The housing cycle has crested. Housing starts by June 2006 were down by approximately 15 percent 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 condominium market is beginning to lose its luster. With this change in purchasing behavior, the focus of builders is beginning to shift toward establishing creative ways with which to maintain sales in a declining market. In this space, we explore five strategies builders can implement to help ensure that business remains healthy.
ABANDON MODEL HOMES
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. 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 4 32 units. By taking advantage of both virtual reality and interior vignettes Tridel says it has been able to effectively capture the attention and imagination of potential purchasers. Early on, Tridel identified its need to eliminate physical model units, realizing the negative impact they had on the company's bottom line including rising maintenance costs. 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 percent virtual suites," says Jim Ritchie, senior vice president of sales and marketing at Tridel. "The elimination of physical suites has saved us on average $250,000 per sales center."
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 1,200square-foot model 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 percent 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.
FOCUS ON CRM, NOT ADS
If minimizing your sales center-related expenditures can help in maximizing your overall profitper-sale, so can 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-toodistant future.
Carl Freeman Communities, a luxury home developer from Delaware, has been successfully using a reduced marketing 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-overhead marketing channel allows the 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 its Bayside golf course community, Carl Freeman managed to attain a response rate of over 50 percent using an inexpensive email campaign setup and administered using its CRM application. The overwhelming response to this email blast enabled the company to sell-out its first phase in a matter of days.
MAXIMIZE YOUR WEB SITE
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 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 marketing channel are the ones who recognize the intrinsic value in developing a highly targeted Web campaign.
In the 21st century, it has become common for builders and developers to employ some form of Internet marketing, 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 its corporate Web site, making it much more than a simple information tool. As part of its sales and marketing strategy, Tridel has developed a multimedia-rich Web site targeted toward creating an immersive and personalized browsing experience. This strategy has resulted in the transformation of the site from a simple, corporate Web site into a highly-specialized consumer portal. It has been so successful, in fact, that Tridel says its 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 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 site, upon their first visit to the page, a Web user can become immersed in an interactive and informative media experience.
"By integrating [virtual reality] solutions into our Web site and email campaigns, we have been able to significantly improve our Web site traffic and leads," says Ritchie.
In effect, the Web site 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 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 online greatly assists our home-buying prospects in selecting the home type that best fit their lifestyle in a timely and user-friendly manner," she says.
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 sites are fully functional and a bona fide marketing channel, Tridel and Carl Freeman say they benefit by earning significant financial returns with a minimal outlay of expense.
BE EFFICIENT
In a slowing construction market, the homebuyers who do exist get to be a lot more discerning when it comes to choosing a builder. It follows, therefore, that builders' customer service and overall customer experience that they provide must be fine-tuned.
First off, ensure that every step in the homebuying 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 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 decor options catalog that prominently distinguishes between standard and upgrade products and explicitly outlines upgrade costs, it will all but eliminate what's known as purchaser stickershock 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.
QUALITY, NOT QUANTITY
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 decor options available to them. In this climate, builders have been hard pressed to not offer increased decor 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, as many consumers remain apprehensive toward 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. 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, says options upgrade sales and implementing programs are essential to ensuring growth. "Based on our current sales rate, we know that customers are able to understand the product they are buying and are willing to enter into a contract with us," he says.
Frank Guido is president and CEO of Aareas Interactive Inc. (www.aareas.com).