By Amy E. Lemen. If you're not sure whether market research is a wise investment, just ask Tony Green, managing partner of the Pinehills development in Plymouth, Mass.
"Market research was at the heart of choosing a different path for us," Green says. "We didn't follow the status quo, and it paid off."
They conducted "behind the glass" interviews and talked to local Realtors, but found the key was in simply having breakfast.
"We talked with more than 300 people -- it's easy to get to know people when you're breaking bread," Green says. "No community was combining the things people wanted, but we couldn't just guess what they wanted -- we had to know."
The result was a 1.3 million square-foot village center, 3,000 homes, and four golf courses in an area whose main problem was not demand, but supply.
Consultants from coast to coast say that more builders are placing greater value on research -- long before ground is selected and broken.
"There have never been more builders measuring more things, talking to more consumers, and using that knowledge to make better products, and great neighborhoods, than today," says Sandra Kulli, a California-based consultant. "Those who use research well get things right, and buyers will pay more for that." "If they don't rely on it, most lenders will require it -- like a market study -- especially if they're not a national builder," says Deborah Rosenstein, president and owner of Rosenstein Research Associates Inc., a market research firm based in McLean, Va.
"The market's in difficult times in Colorado, and we see builders spending more time and effort on research," says Mike Rinner, senior analyst at The Genesis Group, in Denver. "Some builders are even dedicating senior staff to it, instead of asking a staff analyst or researcher to do it."
So what do builders do when researching a new community, identifying locations, or designing new floor plans? What are they using research for? And when? It all depends who you ask.
"I get involved when a builder is looking at a piece of land -- or when a community isn't selling," says Rosenstein. "Builders are also using it to discover the demographic of an area, decide what product to build, and determine the best price for optimal absorption." Cheryl Schuette, a senior vice president for Village Homes of Colorado, says market research starts very early for them and, like Green, has definitely altered land plans as a result. One example is a community that had an approved, traditional suburban plan -- the Village of Five Parks, in Arvada, Co.
"We felt the land had different potential, but the city was feeling pressure to go with traditional neighborhood designs," she says. "So we put together focus groups and had them look at a suburban design. We also talked with Realtors and recent home buyers to ask what they preferred in a home."
The end result was a mixed-use plan that was completely different from the original -- and was the one that got home buyers and agents excited, to the point that there were waiting lists to get the first homes when it opened in January 2002.
"The research was great with getting approval at the city level, because we got buy-in early in the process," Schuette explains. "It's a great example of how research, consumers, and Realtors shaped a win-win plan -- and the city's proud of it, too."
Tools of the Trade
Though tools like focus groups and buyer interviews are used by many builders to gauge opinions, others are using "psycho-collages" to hone in on what buyers want. Moderators ask participants (either consumers or brokers) to pull images from magazines that describe who they are (or who the client might be, in the case of brokers). Each person then presents the collage to the group.
Tom Redwitz, president of the Luxury Group division of John Laing Homes in California, says the collages have proved insightful. "They are very revealing and really helps us fine-tune our floor plans, based on how people want to live," he says.
Redwitz says they also ask hypothetical questions such as, "Wouldn't it be nice if ..." and have consumers fill in the blanks as if they were talking to an architect about their ideal home. Finally, Laing has architects present conceptual floor plans to participants for input. And none of these processes are done "behind-the-glass."
"Our people can interact with the focus group more directly, and we can produce a more comfortable setting," he says. "Neither brokers nor buyers want to feel they're being spied on."
Jeff Kingsbury, vice president of sales and marketing for Boulder, Co.-based McStain Neighborhoods, says the company's focus on research stems from its mission of "building a better world."
"Builders don't often focus on value, but price-per-square-foot, and housing's more complicated than that," he says. "We use exit and ongoing surveys to understand our customers and to determine what's important to them. The reason they buy from us is the way we treat them in the process and our overall philosophy."
Spending and Budgets
As far as spending on market research, budgets are across the map, says Sandra Kulli.
"Builders are definitely doing more market research, especially in California," she says. "Land is hard to come by and is snapped up quickly, so when builders see an opportunity, the best builders are doing research well before the purchase."
Rinner, of The Genesis Group, says they're not seeing more builders or developers spend money with consultants since a lot of development timelines have been pushed back as a result of the sluggish economy. Rather, builders are spending money on research for brand new projects.
And Rosenstein says builders usually like to spend as little as possible on research.
"A community developer will usually spend more," she says. "You can spend anywhere from $2,000 to $25,000 -- it's a huge range -- and just depends on what the builder wants."
Though many builders hire consultants, more are bringing research in-house; Rosenstein says it's about a 50-50 split. For example, Janet Kemmerer, the director of marketing and research for Brookside Homes, in Orange County, spends about half the time working with consultants and the other half conducting focus groups herself.
"I'll also ask questions as we're getting ready to open a community, like lifestyle preferences and how they'd use the rooms in the house," she says. "It gives me validation in terms of moving forward with merchandising efforts."
She's even gone to competitor communities as a potential buyer -- spending a whole day looking at wood, tile, countertops, and colors.
"It gives us a good idea of what to put in a model -- and where buyers are spending money," she says. "For example, in the resale move-up market where people are paying high-fives, they won't be sold unless there's a pool, one bedroom downstairs, and a three-car garage."
Trends in Research
In terms of overall trends, Kulli says the approach has changed from purely quantitative market research reports to more qualitative research.
"Whether it's a small builder doing 100 homes a year or a big one doing 25,000, the consumer is the winner in the research process," she says. "Research gives us insight into what delights our home buyers and that makes for a better bottom line and a happier customer."
"Builders will change things based on research -- typically, they'll switch a product," says Rosenstein. "Or they won't make a purchase based on research findings."
|Advice from the Trenches|
The consensus, though, is that research involves thoroughly understanding a market and the nature of competition and using that information to make sound decisions. "A lot of people have said 'if you build it, they will come,' but builders have a responsibility to know the product and who's buying it," says Kemmerer.
Amy E. Lemen is based in Austin, Texas.
Published in BIG BUILDER Magazine, January 2003