A SHORT SERMON FOR THE HOMEBUILDING INDUSTRY

The minister gave his Sunday morning service, as usual, but this particular Sunday, it was considerably longer than normal.

Later, at the door, shaking hands with parishioners as they moved out, one man said, “Your sermon, Pastor, was simply wonderful – so invigorating, inspiring and refreshing.”

The minister broke out in a big smile ready to thank the parishioner only to hear the man add, “Why I felt like a new man when I woke up!”

I write a lot about the importance of USP (“Unique Selling Proposition”) in the homebuilding industry but I do not believe that the message is getting through so I offer this week’s short sermon featuring the parable of the “guilty grandparents” in the hope of gaining further converts.

A few weeks ago we were I-chatting with our son’s family when our son turned to our 3½ year old grandson and said, “Tell Grandma and Grandpa what you wanted to tell them” and our grandson responded, “I miss you and want to see you.”     

Within fifteen minutes of ending the chat my wife got on her computer and began searching for airline reservations to Boston over her Spring break (she is a school teacher).  Unfortunately, as we had not planned this trip well in advance, and her Spring break corresponded with both Easter and Passover travel, the airfares were universally high until she hit the web site for Spirit Air which had convenient non-stop flights to Boston at less than half the price of any other carrier. 

Spirit Airlines

I had avoided flying Sprit ever since our son’s wedding five years ago when two of our guests never made it into town when their flight was first delayed, and then cancelled.  Spirit had no other planes available, and the airline refused to make any effort to accommodate them on another carrier.  So even with this less than wonderful perception of the carrier, and although I am not normally a “price” purchaser, the substantial savings won me over and I booked the flight.  After all, how bad could it be on a three hour non-stop flight?

If you have not flown Spirit ever or even recently, it is an experience as they have branded themselves as the “price leader” and have managed to regularly undercut every other carrier on their routes.  One of the ways that they have managed to do so, apparently at a profit, is to squeeze in more seats than I thought was physically possible.  Fortunately, my wife and I are short in stature so the flights were tolerable but I cannot imagine anyone over 5’8” being able to walk after a two hour or longer flight on that plane. 

They charge extra to check luggage, a common practice today in the airline industry, but offer a discount if you pre-pay at the time of reservation which I did.  They do not assign seats until 24 hours prior to departure unless you purchase a specific “premium” seat (all seats are premium for advance purchase ranging from $6.00 to $60.00).  I took my chances on the early morning outbound flight but as the evening return was booked full I purchased two seats.  And they charge for refreshments – starting at $3.00 for a canned soft drink or a bottle of water.  But even with the extra fees, including the luggage, seats and overpriced snacks, they were still less than half the price we could find anywhere else. 

Except for the inclement weather throughout the Northeast which was beyond their control and delayed our return by two hours, the flights were relatively painless and they served their purpose, I had saved over $500 and I will probably fly them again.  And I became a “price” buyer, at least for shorter flights.

Sale tag #7

The price position is almost always a viable USP in any industry, especially in challenging economic conditions, and homebuilding is certainly no exception.  In fact, there is a phrase I first used over twenty-five years ago in teaching the “A to Z” program and the early IRM courses that expresses this quite clearly – “Price Is The Ultimate Amenity!” 

There are two “price” builders that I have followed over the years as they are active in a number of the markets in which I operate.  Although both were quite successful in their chosen market position, concentrating in the lower two pricing quintiles, both decided to expand their operations a few years back during the boom times and started several communities in the more expensive price points, simultaneously abandoning their successful “price” position.  Typically a homebuilder can cover three quintiles reasonably well while maintaining the same USP but reaching for four is difficult as the buyers’ expectations diverge. 

While both of the builders enjoyed increased sales and profits when the market was strong, they quickly found themselves with substantial unsold standing inventory in the downturn as they no longer enjoyed any beneficial differentiation from the competition. And with an established company image and reputation as the “price” builder, the market was unwilling to pay a premium when they did not perceive superior design, superior location, superior features or superior sales and marketing and other builders had already well established and maintained the “quality” position, the “location” position”, the “design” position, the “value” position, the “technology” position as well as the “niche” position for the specific-need market segments such as active adults. 

These two builders had abandoned their USP and did not establish new positions so they suffered as substantial discounts were required to liquidate their inventory homes.  One of these builders has scaled back its operation and returned to its roots; the other will probably be out of business by year’s end.

Without a visible and established USP, homebuilders cannot hope to gain more than an equal share of the market.  And for the next several years until the economy and the housing markets fully recover, that share will be fought over sale by sale.  The only advantage that can take a homebuilder out of that direct competition is to create, protect and promote their USP.  But that’s just my opinion. 

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