It finally appears as though the current North American housing cycle
has crested and is beginning its retreat from record starts and
unprecedented prices. Housing starts by June 2006 are down by
approximately 15% compared to the same period last year. Consequently,
industry heavyweights such as D.R. Horton, Ryland Group, and M.D.C.
Holdings Inc. are beginning to report significant decreases in revenue,
a sure sign the North American home and condo market is beginning to
lose its luster. With this change in purchasing behavior, the focus of
builders is beginning to shift towards establishing creative ways with
which to maintain sales in a declining market. This article explores 5
strategies that your company can implement to help ensure that your
business remains healthy.
In this new age of building, in order to ensure a healthy bottom
line it is absolutely vital for a builder to manage and even reduce
their costs. With the abundance of new projects coming online, the
amount of capital tied up in building, designing, furnishing and
managing the associated sales centers and model homes is skyrocketing
in comparison. So how can you maintain the impact and visual cues a
model home provides while trying to minimize or even reduce the
financial impact? The answer may surprise you: Don’t build a
model home!
Since 1994, Tridel Corporation, a prominent builder in the Toronto
market has been achieving tremendous sales results without the aid of
model units. By taking advantage of both virtual reality and interior
vignettes – Tridel has been able to effectively communicate to
and capture the attention and imagination of potential purchasers.
Early on, Tridel identified their need to eliminate physical model
units, realizing the negative impact they had on the company’s
bottom line including rising maintenance costs. It was clear to this
progressive company that the traditional approach to selling units
would no longer suffice in a revitalized and competitive marketplace.
In order to meet their goals, some difficult decisions had to be made.
The result: All of Tridel’s model units were abandoned in favor
of virtual models.
“Prior to 1994 we relied largely on physical suites – but
since that time we have used 100% virtual suites,” says Jim
Ritchie, Senior Vice President of Sales & Marketing at Tridel.
“The elimination of physical suites has saved us on average
$250,000 per sales center,”
The virtual models had practically none of the maintenance cost and
logistical issues that had once hindered the company, and in a
synergistic twist – allowed Tridel to more effectively convey
their message to potential purchasers, actually increasing customer
satisfaction during the critical purchase phase.
Within the past several years, a number of builders have opted to
follow Tridel’s lead and make the transition from building a
physical model to hosting a virtual one. This strategy has proven to be
quite lucrative for some, saving the builder hundreds of man-hours and
countless dollars in the process. You may think this strategy cannot
possibly work for your company, but read on and you may find that NOT
building a model home can be one of the best decisions you make:
Suppose a typical model costs approximately $200 per square foot to
build and furnish. Maintenance and staffing the model can cost an
additional $45,000 annually. A typical 1200 square foot model
investment will realistically cost $250,000. In contrast, the cost of
designing and fully rendering a virtual model would only require a
$5,000 expenditure, less than 2% of the cost of a traditional model!
Integrating virtual renderings into your traditional sales center
and marketing campaign is also crucial to a successful sales strategy.
Often, a builder will rely upon renderings and virtual tours to do the
selling for them rather than using them as tools to aid in the sales
process. When incorporating these virtual tools into your existing
sales environment, ensure that the virtual and physical complement one
another functionally. A virtual kitchen tour should be located in
proximity to the cabinet, tile and countertop samples enabling visitors
to better visualize these options in their proper context. Another
effective technique includes pairing a virtual tour with a
model’s black-line floor plans. The black-line drawing anchors
the viewer’s perception of ‘where’ in the model they
are, while the virtual tour can take them ‘inside’ to see
and experience what being in the space is actually like.
So we’ve discussed how minimizing your sales center-related
expenditures can help in maximizing your overall profit-per-sale. Would
it surprise you then, to learn that you can decrease your overall
spending even further simply by reducing or even eliminating high cost
advertising and promotional campaigns? Most builders fail to realize
that their greatest asset is right in front of them - their current and
past purchasers. If homeowners move on average once every seven years,
then your current and past purchasers may well begin their search for a
new home in the not-too-distant future. The following section will
illustrate how tapping into this cycle can actually help you decrease
your advertising and marketing costs.
