How to Outsmart, Not Outspend, Your Competition

The D.R. Hortons, Centexes and Toll Brothers of the builder universe have advertising budgets several times the total revenue of many small builders. So how can the little guys get heard in the marketplace when big money talks — loudly?

In terms of budgets, sometimes it's not what you have, but how you use it. Builders who know themselves, know their competition, know their target market and how to reach it, and execute a well thought out plan and stick with it can make an effective advertising imprint as well as boost traffic and increase sales. Smart builders can succeed at the ad game, regardless of the size of their coffers.

Smart builders, like good students, do their homework.

"You've got to make sure that you know what you do best," says David A. Hoke, a partner at BLF Marketing, a firm with a specialty in real estate. "We outsmart the competition by finding something that really differentiates our homes."

Take time to understand the unique characteristics of your market and develop a brand or specialty that has viability within that market. For example, outside kitchens may be hot in California and the South, but obviously not so in the colder climes of the Midwest and East Coast.

Once builders understand their unique selling proposition — whether it's affordable communities, green building or outdoor living spaces — they need to determine how to best reach their target audience.

"I did a seminar a couple of years ago," says Richard Elkman, president of Group Two Advertising, an agency that works with builders. "I compared the housing industry to retail. I looked at the low-price builder and I compared them to Wal-Mart, and I looked at the high-end builder and compared them to Ralph Lauren, and showed the difference in what they do in their advertising. I think that builders can do the same. Once you've defined who you are — you're building houses for blue collars/lower white collars — your message and your visuals are going to look different than someone who's building $600,000 larger, single-family homes."

TV and radio are effective in getting the word out about your brand to a mass audience — a majority of whom are either not in the market for a new home, or for the particular new home product you offer.

The cost of getting your message out to the masses is fairly high. Focusing on media that will reach your target audience — to the exclusion of everyone else — is cost effective.

"We used to spend a huge percentage on broadcast advertising," says Brent Conaway, vice president of marketing for Conaway Homes, right outside Tyler, Texas. "We've totally cut that out."

Conaway says he didn't notice any decline in traffic.

"What we've done is focused on our buyer and how they buy and where they look," says Conaway.

"We've totally cut out a lot of our advertising over the last several years, he adds. "And we've seen an increase in sales."

"Our focus is on mediums that are specific for new homebuyers and prospects," says Krista Boyd, director of marketing and communications for Legend Homes in Portland, Ore. "Instead of hitting the mass audiences with things such as TV and radio, we actually focus more on the real estate section of the newspaper, new home publications [and] Web sites."

Lead tracking is an inexpensive means of determining what media is most effective in getting prospects into your sales office.

Legend Homes maintains a database of prospects, buyers and owners. Everyone is surveyed when they first visit the builder's sales office, after the sale, and 45 days after closing. They are asked the same basic question — "What brought you here?" All the information is logged and reports are generated.

"We really study the results of our ads," says Boyd. "The medium that people most mention, we put the most money into. ... That way we can spend a little more in the mediums that work really well for us."

You can't outsmart your competitors if you don't know what they are doing.

"We'll send a mystery shopper out to our competition," says Conaway, "and then we'll send them to ourselves. We'll do the exact same report on them as well as us. It will really point out problems that they have, and problems that we have. We can, of course, focus on our problems. And sometimes we can sell around their problems indirectly."

Builders should use discretion in responding to what their competitors are doing. Imitation isn't always the answer.

"You see the big builders... running big ads," says Elkman. "You're a builder selling one tenth of the number [of homes they are], and you say, 'Well, I have to compete. If they are running full-page ads, then I have to run full-page or half-page [ads].' That's nonsense. The key in this business, and any business, is to outsmart not outspend."

Conaway Homes played it smart when a large national builder came into their market.

Conaway negotiated a deal with the local Lowe's store. For "pennies on the dollar," Conaway says he received a number of gift cards from the building supply company.

"Everyone who bought a home got a Lowe's gift card for $2000," says Conaway. "They could use it for upgrades on their home, or buy furnishings — whatever it was that they needed."

Their advertising campaign for the promotion was modest, but effective.

"We had little brochure boxes made up," says Conaway. "They put them at all of the [checkout counters] at Lowe's. We had banners. We had it in the newspaper and other places as well.

"We were getting in front of the customer at different places — you don't expect to walk through Lowe's and see a builder advertisement," he continues. "We had a lot of people coming in the office asking us about it. And we sold several homes off that promotion."

The other builder is out of that market now.

"They've pulled everything back and headed back to Dallas," says Conaway.

"If you can position yourself ahead of your competition," says Conaway "knowing your strengths and their weaknesses, and know where your buyers are looking — if you can put all of that information in front of the buyer, it doesn't guarantee anything, but it definitely helps you in recognition with the customers."

