assisted living services. A number of geographic market areas are illustrating what happens when an abundant variety of assisted living options are already present in a community and additional facilities are planned. With the continued development of retirement facilities in these marketplaces, existing communities are feeling the sting of increased competition for residents. Representatives of several regional and national assisted living development and management corporations recently contributed their perceptions about the issue of market saturation, shared some of its danger signs, and identified some coping strategies that they are considering or using. One corporate marketing manager recently described the problem of market saturation as, "One or more segments of the of the community may have too many units in it for the neighborhood in which it is situated." This succinct statement is a broad outline of the end result of market saturation- too many facilities or units competing for the same consumers. In the next section of this article we will explore some danger signs of market saturation or over-development and how we might avoid them. The following section will describe ways that some assisted living facilities are coping with this problem. Danger Signs or Omens Many of the "Danger Signs" or omens of assisted living market saturation are so fundamental that listing them may produce a "so tell me something new" attitude among industry professionals. However, the fact that additional markets are becoming saturated suggests that they are often ignored by those working in the retirement industry. The following sections will first describe the more objective danger signs followed by the more subtle danger signs of market saturation. Objective Danger Signs The elderly population is insufficient to support additional assisted living development. Before jumping into a new marketplace or expanding an existing community, one needs to determine whether the target population for assisted living, typically those over age 75, is increasing, decreasing, or remaining static. Strategic thinkers should be asking and searching for answers to the following questions, "Will there be a continuing need for all of the existing assisted living communities already in place, much less new ones? "Among the elderly population cohort, are there enough elderly residents in this geographic area with the financial resources to enable them to afford assisted living rental rates now and in the future?" With monthly assisted living rates in many areas typically averaging between $2,500 and $3,000 per month, "How big is the pool of elderly with an income stream of $30,000 to $36,000 per year?" A separate but related concern involves overall market penetration statistics for the geographic area. "Are existing facilities currently serving more than 20% of the age and income qualified population?" The answers to these questions are an important starting place in evaluating the depth and breadth of an assisted living market. Changing occupancy levels remain a key indicator of market status. One of the first signs of market saturation for assisted living facilities is a change in the overall pattern of occupancy in a community. In an over-built market, facilities which were previously operating at close to 100% occupancy begin to evidence declines of 10% or more in their average occupancy. These occupancy reductions tend to cut across the entire geographic area and affect retirement communities which are well perceived market leaders, not just newer entries or older less up-to-date facilities. As one marketer noted, "Too many communities going up in too short a time even in the suburbs results in too many vacancies." A companion sign, change in waiting list size, is also an indicator of market health. In saturated markets, waiting lists start to erode as the pool of potential residents is absorbed into competitive facilities. As assisted living facilities become desperate to maintain target occupancy levels and the population base needing supportive services diminishes, facilities begin to "cannibalize" each others residents. Adding additional assisted living units to a market area where occupancy rates are already falling merely shares the problem across a broader number of service providers. Especially in those communities where assisted living services are reaching elderly less familiar with this type of care, additional time is needed to absorb new assisted living units. Unemployment levels. Are unemployment rates in the specific geographic area high or low? In highly competitive marketplaces, a low unemployment rate can affect a community's ability to staff at optimal levels or to retain well qualified staff. Skilled or exceptionally talented staff are often recruited away from one retirement community to another. Employee transfers among competitive facilities result in increased recruitment and training costs. Developers operating in highly competitive markets also report that there is an increased tendency to pass poor quality staff back and forth to other facilities. This can result in diminished resident satisfaction and inability of a community to live up to its reputation for quality. As we all know, negative experiences are often communicated at a faster pace and to more acquaintances than more ordinary occurrences. When unemployment rates are high, younger families may have difficulty in assisting elderly relatives who have insufficient funds for private assisted living services. In lower income communities, many families traditionally seek nursing home placement for elderly relatives due to the availability of Medicaid financial support and the lack of private financial resources. Subtle Danger Signs Slowdowns in planned development timetables. In desirable markets it is not uncommon for multiple developments to be in the planning