Get Your Hands on Consumer Research

Purchase decisions for most buyers require tough choices because they don’t have unlimited budgets. When your targeted buyers have to decide between a fourth bedroom and a three-car garage, which one wins? You’d better know, especially when you have to decide what to include in the base price and what to option. It takes sophisticated consumer research to find such answers. The bad news is, your competitors are probably getting such answers right now.

The best builders do research that tells them not only what people want but what they are willing to pay for it. They know who wants that fourth bedroom and who doesn’t want to see that cost in their price but will pay even more for a home theater. They are using this kind of research to buy land and tailor product to tightly targeted market niches.

Meanwhile, most builders are still basing decisions on design, features and inclusions on what they see when they shop competitors’ model homes. By trying to one-up the competition, they end up with overspecified houses with features, materials, maybe even whole rooms that targeted buyers don’t want ... or don’t want enough to pay the cost and markup.

"The problem with most builders is that direct construction costs are too high in relation to sales price," says Denver-based management consultant Chuck Shinn of the Lee Evans Group. "We see them as high as 59% to 65% of price. A lot of what many builders put in a house as standard is valued properly by only 20% of buyers. For 80% of the market, you have to give that feature away or you lose the sale.

"Niches are getting tighter and product offerings broader. What works for one market segment will not be valued by another. Vanilla product appeals to no one. Tom Bradbury’s company in Atlanta (Colony Homes) tailors product solely to single women. They know what single women value and the pricing dynamics that work for them. They know where projects need to be and what they can pay for land. To compete with builders like that, you need accurate research data, not gut instinct."

What research do you need, and where do you get it?

Well, for my money, I’d want sophisticated sampling, not focus groups. Focus-group research works for fine-tuning product, but not for strategic decisions such as the ones mentioned above. Do surveys. Or exit polling outside model homes. This data is very valuable; don’t be afraid to pay for it.

"We buy a list and survey all the people in the Denver market who buy homes in the fourth quarter, new or used," says Pat Hamill of Oakwood Homes. "We use it as a guide to niche-market profiling, product development and pricing.

"What’s selling? What square footages at what prices? What bedroom counts? What product and feature choices do they make? We send out a survey form that is three pages, 46 questions. We include a postage-paid return envelope and a $1 bill. Last year, we got 2,600 returns out of 8,000 sent out. And 700 people sent back the dollar without filling out the questionnaire. They didn’t want to answer the questions, but also didn’t want the guilt trip we laid on them," Hamill says with a laugh.

He has been doing it for three years and swears the data is golden. "Before, we were like most builders, running around looking at everybody else’s product. Why is anyone surprised when the product winds up way off base?"

Here’s an example of just how far off base it can get:

"We were working with a client in Florida," Shinn says, "taking stuff out of houses and offering it as options at cost, just to see how it would sell. The builder thought a fireplace was essential to the sale. We sold 400 houses that year, and no one took a fireplace, not even at cost."

Shinn likes using college students to do exit polling. "We used kids from the University of Denver once, and it was amazing how much more information they got as opposed to what we got using salespeople."

It doesn’t have to cost a fortune to get good research. But you have to find a way to get that data. And you have to keep current on it. It’s critical to success in this era, when change happens at the speed of light.

"Selling by hunch is a thing of the past," Texas sales trainer Beverly Koehn says. "With all the consolidation going on in the industry, builders everywhere are now being confronted with competitors who know how to do this kind of research. If your competitor has that data, you’d better get it, or you’re in trouble."