A cycle is a cycle is a cycle ... but what if 50 percent of buying a home is 90 percent mental?

Source: BIG BUILDER Magazine
Publication date: 2007-01-09

By Judi Hasson

All apologies to Yogi Berra, but buyers have cold feet these days and builders have an overabundance of new housing on their hands. So what's a big builder to do in this market? If you listen to the economists–and most home building veterans of downturns past–it might feel as if the only recourse is to let the cycle follow its course.

On the other hand, we thought it couldn't hurt to tap into the thinking of consumer psychologists who study human nature and ask them to offer advice on how to appeal to a fear-wracked public that is crowding the sidelines of the housing market.

Photo: Getty One

In this age where information is available in a nanosecond, everyone knows it's hard to keep bad news from consumers' ears. So when Fed chairman Ben Bernanke says the economy is slowing, it's already too late to spin it your way. Consumers are too savvy about what they wear, where they eat, and especially when, or if, they'll make what might be the biggest purchase in their lifetime.

"If there are basic ideas and assumptions in a person's head, it's very difficult to change those ideas," says Laura Peracchio, a consumer psychologist and a professor of marketing at the University of Wisconsin-Milwaukee.

It's tough to find an inviting tune or slogan that would stick in a potential home buyer's mind. But there are plenty out there that do the job for other products. Folgers has been selling coffee for years with its jingle, "The best part of waking up is Folgers in your cup." Ikea, the Swedish furniture store, made it big when it plastered public buses with signs declaring: "It's a big country. Someone's got to furnish it."

So we asked an ad critic, an observer of human nature, and two university professors what sage offerings they would give to builders to get potential buyers to come to the table.

Let's Make A Deal

Bob Garfield, advertising critic for Advertising Age, says that, every once in a while, the truth is the best medicine to getting the sale. In fact, he says, Bill Ford is trying the truth with ads that acknowledge the Ford Motor Co. has to try harder and make better designed cars to be able to survive in the increasingly competitive auto market.

But houses are not cars. Garfield says the challenge for home builders is to conquer consumer paralysis. One way to do that, he says, is by stressing that today there are low interest rates and a correcting market that may not be here tomorrow. "Don't let this opportunity get away, you will regret it later," an ad might say.

"I'm not suggesting that builders go on truth serum," Garfield says. "They have a story to tell. They are at your service. 'Have it your way or have us your way.'"

It also might be the right time for builders to take advantage of what is widely known as buyer's remorse. Using a little bit of psychology, he says builders can flip that psychological factor with ads that imply, "You have the advantage now, so grab it."

The Road Not Taken

Too many builders are ignoring the demographics of today's buyers, says Geraldine Henderson, an associate professor of integrated marketing at Northwestern University. She says builders have a "one-size-fits-all" mentality when trying to sell their products, failing to recognize the new kinds of buyers that don't fit into the mold.

"Builders can flip the psychological factor with ads that imply, 'You have the advantage now, so grab it.'" <i>–Bob Garfield, Advertising Age</i>

"The idea is that you have all these different kinds of people. Depending on how you have segmented the market dictates how you position yourself and what kind of marketing you do," she says.

For example, people with long commutes might react to a billboard promoting a builder or to a radio ad strategically placed on an all-news station or one that gives periodic traffic updates. Workers riding the subway might be attracted by a subway ad.

"One way a builder can differentiate itself is really trying to get into the mind of the consumer," Henderson says. As more women take on the role of the primary home buyer, it's essential to pay attention to their preferences. "Women think differently than men. They want to know a lot more about what's happening along the way. The contractor that is going to give [female buyers] the play-by-play may give them more comfort," she explains.

She adds that it's time to recognize a multicultural market. The smart builder, Henderson says, will target market niches and position itself in many different ways. It might be a good idea to start running ads in different languages, if you haven't already, so the Vietnamese or Hispanic communities know you are offering good deals on houses. Remember that other cultures do things differently, Henderson says. For example, buyers from other cultures may want more people on the deed than is typical of nuclear families or may want more bedrooms because they are an extended family.

Can You Hear Me Now?

Jon Berry, co-author of The Influentials, has spent a lot of time studying people and how casual conversations are key to getting the word out about a product, idea, or trend. His book examines how one in 10 Americans tells the other nine how to vote, where to eat, and what to buy, to name a few examples. While it may be a little more sophisticated than the children's game, "Telephone," Berry says the idea is just as usable in the housing market as it is in the playground.