or construction stages simultaneously. Once the construction process has begun, it is usually difficult to abandon these projects. When signs indicating that a market may be saturated are present, some developers may opt to delay or defer the opening date of an assisted living community to further explore market positioning strategies or to allow sufficient time to recruit and train staff. An especially long development period for a planned facility may signal that there is trouble in the market and warrant a further exploration of market conditions. A few of the larger national developers at times ignore some of these warning signs in the belief that their "brand name" or unique service package will succeed in attracting residents in spite of high market penetration levels. Less experienced assisted living communities or those with fewer financial resources need to take a long look at the reasons behind development timetable changes. Sharply increased marketing and promotional activity. Increased competition for residents is a natural outcome of assisted living market saturation. The changes in the marketplace may be subtle at first, but quickly capture everyone's attention. According to corporate marketing managers, saturated markets often result in the creation of an overwhelming volume of local advertising, with each ad generally conveying similar messages. Retirement living sections of newspapers are typically bombarded with tender photos of an elderly parent and middle-aged daughter extolling their peace of mind since Mom moved into Community X. For the majority of consumers, often the adult children of the elderly, these messages tend to be indistinguishable as each community pledges to provide the safest and most harmonious new home. Sophisticated facility marketers also target promotional material directly to key referral professionals in the marketplace. In the technological age, many of these contacts take the form of daily or weekly faxes sent to geriatric case managers, hospital discharge planners, and physicians' office staff describing available apartments and highlighting vacancies. In describing the speed of market changes, one assisted living executive reported, "One year ago there was no problem, it became evident in the last six months." In the case of his Midwestern community, the increased number of assisted living options available required that more time and effort be placed on marketing than had been necessary previously. Geriatric counselors serving this community reported that they were being inundated with communications from various assisted living providers as they worked to shore up sagging occupancy. Location and amenity sensitivity. As competition intensifies due to market saturation, consumers tend to become more demanding about the location of assisted living communities and the additional amenities that are included in monthly rates. In an assisted living arena with few facility options, family decision-makers will often choose whatever retirement residences meet their care needs, even when those facilities are located some distance away from their desired locale. This is far from true in a congested market, where the geographic area in which they will consider placing their elderly relatives contracts to a much more narrowly defined radius. In crowded markets, the physical appearance of retirement communities is also more carefully scrutinized in comparison with other nearby facilities. There is less tolerance for those facilities failing to maintain an attractive and well-kept appearance or perceived as not being modern and up-to-date. Such facilities may find themselves losing residents to newer retirement options. Families of the elderly also develop heightened sensitivities to amenities provided by competing facilities and increase their expectation about services that they want included in the monthly rates. Blurred Service Definitions. As the effects of market over-development begin to be felt by existing facilities, retention of current residents becomes increasingly important to financial stability. Some retirement communities will delay resident turnover by holding residents in a level of care which may no longer be appropriate. This is not the same as saying that the care provided is inadequate. Rather, additional support services may be provided to some residents in order to avoid creating a vacancy through transfer of the resident to a higher level of care. Consumers are often ill equipped to evaluate the appropriateness of the care provided or the adequacy of the setting. As one marketing professional noted, "They all look residential and that's a good thing for consumers." Consumers, including the elderly and their family members, generally are best able to evaluate the residential or "hotel" services of a facility- its overall appearance, housekeeping effectiveness, and food quality, rather than the supportive care components. Knowledgeable marketing professionals can help to educate these consumers about the services and support features that differentiate a good assisted living facility from one that is merely adequate. Development Volume and Timing. As noted by several retirement industry management professionals, assisted living market saturation in a geographic area can develop in a comparatively short period of time. Saturation can evolve in an area where existing retirement communities have enjoyed a lengthy period of tranquility and have co-existed quite comfortably. What then causes a marketplace to change for the worse? In some cases, the sudden influx of a high volume of new assisted living product in a short period of time will make the difference between a mature but stable and a saturated market. At present, there are no universally accepted standards in the assisted living industry by which to measure this phenomenon. However, anecdotal evidence