Carl Freeman Communities, a luxury home developer from Delaware, has
been successfully using this strategy and marketing their communities
on a ‘reduced budget’ for the past several years. By using
a reliable contact relationship management (CRM) system, Carl Freeman
Communities is directly targeting and communicating to current Carl
Freeman home owners. With the help of its CRM application, Carl Freeman
can regularly send low-cost and timely emails to homeowners and
prospective homebuyers alike. This low-cost, low-overhead marketing
channel allows Carl Freeman staff to keep its pool of buyers and future
purchasers abreast of the latest and most relevant community news, as
well as communicate to them any home offers which may be available.
In a recent campaign promoting their Bayside golf course community,
Carl Freeman managed to attain a response rate of over 50% using an
inexpensive email campaign setup and administered using their CRM
application. The overwhelming response to this email blast enabled the
company to sell-out their first phase in a matter of days. In analyzing
the net results of this strategy over previous ones, the campaign
helped drive a strong increase in sales in a relatively short amount of
time - all with very little output in terms of marketing expenditures.
Very few builders consider their current and past purchasers as a
viable source of future revenue, but they fail to realize that from a
purchaser’s perspective – if they were satisfied with their
purchase experience the first time, chances are they would be equally
satisfied with any subsequent purchases with the same builder as well.
By capturing important contact data at the point of sale, as a builder
and marketer, you can develop a significant consumer base with which to
market to in future campaigns. Combined, this strategy can provide your
company with very successful, highly targeted campaigns while
simultaneously minimizing the cash drain on your sales and marketing
budget.
Like Carl Freeman, most successful builders and developers
consistently seek out and attempt to effectively utilize any known
sales and marketing channels to their advantage. One of the most widely
used mediums of the day is the World Wide Web, and although used on a
frequent basis by many, it is rarely used as efficiently as it can be.
The truly successful builders using this valuable marketing channel are
the ones who recognize the intrinsic value in developing a highly
targeted web campaign.
In the 21st century, it has become increasingly common for builders and
developers to employ some form of Internet marketing presence,
prominently showcasing their projects or communities, and marketing
their products online. Most of these sites contain information about
the company, including contact information and the usual corporate
legal jargon. What most of these sites don’t provide, however, is
a forum for web visitors to truly interact with the builder, and to
really explore their potential future home and community.
Since the first project launched without employing some form of
model unit, Tridel has shone a spotlight on their corporate website,
making it much more than a simple information tool. As part of their
sales and marketing strategy, Tridel has developed a sophisticated,
multimedia-rich website targeted towards creating an immersive and
personalized browsing experience. This strategy has resulted in the
transformation of Tridel’s website from a simple, corporate
website into a highly-specialized consumer portal. The company’s
webpage has been so successful, in fact, that Tridel’s online
community has consistently been ranked as one of the top 200,000 sites
on the Internet.
The true key to Tridel’s success is not so much about the website
itself, but the way in which it leverages the open and unassuming
nature of the Internet as the company’s primary marketing
channel.
Instead of being ‘fed’ information which has been simply
posted onto the website, upon their first visit to the page, a web user
finds exactly what they’re looking for and explores, completely
immersed in an interactive and informative media experience.
“By integrating VR solutions into our website and email
campaigns, we have been able to significantly improve our website
traffic and leads,” says Jim
In effect, the website has now assumed the role of a sales center,
allowing visitors to peruse and review anything they choose, at a time,
and in a manner that is convenient to them.
Like Tridel, Carl Freeman Communities has also achieved tremendous
success online. Patti Grimes, Vice President of Marketing for Carl
Freeman, is a firm advocate of the power of the internet.
“Providing floor plans and virtual tours of our homes on-line
greatly assists our home buying prospects in selecting the home type
that best fit their lifestyle in a timely and user-friendly
manner.”
The main benefit to these companies strategy is that instead of
investing money in developing new marketing channels such as radio,
television, and print media each time a new project is launched, both
have managed to effectively leverage their continuing online investment
to produce perpetual results. . By ensuring that their websites are
fully functional and a bona fide marketing channel, Tridel and Carl
Freeman benefit by earning significant financial returns with a minimal
outlay of expense.
Having discussed several ways by which cutting sales and marketing
costs will help to ensure your company benefits from a leaner operating
budget and healthier bottom line, we’ll now examine how striving
to go beyond these strategies can set your company apart from the pack,
further adding to your financial successes and increasing new home
sales.