"The smart builder will target market niches and position itself in many different ways." <i>–Geraldine Henderson, Northwestern University</i>

"Strong word of mouth requires patience and relationship building," says Berry, senior vice president at the Keller Fay Group, a company that specializes in doing research on word-of-mouth habits of consumers. He says it is important for a company to have a Web site where people can talk to it or a blog where people can engage in a conversation.

It's not only important for builders to keep consumers focused on the long term, but it's also important for them to keep up with the trends and the tastes of buyers of different groups, Berry says. The good news is that "those trends are going to continue, and it will, over the long term, fuel growth in new and interesting places to live," Berry says.

But just how to get the buzz going remains the biggest challenge. Berry says builders need to keep their ears to the ground in every community and get to know real estate agents and community leaders. And just as important, they need to take a page from other industries that build a relationship over a lifetime.

"It's important to have a very responsive customer service department so if someone has a question, they will be heard," Berry says. "Car companies do this. As much as marketing and reaching out to people can be important, we think that listening and being there when they come to you is just as important."

Try, and Try Again

Leave it to an expert from the Wharton School to tell it like it is.

"As much as marketing ... can be important ... listening and being there ... is just as important." <i>–Jon Berry, Keller Fay Group</i>

The slowdown in the housing market has been a long time coming, and the galloping price increases of the past are just that–a thing of the past, according to

Susan Wachter, real estate professor at the Wharton School at the University of Pennsylvania.

In the past, these kinds of slowdowns have been driven by unemployment and other economic factors. But with flagging sales, builders have had to cut production to tighten up inventories. And the winner today is the home buyer who walks away with a better deal, a bigger house, and a smaller mortgage.

Because housing markets are local, the advertising messages that help other kinds of products won't work for housing. "It's not like selling an iPod or a car because there you can have strategy for sales," Wachter says.

And because prices will have to be lower, "there needs to be a switch in psychology among home sellers," Wachter says. "Prices simply have to clear at lower levels."

And complicating it all, the economy is slowing down, and it will add to the downward pressures for lower prices, more incentives, and bigger deals for the home buyer.

"When builders don't get their price, they cut, and the deal flows again. It is a chicken and egg problem," Wachter says. Home builders are painfully aware of this now. The smart home builder has already started giving concessions, which has cleared some inventory, and they've cut back on production.

Wachter says no ad campaign, no word of mouth, no artful sign, and not even a bigger reduction in price can really do anything at all, that is, until the market corrects itself. "This, too, will pass. It's a question of a matter of months. There will be new price points. They will indeed be out there for future buyers."

Builders blame the media, but experts say there are other causes for lack of buyers.

The ad is big and bold and takes up a full page in the newspaper. "It's a great time to buy or sell," and it lists exactly what a potential home buyer would get in this softer market.

The ad, from the National Association of Realtors, ran in the six largest and most influential newspapers in the country last November in an effort to counter several months of bad press about a softening housing market.

Many people in the home building industry point to the press media as one reason why buyers are skittish and staying in their old homes instead of buying new houses. With headlines shouting "Housing Sales Still in a Free Fall" and "New Home Sales Drop," it's no wonder potential buyers are spending more time on their couches than looking for a new house.

NAR is trying out a brand-new strategy–buying newspaper ads to get the attention of potential buyers. The ad declares that mortgage rates are low, there is a record inventory, and "homeownership is a safe, secure way to build long term wealth."

NAR spokesman Steve Cook says the ad generated a lot of responses by phone and e-mail, as well as a number of newspaper articles. NAR plans to start airing television commercials in mid-January and has doubled its media budget to $40 million for 2007. In addition, NAR and NAHB have been meeting to come up with joint media messages.

But advertising won't necessarily change people's minds, according to James Bettman, business professor at Duke University. "It's not clear that advertising works real well if people have strong, firmly held beliefs that you are going to go against," Bettman says.

And blaming the press for the buyer's mindset these days may just be turning to the wrong place. "The press has the job of reporting the trend lines, and those trends are set in motion by economic forces strong enough to affect people's behavior well before the press gets in the picture," says Michael Hoyt, executive editor of Columbia Journalism Review. "Can we accelerate a trend? Possibly, but I suspect other purely economic forces are at work."

In fact, builders' complaints about bad press are just plain wrong, says Tom Rosenstiel, director of the Project for Excellence in Journalism, a Washington, D.C.–based think tank that studies the media. "It's a classical lament to kill the messenger and that things wouldn't be this bad except that the press exaggerated them," he says. "The problem is that houses are not moving, and there are lots of reasons for that."

<i>–Judi Hasson</i>