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How can builders in the higher price point luxury market sell homes, when there are so many lower priced homes for sale in the market?
Recently we had a builder send us a question regarding selling homes, when there are so many other lower priced homes in the market. I posed the question to a few members of our BuilderRadio faculty and thought you might like to see their comments.
Question: How can builders in the higher price point luxury market sell homes, when there are so many lower priced homes for sale in the market? The market has dropped so significantly that we can not sell homes at a profit. So long as there is an excess inventory of homes available at a 30 - 50% discount and building costs remain high, why would anyone buy a new home for more? In my local market, the market is completely price driven now. And pursuing other building opportunities is difficult when we are already strapped chin high in debt.
Responses:
Sales and Marketing is a “Process” the same as Production and Finance. The size of the building operation is irrelevant because the same principles and strategies for successfully marketing and selling properties prevail. Everything goes back to having the 4 P’s in balance i.e. Place (location), Product, Price and Promotion. As all we all know, and given the correct decisions in the 4 P’s, it is the knowledge and skill of the professional salesperson that understands how to match the buyer to the product, continually builds referral sales and protects the profit of the builder. The webinar programs reinforce the “Process” which a builder must respect if they are going to remain viable in the market through good times or bad.
My partner and I are custom builders catering only to Attorneys. We are considered one of the most profitable builders in the market and continue to build under any market conditions with 100% of our sales being referral from previous buyers and our valued professional Realtors. Our advertising budget is only .05% per year and our pre-tax is running around 17%. It can be done!
Roger Fiehn, 281-481-0831 x 1 www.rfiehn.com
Roger@RFiehn.com
===========
An intriguing question. One deserving of more time than I have to devote to it right now, but I cannot resist attempting a quick answer.
As to why would anyone pay more for a new to-be-built home than one they could pick up now at a big discount, I'll answer with a question. Why would anyone pay a thousand times more for a Rolex than they would be asked to pay for a superior time keeping wristwatch from Timex or Casio they could pick up at the corner Walgreens? The answer is that the Rolex delivers something extra beyond its function as a timepiece that for some purchasers is worth the difference.
This is a clear example of the difference between utility value and emotional value. All products have both kinds of value, but different products have them in wildly differing proportions. Luxury homes are almost completely about emotional value. They exist as symbols more than as dwellings.
Clue one. Buying a symbol at a discount will to some target buyers be shrewd; to others, a sign of reaching too high on the cheap. Big hat; no cattle.
It's important to keep in mind that the house is not the gift the customer is shopping for. As magnificent as the house may be, it is only the box the gift they're looking for comes in. It is perfectly natural for home builders to focus on the box, and think it's the thing. Marketers, however, should always be focused on the gift inside the box that represents the buyer's fantasy about how their life would be if they owned the box, could use the box and could show it off to their friends, family, fellow club members, rivals, co-workers or boss.
Clue two. It's not what the house is but rather what the house means that triggers the purchase decision. Back to Rolex, again. Add in, BMW, Mont Blanc, John Deere and the most magnificently marketed brand of all, Harley Davidson. All are products with medium (certainly not distinguished) utility value, but they all have extraordinary emotional value. All sell at premium prices, because lots of folks will pay extra for self-validation.
Come with me to Tallahassee for an afternoon and I'll introduce you to THE builder of significant homes. There are competitors, to be sure, but people line up to pay a $100,000 cash deposit to get on this guy's waiting list. And when their time comes, it's a cost plus deal. Always.
So what's being bought? Emotional or Utility value? This is a case of both in balance. This guy's ability to deliver beyond what he promises on time, on budget, with total customer satisfaction has created for him one of the best word-of-mouth marketing programs I've ever witnessed. People of means flock to him to build their homes. Nobody else would do.
Then, there's my favorite builder of significant homes in the desert southwest. His unique selling proposition is this. "I only intend to build eleven more homes. Would you like one of them?"
He is also faultless in his delivery, but this sale is all about emotional value. Just think what it means to his customers to let it slip to their friends that they're on the list.
Now to Atlanta. Truly on it's backside. Waay too much inventory. Waay too much economic distress. Truly a daunting challenge.
The "R" word doesn't appear in our question, but Atlanta is an "R" driven town. Please impute all proper respect and admiration for our "R" friends, but the phrase Realtor marketing is an oxymoron. The only tool they recognize to create positive product differentiation is price. And they don't want price to be higher to prove their value; they want it lower to make it easier. They have never been trained in the four-"P"s of marketing that Roger mentions, much less anything of what I've touched on above. They recognize no meaningful differentiation between houses or builders. It's all about price per square foot based on comparables times number of square feet. There is precious little selling skill to be found, because the truth of the matter is that all the money, and therefore all the skill, in general brokerage is on the listing side.
Clue three. One can find a few, a very few exceptions to this rule. I know one in Atlanta.
One last thought. Too many already, but I live for this stuff . Builders play into the price game by building ordinary houses. Hold on there, I know every builder believes his houses are superior, if for no other reason than they are his houses. The problem is that from the customer's point of view, the distinction is much less obvious - and will likely be invisible if the house is viewed in the company of one of our "R" friends.
The Marketer's mantra is this; From the customer's point of view, only WIIFM counts. Of course they focus on price when there is no other compelling reason to choose this house or this builder over alternatives. Gotta come up with some compelling reasons, and make sure customers understand them.
Wow, we've come full circle back to Rolex, haven't we?
Bill Webb, MIRM, wnwebb@aol.com
I lied; one final final thought. If you believe it's impossible, you're right.