A grim reality of the cyclical market in which we operate, is the
fact that consumer demand will inevitably decline for a sustained
period before it begins any type of rebound. The million-dollar
challenge is to create a growth situation for your company in a
marketplace where growth ceases to exist. With the number of new home
buyers appearing to drop off, conventional wisdom dictates that your
focus switches to overcoming competitor strategies and determining how
to secure purchase commitments from a dwindling pool of buyers. For the
average home buyer the entire purchase process is often an overwhelming
experience that sees them faced with a torrent of financial figures,
deposit requirements, décor options selections and having to
decipher all the legal ‘mumbo-jumbo’ found in purchase
contracts these days. Alarmingly, this experience illustrates more the
industry norm, rather than the exception as few builders take the time
to analyze and ensure their company’s purchase experience is an
inviting and friendly one. Striving to eliminate these confusions and
streamline the purchase process will almost certainly result in greater
purchaser satisfaction.
So where do you begin? While it would be extremely difficult to
cover the myriad ways to accomplish this task within these pages, the
following represent a few of those methods identified as producing the
greatest results with minimum expenditure: First off, ensure that every
step in the home-buying process has been designed to educate and
simplify the purchaser’s experience rather than leave them asking
more questions than when the process began. You can also eliminate the
need to fill out redundant forms and paper work by employing a
computer-automated forms generation system which can significantly
reduce the aggravation of errors and omissions. By creating a
décor options catalogue that prominently distinguishes between
standard and upgrade products and explicitly outlines upgrade costs, it
will all but eliminate what’s known as purchaser
‘sticker-shock’ and make them more receptive to options and
add-ons. Finally, implement a simple mortgage-calculation utility which
can maintain a running tally of a purchaser’s expected monthly
payment, including all principal, interest and options selections
combined. Each of the above solutions, while simple to implement on an
individual basis, will serve to drastically improve a purchaser’s
satisfaction with the overall home-buying process.
Another hallmark of a boom-time housing market is the fact that
builders and developers tend to focus on sales volume, emphasizing
quantity, which has caught more than a few mid-stride just as the
market turns soft. In a cooling marketplace, this strategy is no longer
viable and the focus begins to shift from one of volume to one of
value. By focusing on adding value to an already-purchased home,
builders can manage to maintain current profit margins while selling
fewer homes.
New home upgrade options have seen an unprecedented rise in
popularity as buyers have become more demanding and conscious of the
décor options available to them. In this climate, builders have
been hard pressed to not offer increased décor options and
selections to meet this insatiable appetite. Although it would seem
nothing else can be done, options sales have not yet reached their full
potential however, as many consumers remain apprehensive towards them
due to their increased cost burden. The challenge is to anticipate
these apprehensions and implement effective tools such as the mortgage
calculator previously mentioned to counter their trepidation.
As an example, a $5,000 price tag for upgraded cabinets may intimidate
or convince a purchaser they don’t really want the upgrade, but
when put into the perspective of a 20 year mortgage – the added
cost is minimal. The $5,000 cabinet upgrade appears to be a bargain
when viewed as the $21 monthly mortgage premium it actually is. As you
can imagine, working with a mortgage impact figure can serve to
generate higher demand for upgrade purchases.
Eric Lee, Director of Product Development for The Estridge Companies,
is a firm believer in options upgrade sales and implementing programs
to ensure their growth. “ Based on our current sales rate, we
know for a fact that customers are able to understand the product they
are buying and are willing to enter (in to ) a contract with us.”
The strategies and enhancements discussed today represent only a
few of the tools you can rely on to gain a competitive edge, as
it’s all about creating the most positive purchase experience for
your present and future customers. Try and look at your company’s
buying process from a purchaser’s perspective; if you don’t
feel it serves the customer to the absolute highest degree, you may
need to make some simple, but much-needed adjustments. Whether
you’re exploring ways by which to cut your operating costs, or
developing methods to increase the value of every home sold, the buying
public will notice and reward you with increased sales and greater
profitability. Creative thinking is no longer a luxury, but has become
a necessity in today’s changing marketplace – so throw away
the proverbial book and begin thinking outside the box. You may be
surprised at what you find when you allow the creativity to shine
through.
About The Author
Frank Guido, President and CEO of
http://www.aareas.com,
has been at the forefront of merging technology and sales strategies in
the home, condo and resort building industry for more than 15 years. By
effectively drawing upon his extensive technical background, as well as
industry-proven sales and marketing experience.
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