collected through market feasibility research in multiple geographies suggests that a community's ability to absorb additional assisted living units is strongly linked with the volume of new units coming into the market at a given period in time. One benchmark currently being evaluated suggests that when new assisted living units exceed 20% of units occupied during the previous year, the entire assisted living community will experience difficulties with absorption. Once we have identified both qualitative and quantitative danger signs of assisted living market saturation, how do we work to overcome these conditions in an over-built market. Experienced assisted living industry management professionals identified some of their strategies for coping with market saturation. Their recommendations are presented in the next section. Strategic options for competitive assisted living markets. Market Differentiation. In a crowded assisted living market it is important to find a way to stand apart from the rest of the crowd. One marketing executive noted, "Market differentiation is critical. You must decide what makes your community unique and support that niche." A key starting place is to evaluate the needs of community residents, assessing the other services available. Speak to geriatric healthcare counselors to obtain information about problems that they experience in placing elderly who can no longer live alone. This information is crucial in developing services that respond to community needs and are unique. For example, How are facilities for residents having Alzheimer's Disease or other dementias organized? Are there other segments of the elderly population who are under-served? A community can also differentiate itself based upon its service philosophy. Some communities establish specific goals to be more responsive to their clientele in every way. These goals permeate each staff contact with residents and family members and are often demonstrated through attentiveness to resident or family needs before they are expressed. Extending the Service Continuum. Family members often worry about elderly relatives living alone in the community, who have not yet agreed to move to a retirement facility. Even when the elderly relative is living with other family members, it is often difficult for family members to pursue other activities for fear of leaving the older relative alone. Addition of a day care program to an existing assisted living community can help provide a resource to care-giving family members and familiarize elderly with a community before they require its residential services. Day program participants can be integrated into scheduled activity programs with relatively minor changes to the facility's infrastructure, since meals, designated activity areas, social programs, and entertainment are usually provided to community residents. Therefore, while development costs are marginal, long term benefits can be large. Day participants can get to know facility residents and gain new perspective about life in a retirement community. This can help to reduce negative perceptions and build social connections. When such participants are no longer able to live independently, they are more likely to choose to reside in a community where they are familiar with staff and residents. In interviews, several representatives of communities offering a single level of care reported that addition of a day care program helped them to compete with communities providing a continuum of care. Hospice services are another means of extending and differentiating assisted living services. Many families are reassured by the knowledge that their loved ones will not be required to move from familiar surroundings to obtain needed care. Hospice services can often be provided in conjunction with a home health agency and may be covered by insurance. For many terminally ill elderly and their families, the ability to continue to maintain one's own residence while receiving supportive care is a more desirable alternative than moving to a skilled nursing facility. A number of facilities are also offering respite care programs as another service extension tactic. Like adult day care, respite programs can be developed with minimal additions to existing facility resources. Most communities typically have one or more vacant units at any point in time. Some have chosen to designate one or two respite or guest suites and keep them available at all times. Respite facilities help younger family members retain peace of mind when other demands temporarily make caring for an elderly relative difficult. They also allow the elderly person an opportunity to experience life in a retirement community without making a long term commitment. A positive short stay experience can set the stage for later transition to retirement community living. Courting Referral Sources. One of the most effective means of maintaining occupancy levels is to identify, educate, and utilize professional referral channels. Private geriatric care managers, hospital discharge planning nurses, transitional care directors, and medical office staff in practices serving a geriatric clientele all come into frequent contact with frail elderly and their family care givers. These professionals help families determine when the elderly family member can no longer live alone safely or requires more extensive support than can be provided at home. Many successful assisted living communities cultivate relationships with referral professionals and educate them about the unique characteristics or services offered in their communities. These dialogs help the referral professional to provide a solution to a care and safety dilemma, as well as permitting discharge from the hospital. Tours and meetings hosted by assisted living communities are helpful to referral professionals so they can provide first hand information