Companies often set ad budgets to coincide with a percentage of estimated total revenue. In reality, Elkman says you need to budget as much as you can afford to get the traffic you need to achieve your sales goals.

"What builders [of any size] should do," Elkman continues, "but even more important with the small ones, is work backwards and figure out how many prospects you need to sell one home. If your closing ratio is one out of 20, you need 20 people to sell one home."

Using the above example, if your goal is 200 closings, figure out how much you need to spend to get 4000 prospects in the door, then find the most cost effective way to get them there.

"Definitely spend money when it's necessary," Boyd says. "If you really need the sales beefed up, or if its just the time of the year when you traditionally have a lot of sales and it's a strong market, it makes sense to spend the money and keep that going."

Buena Vista Custom Homes in Lake Oswego, Ore., asks its real estate agents to contribute to its advertising fund.

The builder uses the funds to centralize the production of ads and create a uniform look, which can be difficult when using realtors from a variety of firms.

"We took all the marketing and the production of their systems in-house," says Roger Pollack, president of Buena Vista Custom Homes. "The real estate agents contribute to that ... on a monthly basis. We don't have to carry the total burden of the expense."

Buena Vista works a similar system with its subcontractors.

"We've worked with some of the same trades for 20 years," Pollack says. "We're very loyal to our subcontractors.... Everyone contributes."

"We feel the more we work as a team to promote our business, which is what fuels their business, the better off it will be for everyone," he adds.

Newspapers have traditionally been a popular media outlet for builders. But in some markets, declining readership and increasing ad rates have made them less appealing.

"People need to be looking at the alternatives," says Hoke. "My clients are looking more to billboards. ...It's 24-hour-a-day signage."

Legend Homes uses billboards for branding and directionals.

"We'll have some kind of headline, a picture of one of our houses, and our Web site," says Boyd. "We either use it just like that in locations that are on the way to our communities, or we'll use them and add directions at the bottom of them."

New home magazines are another good option.

"I really like the look and feel of [the glossy magazines], but they can be costly," says Hoke. "Depending on the size of ad, it can be $1000, $2000 or more [for an] insertion."

Magazines printed on newsprint are, "relatively inexpensive," says Hoke. "I mean, $150, $200 for a full page. That is, depending on the price range of your home, a good place to go."

"I personally like flyers; direct mail is one of my personal favorites," says Pollack. "I like to market directly to the real estate companies — to the agents. And then directly to homeowners."

A builder cannot get away with sub par ads when going up against their big budget competitors.

"Your marketing materials are a reflection on your craftsmanship and quality of construction," says Hoke. "If I've got a very elegant, $3 million spec home I'm building... my marketing materials probably shouldn't look like I printed them at the last minute off my home printer. I may have printed them off my home printer. They just don't need to look like it in terms of layout and design."

Using professional photography is a must.

"It's worth spending the money for," says Boyd. "Somebody will look at your publication and [if] they can't really see [the photo] very well ... they're going to think that you don't have great quality."

Boyd says Legend always includes photos of its homes.

"We always show pictures of what the houses look like," says Boyd. "I can see why people would focus on lifestyle, but we're really selling a product here."

But the branding message of the ad matters as much, if not more, than pretty pictures.

"Builders get into a rut," says Elkman, "and they all say the same thing. ...'We're going to run a quarter page ad in the Washington Post.' All of the ads are the same quarter page.

"Builders that are competing against one another — that are selling a 2600 square foot home for $425,000 — they're all going to end up having a 2 1/2-inch by 2-inch photo or rendering of a house. That's never going to look different. Therefore, the design of the ad, or the message that differentiates, is actually more important than the picture."

Builders can get impatient when ads don't have an immediate impact.

"Sometimes they'll react and change too quickly to things that given more time really would work for them," says Hoke.

"Consistency is important," says Hoke, "because if I remain consistent from month to month I save some costs."

An ad makes more of an impact as it is repeated and remains consistent over time. That refers to the look of the ad — the logos, layout, and typeface — as well as the message.

"Too often we change the story every time we tell it," says Hoke. "Every time the ad goes in, it's different.

"We think the last one didn't work, or we're afraid it's old and stale. Realistically...if I put the same ad in a new homes magazine — [a] monthly or even bimonthly magazine over the course of the year — for the most part, I'm going to have different people looking at that ad every month.

"So if I've got the right message, the message doesn't need to change."

Of course, there is no silver bullet that works for all builders advertising on a budget, because every market is unique.

"Stick to the good disciplines of being consistent, of getting a ... strategy in place, executing on what you've decided to do, with quality and being consistent," says Hoke.

"And then as best you can, go back and monitor and decide what's going to work."