by: Frank Guido
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: Dont 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 companys 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 Tridels 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 Tridels 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 models black-line floor plans. The black-line drawing anchors the viewers 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 weve 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 purchasers 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 dont 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 Tridels website from a simple, corporate website into a highly-specialized consumer portal. The companys webpage has been so successful, in fact, that Tridels online community has consistently been ranked as one of the top 200,000 sites on the Internet.
The true key to Tridels 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 companys 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 theyre 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, well 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 companys 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 purchasers 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 whats 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 purchasers 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 purchasers 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 dont 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 its all about creating the most positive purchase experience for your present and future customers. Try and look at your companys buying process from a purchasers perspective; if you dont feel it serves the customer to the absolute highest degree, you may need to make some simple, but much-needed adjustments. Whether youre 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 todays 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.
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.