Could some of the most in-demand housing markets be cooling off?
Can't Buy Me Love!
Imagine with me, for a moment, if Paul Tagliabue, Commissioner of the National Football League, were to receive a letter like this from an upset Detroit Lions fan*: Dear Mr. Tagliabue, I am a long-time, loyal fan of the Detroit Lions — owner of one of the worst records in football for more than a decade.
Imagine with me, for a moment, if Paul Tagliabue, Commissioner of the National Football League, were to receive a letter like this from an upset Detroit Lions fan*:
Dear Mr. Tagliabue,
I am a long-time, loyal fan of the Detroit Lions — owner of one of the worst records in football for more than a decade. I have done my research and what I have found will shock you.
The Lions do almost exactly the same things the New England Patriots do. Our players look, talk, think and act exactly like their players. They have the same college football pedigrees. The Patriots have centers and tight ends and punters and so do the Lions. The Patriots have a big, complicated-looking play book and so does our team. The Patriots have too many coaches to count, just like us. They have a big name head coach and we do too. And Tom Brady, their quarterback, looks good on paper but here in Detroit, no one thought Tom was even good enough to play for the Michigan Wolverines. Our boy, "Champaign Joey" Harrington, on the other hand, was a first round draft pick. Brady was a humble 7th rounder.
In short, Pete, I can't see any difference between these two teams. Yet the Patriots keep winning Super Bowls and our Lions can't buy a vowel! So I checked around and a couple of my friends in Boston claim that the Patriots are lavishing officials with gifts. They are sending them fruit baskets and pizza coupons and there's even a rumor that one official got a free microwave (retail value: $89.95!!!) It's hard to believe that this blatant offering of cheap trinkets would sway the NFL officials to make an otherwise marginal team look good, but this seems to be the case with the Patriots. My question is, shouldn't the NFL allow for this and handicap the season results accordingly? If this was done, and the Patriots gave up seven or eight wins, the Lions would have a chance to make the playoffs. Please address this at your earliest convenience.
Sincerely, Mia Lamento
Ridiculous? More like absurd. Yet, I hear similar laments like this from homebuilder managers and executives all across the county, especially at conferences. They come up with all sorts of reasons they perform poorly on JD Power and pass on dubious information from inside sources on why their competitors did well. I have received many emails on this subject since I first warned everyone in a column five years ago that, for better or for worse, JD Power was coming and you'd darn well better get prepared. Here is the text of a recent e-mail from "Mark, at Ace Builders" (names changed for obvious reasons,) and my late-night reply. In his letter, he reveals himself to be a sincere, thoughtful person who is really trying to understand both the industry and his company.
I read your article in Professional Builder regarding the importance of JD Power. The article has stuck with me ever since I read it. In preparation for a recent presentation I had to research our JD Power scores. Of course they leave much to be desired, but my frustration comes in the fact that we are really not doing things much differently than Pulte. Can you give me some true insight? Surely Pulte has the same problems that some of the other builders have. The word from ex-Pulte associates is that Pulte showers their homeowners with gifts, which factors into their success. Surely JD Power & Associates know this, right? Shouldn't something like that be taken into consideration? What do you think are some fundamental steps my company should take towards improving scores? Any help you can lend will be greatly appreciated!
Mark Smith, Ace Homes
Whoa! What a question to face after a nice dinner. If you are not too busy, I could also tell you the secret to world hunger and Tolstoy's motivation behind writing War & Peace. But seriously, yours are legitimate questions and because you were honest about Ace Home's performance and showed some insight in your questioning, I'll try to help. Getting to the top of JD Power is a true developmental process, however, not something that can be handled in a few sentences or even a long email.
First, a couple of caveats. TrueNorth (my firm) has never worked with Ace Homes, so what I know is what I have read and heard from others on the street. In the course of our work we often talk to suppliers and trades that do work for Ace Homes though, and we find these folks to be notoriously honest. In addition, TrueNorth has worked with five national builders besides Pulte/Del Webb and more than 100 local and regional builders and the issues are pretty much the same across the board. It is thus safe to say that the differences we see in the top JD Power performers and the also-rans apply to your firm as well.
By coincidence, I spoke last week with a customer relations manager from a large Pulte Division. You are correct, [Pulte] does have "shower them with gifts" budget for the first year of warranty. Ten bucks a homeowner! Let me ask you, Mark. Can you be bought for $10? Are you that cheap? How about a hundred bucks — can I buy your love and admiration for that — after I have given you a so-so house and treated you with indifference? Do you think Pulte homeowners, who would otherwise blast them on JD Power, are so naive or broke that for $10 they would change their minds and rate them well? So highly, in fact, that nationwide, Pulte has statistically buried every other national builder and even significantly outscored two of the very best regionals, David Weekly and Shea Homes. Preposterous, as I am sure you agree. Pulte's success has nothing whatsoever to do with showering gifts on homeowners. Anyone who says that is only fooling themselves and clouding their own issues.
You have probably also heard that Pulte "works the customers over" to get the best survey results. Preps them. Coaches them. Threatens. Cajoles. In fact, JD Power has solid research that shows dong such things actually lowers scores, as customers see right through it, get angry and seize the opportunity to strike back. So it can't be that, either.
No, there are definite things that Pulte and the other top scorers do that make a huge difference. Yet they are not short term, quick fixes, although with the right leadership, some of them can be implemented in a manner of months. Such "right leadership" is very hard to come by. Grayson Homes, building 200 units a year in the Baltimore market and the recipient of the 2005 National Housing Quality Gold Award winner — patterned after the Malcolm Baldrige National Quality Award and awarded by Professional Builder and the NAHB Research Center — is a great example. Read the January 2004 PB Article on Grayson (page 126) and see if Ace Homes measures up Grayson Homes' leadership and culture — and be brutally honest.
Mark, I want to help, but the only way this ultimately works is for you to figure it out yourself. So here's a reading assignment. Go to my column archives. You can find them on www.truen.com or at www.housingzone.com. Here are a few that will give you some insight:
- The Circle Game (March 2001)
- CEO Secrets Revealed (December 2002)
- Ted's Story (August 2000)
- The whole series of three articles on JD Power (September 2003, November 2003 and December 2003)
- The Cost of Puppies (October 2003)
There are others that will help, but these will get you started. It's not my style to give all the answers, but it is my goal to provoke you and make you think. After spending some time on this, send me your list of 10 things you suspect that Pulte, Grayson and the top local builders are dong to beat your firm on JD Power — the things that really make a difference. You may want to enlist a friend in this project. If you do that, I'll go through the list with you and fill in some things. Remember though, brutally honesty is required to get to the heart of it in your own company. I am confident you can do it and I look forward to hearing from you.
Sincerely, Scott Sedam
A few days later, Mark replied, noting he is working on the assignment. I am very curious to see what he comes up with. In fact, I am very curious to see what you — the reader — come up with. This would make a great learning assignment for any builder. Have your people do the readings mentioned above. Have each member of your team compile his own list of 10 reasons that explain either why your company is at the top of customer satisfaction ratings — or why your competitors are keeping your company at the bottom. Send your responses to [email protected]. I'll compile the e-mails and may publish them in a later column.
In the meantime, remember this: money couldn't buy Lennon and McCartney love — and it won't buy Ace Homes the love of its customers. It's time to figure out how to earn it.
* Note to readers: The letter shown in the beginning of the article is fictional and was created for the purposes of this article.