about these facilities when asked questions by patients' family members. As familiarity with the concept of assisted living grows, may adult children of the elderly are becoming more attuned to these services. As a result, some communities are working to build relationships with middle-aged community residents before a specific family need arises. Hosting educational programs exploring mid-life or elder care issues, whether they are legal, financial or healthcare oriented in scope, provides an opportunity to bring community residents into your facility. These visits can help to demystify popularly held negative perceptions about retirement communities and allow younger adults to observe the benefits of retirement community life. Some assisted living communities are also refocusing print advertising oriented to the elderly and their family members. Newer marketing materials are placing increased emphasis on the positive features of retirement community lifestyle, rather than over-emphasizing the care-taking services. Many elderly have a negative image of nursing care facilities and sometimes project these negative perceptions onto assisted living communities, as well. Informing area residents about the social and recreational aspects of community life offers a more positive approach in marketing assisted living communities. One marketer summed up the challenge by asking, "How do you convince someone they've settled for second best if they go to a different facility?" Pricing Strategies. Competition based on monthly fees is a two edged sword. As we know, consumers often have difficulty differentiating the services provided at competitive facilities. They sometimes use fee levels as a substitute measure for quality or value. Pricing should flow from an understanding of the marketplace, the target population for your community and your management philosophy. One corporate marketing professional noted, "Pricing must meet customer's perception of value, even if prices do not cover all of the costs." Before engaging in a price based marketing campaign it might be helpful to ask yourself the following questions, "Is your community willing to compete as a "bargain basement" community? Can you afford to engage in a price war to secure residents and deal with frequent turnover as another community responds in kind? Will unrealistic pricing defeat your ability to maintain service quality? Does your target market derive satisfaction from being able to afford a more upscale community? Do unemployment levels in your locale require higher staffing costs which must be factored into overall rates? These are some representative issues affecting pricing strategies. Price is rarely a stand alone issue. It should be used in context with other strategic tactics designed to position your community. Most importantly, assisted living marketing professionals need to educate the public about what they are receiving for the monthly rate paid. A more thorough understanding of services and benefits will enable consumers to differentiate value from price. Discouraging new facilities. Some marketing professionals are taking pro-active steps to intercede with governmental agencies and even potential competitors to discourage over-building in some markets. They are working to educate county and municipal planners about the demographic foundation needed for assisted living communities to succeed. Existing communities are contributors to the local tax base through corporate and payroll taxes. Should one of them fail the entire community can lose a needed residential alternative and a source of tax revenue. Some marketing professionals are also seeking out competitor's development and feasibility staff in the early stages of an assisted living project to discuss market issues within specific geographic areas. They believe that a frank factual discussion of the competitive status in the market area will help to discourage the development of more units than the area can support. While these efforts, especially the latter, produce mixed results, they serve to increase awareness of competitive issues within the professional community. As one marketing professional noted, "Over-building now just doesn't make sense, it's premature. Baby-boomers will shape the marketplace differently." The assisted living industry needs to continually monitor the preferences of the elderly and their family support networks in order to promote the best possible fit between services available and residents' needs. As the various danger signs discussed in this article indicate, market saturation may result from a complex of many factors. These include demographic characteristics, including the size and income levels of the elderly population; the number and types of competitive facilities available; consumers' inability to distinguish between different retirement and elder care options; and market timing. As the assisted living industry continues to mature, additional geographic areas in the United States may begin to experience the trauma of market saturation. As noted by Susan Brecht in Retirement Housing Markets, "Defining market saturation and what actually constitutes a "saturated" market is very difficult in retirement housing....Saturation should not be measured by the number of projects and units in a given market; it is more likely a function of timing rather than quantity, an effect of the pace of development and the length of time over which it has occurred." Over-building in a geographic market area can be avoided through careful and systematic analysis of market characteristics, thorough evaluation of existing competitive resources, and assessment of planned retirement services. By differentiating the types of products available, as well as unit configuration, a variety of competitive communities may be permitted to co-exist. Return to the Brecht Associates Site