People don’t hire me to be a ‘yes’ manager. They hire me to analyze their business models and selling situations, find solutions, and then help them implement strategies for improvement and growth. Since this post discusses a popular business model today, this post will likely be unpopular with some. You may think the idea suggested can’t be done, but it can, and it has been done quite successfully. If we don’t look beyond our precepts and concepts of what will and won’t work, we will continue to function and lead as we always have, and this economy, thankfully, has proven that we can’t.
Whether you agree or disagree with my analysis, feel free to comment. I consider these posts as roundtables for discussion on the homebuilding industry, an opportunity for you to explore ideas with others, and I look forward to hearing from you.
The Trend of Selling with Incentives
The tendency in new home sales today is to entice buyers with discounts, incentives, specials, price reductions, etc. We can’t seem to sell anything without giving something away.
This is a losing battle. Not only have we trained buyers to expect (and demand) such “deals”, we have confirmed in the mind of the public that we are still desperate and will do whatever it takes to make a sale.
The best companies, the ones that come out at the end of this massive market correction intact and solvent, will give their sales people the skills and tools to make it ‘uncomfortable; for buyers to keep stalling by helping buyers see the benefits of buying their new home now.
But first, we must begin by pricing our homes at the price we are willing to accept, and stop offering a ‘fictitious’ price which we then reduce through the ‘giving’ of discounts and incentives. Offering incentives as a pricing strategy reduces both value in our homes and confidence in the market overall, and, unfortunately has resulted in our training the American homebuyer to believe that our price isn’t the ‘real’ price.
Do you remember when Saturn rolled out their business model of telling customers that the price on the sticker was a no-haggle bottom line price? This strategy spoke to a market that, considering the perception of car salesmen and the auto buying process in the day, found the concept revolutionary. Whether or not they loved the car, people loved the concept, and Saturn sold cars.
More than two decades ago, in a very challenging home selling market, I was on the builder’s sales floor and, when asked about prices, was confidently able to tell ‘our’ prospects that there was one thing that they could be certain of: that the next customer that bought was not going to get a better deal than them: the price listed on our price sheet was in fact the only price, and that the only direction those prices went was up. Periodically, prices would be raised by $500 to $1,000 across the board, and we were never, ever given advance notice of the price increase. This kept the pressure on the buyers that they had better buy TODAY as TODAY the price they received was the best price, and that tomorrow, or even by that very afternoon, we could receive a call from the office to raise prices immediately. This created a tension among the buyers. There was urgency, which today the lack of is the one of the two top selling concerns expressed to me by the sales team we train and coach.
We generated momentum, urgency and excitement by calling our sale around to take that home site off the market with the prospect sitting in front of us. Occasionally we had customers furious with us that we had taken prices up and they couldn’t buy at the old price. How did we handle it? By reminding them that we had advised them before they left that if prices went up before they made their decision, they would have to acquire the home at the new price.
Wouldn’t it be novel of you, the builder, to adopt a no-haggle pricing strategy? Imagine if you set your profit margins to something you could live with, then marked your homes to those prices accordingly, drew the line in the sand, and defended your position.
You might have to retrain your sales team, but you will definitely be retraining your local market that when it comes to buying a home from your company, they could trust the price. And isn’t that one of the greatest fears buyer’s have and one of the two top reasons for delaying the buying decision?
You would, in effect, empower your buyers with the confidence and peace of mind to know that no matter when they buy, at the time they approve your Builder’s Agreement they would know that they did indeed get the best price. That simple answer on the price being the price satisfied the majority of our prospects. They simply wanted to know what the ‘real’ price was, and they wanted to know that someone else wasn’t going to get a better than them.
We don’t need to continue to perpetuate our misery within the industry. Sure things are tough. Haven’t they always been? Have we forgotten what it was like before the real estate boom? Let’s forget about the ‘glory days’ when we couldn’t build ‘em fast enough and had to keep raising prices to slow sales down. Let’s settle down and move forward by getting back to work and refocussing on how we need to change ourselves and our business models. If you can’t change the situation, you can only change you and your business model.
Let’s set our home prices based on what we will accept and breathe life back into our industry. When value and priced are balanced in the mind of the buyer, a sale will occur.
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