===========
Remember to sell value and service first. It's not alway about price. It it is, you may have the wrong customer
Jerry Rouleau
Question: How can builders in the higher price point luxury market sell homes, when there are so many lower priced homes for sale in the market? The market has dropped so significantly that we can not sell homes at a profit. So long as there is an excess inventory of homes available at a 30 - 50% discount and building costs remain high, why would anyone buy a new home for more? In my local market, the market is completely price driven now. And pursuing other building opportunities is difficult when we are already strapped chin high in debt.
Responses:
Sales and Marketing is a “Process” the same as Production and Finance. The size of the building operation is irrelevant because the same principles and strategies for successfully marketing and selling properties prevail. Everything goes back to having the 4 P’s in balance i.e. Place (location), Product, Price and Promotion. As all we all know, and given the correct decisions in the 4 P’s, it is the knowledge and skill of the professional salesperson that understands how to match the buyer to the product, continually builds referral sales and protects the profit of the builder. The webinar programs reinforce the “Process” which a builder must respect if they are going to remain viable in the market through good times or bad.
My partner and I are custom builders catering only to Attorneys. We are considered one of the most profitable builders in the market and continue to build under any market conditions with 100% of our sales being referral from previous buyers and our valued professional Realtors. Our advertising budget is only .05% per year and our pre-tax is running around 17%. It can be done!
Roger Fiehn, 281-481-0831 x 1 www.rfiehn.com
Roger@RFiehn.com
===========
An intriguing question. One deserving of more time than I have to devote to it right now, but I cannot resist attempting a quick answer.
As to why would anyone pay more for a new to-be-built home than one they could pick up now at a big discount, I'll answer with a question. Why would anyone pay a thousand times more for a Rolex than they would be asked to pay for a superior time keeping wristwatch from Timex or Casio they could pick up at the corner Walgreens? The answer is that the Rolex delivers something extra beyond its function as a timepiece that for some purchasers is worth the difference.
This is a clear example of the difference between utility value and emotional value. All products have both kinds of value, but different products have them in wildly differing proportions. Luxury homes are almost completely about emotional value. They exist as symbols more than as dwellings.
Clue one. Buying a symbol at a discount will to some target buyers be shrewd; to others, a sign of reaching too high on the cheap. Big hat; no cattle.
It's important to keep in mind that the house is not the gift the customer is shopping for. As magnificent as the house may be, it is only the box the gift they're looking for comes in. It is perfectly natural for home builders to focus on the box, and think it's the thing. Marketers, however, should always be focused on the gift inside the box that represents the buyer's fantasy about how their life would be if they owned the box, could use the box and could show it off to their friends, family, fellow club members, rivals, co-workers or boss.
Clue two. It's not what the house is but rather what the house means that triggers the purchase decision. Back to Rolex, again. Add in, BMW, Mont Blanc, John Deere and the most magnificently marketed brand of all, Harley Davidson. All are products with medium (certainly not distinguished) utility value, but they all have extraordinary emotional value. All sell at premium prices, because lots of folks will pay extra for self-validation.
Come with me to Tallahassee for an afternoon and I'll introduce you to THE builder of significant homes. There are competitors, to be sure, but people line up to pay a $100,000 cash deposit to get on this guy's waiting list. And when their time comes, it's a cost plus deal. Always.
So what's being bought? Emotional or Utility value? This is a case of both in balance. This guy's ability to deliver beyond what he promises on time, on budget, with total customer satisfaction has created for him one of the best word-of-mouth marketing programs I've ever witnessed. People of means flock to him to build their homes. Nobody else would do.
Then, there's my favorite builder of significant homes in the desert southwest. His unique selling proposition is this. "I only intend to build eleven more homes. Would you like one of them?"
He is also faultless in his delivery, but this sale is all about emotional value. Just think what it means to his customers to let it slip to their friends that they're on the list.
Now to Atlanta. Truly on it's backside. Waay too much inventory. Waay too much economic distress. Truly a daunting challenge.
The "R" word doesn't appear in our question, but Atlanta is an "R" driven town. Please impute all proper respect and admiration for our "R" friends, but the phrase Realtor marketing is an oxymoron. The only tool they recognize to create positive product differentiation is price. And they don't want price to be higher to prove their value; they want it lower to make it easier. They have never been trained in the four-"P"s of marketing that Roger mentions, much less anything of what I've touched on above. They recognize no meaningful differentiation between houses or builders. It's all about price per square foot based on comparables times number of square feet. There is precious little selling skill to be found, because the truth of the matter is that all the money, and therefore all the skill, in general brokerage is on the listing side.
Clue three. One can find a few, a very few exceptions to this rule. I know one in Atlanta.
One last thought. Too many already, but I live for this stuff . Builders play into the price game by building ordinary houses. Hold on there, I know every builder believes his houses are superior, if for no other reason than they are his houses. The problem is that from the customer's point of view, the distinction is much less obvious - and will likely be invisible if the house is viewed in the company of one of our "R" friends.
The Marketer's mantra is this; From the customer's point of view, only WIIFM counts. Of course they focus on price when there is no other compelling reason to choose this house or this builder over alternatives. Gotta come up with some compelling reasons, and make sure customers understand them.
Wow, we've come full circle back to Rolex, haven't we?
Bill Webb, MIRM, wnwebb@aol.com
I lied; one final final thought. If you believe it's impossible, you're right.
===========
Remember to sell value and service first. It's not alway about price. It it is, you may have the wrong customer
Jerry Rouleau
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