By Oren Jacobson, Market Analyst - New Home Star
Builders across the country are enjoying a seller's market for the first time in many years. Supply is down and demand is up, allowing builders to take advantage of the opportunity to push pace and price. If the market dynamics you face allow you to take advantage of this moment, do so. However, it's important to beware of the "success trap" that far too many companies enter during times of strong performance.
What exactly is the "success trap"? Simply put, it's the tendency for companies to allow moments of growth and success to become the excuse for not approaching their business the right way. It traps businesses into ignoring flaws, excusing weaknesses and expanding beyond capacity in the pursuit of profit, overextending their organization.
The question we must ask ourselves is, "What happens if there is a shock to the market?" We've had a near zero FED funding rate for years and have experienced only tempered growth. There continues to be challenges in Europe's economy and China's growth has not only slowed, but there are concerns of a housing bubble there too. While the American economy is relatively strong compared to the rest of the world, we are not immune to the effects of a global economy. What if an ugly election causes the world to lose faith in our ability to govern ourselves?
Mortgage interest rates have remained incredibly low for an extended period of time. This means housing is affordable. What if rates went up 1%? We've trained our salespeople to communicate the opportunity clearly and with urgency because the impact is substantial and real. But, what we haven't asked our builder partners is this: How will you respond to an interest rate increase? What are you doing to plan for it and ensure that when it does happen your results don't suffer? What if demand drops again? Will you still be able to maintain pace and price?
It will happen, the question just remains when. Incomes have been stagnant for a long time as costs have increased. This means that a large portion of the buying public will see a substantial increase in terms of cost of housing. Further, as a percentage of their income relative to all costs, the impact would be even greater than the dollar-for-dollar effect.
Does this mean people will stop buying? No. Does this mean we will see a massive drop off? Probably not. What it does mean, though, is that it'll be harder to sell homes than it is now. To combat this, we must prepare our business for the evolving market by asking ourselves a series of questions:
- Model/Sales Center: Do your models look crisp, sharp and attainable yet aspirational? Or are they glorified resale homes with a desk and a sales consultant? Does your pavilion or selling area communicate your Unique Selling Proposition? Does it create a space for the customer to sit and engage? Does it allow for your sales team to be able to guide the customer through the funnel (Area, Builder, Community)? Does it exude class and quality? Is there a consistency in branding or is your layout simply a mismatched pairing of branded collateral? What is your customer's first impression?
- Online Presence: Have you reviewed your website and social media strategy? Do you have a well-developed strategy in place? Does your website follow new understandings of marketing concepts? Websites are for more than simply selling your floor plans; they're an integral way of branding yourself and showing the lifestyle you have to offer. What is a prospect's first impression? Are you using visuals that appeal to your target consumer group? When it comes to Facebook, Twitter and other social channels, use social media to build a digital community. Review your following, your click rate and how you're communicating the value of your brand. Are you engaging in two-way communication with customers and residents? Are you worth following?
If you can't answer these questions the right way, you are in danger of falling into the "success trap." Whether we want to believe it or not, our modern-day customers are judging us on this stuff. If you're in a stretch of high performance, then you may not be seeing any gaps in these elements today. However, avoiding the "success trap" by correcting these errors now will result in immense benefits down the road. Invest in the long-term success of your business today. Your customers are constantly evolving. Are you?
Oren Jacobson holds an MBA with an emphasis in strategic management and is currently working on his master's degree in Economics and Policy Analysis at DePaul University in Chicago. As the lead strategic marketing analyst for New Home Star, Jacobson specializes in helping builders maximize their asset positioning through market segmentation, consumer alignment and data analysis. He also leads the NHS team in the creation of training tools and resources to develop and enhance their expertise in sales.
