By Diane Kittower. I'm gonna make you mine. That's how you want visitors to your model homes to feel, and key to creating that house lust is merchandising options and upgrades. Those extras not only help sell houses but reap extra dollars.
The first rule of thumb: Show it, and it will sell. Miller & Smith Homes, which focuses on the move-up market in the metropolitan Washington, D.C., area, recently researched countertop upgrades in one of its townhouse communities, where the homes sold in the low $200,000s. Model homes showed upgraded countertops of Corian and granite. Typically at that price level, about 15 percent of buyers would go for the more expensive option, but Miller & Smith found that 35 percent gave the standard laminate a thumbs down and chose the upgrade. Showing carpet upgrades in its models also seemed effective in upselling, the builder learned.
Not just where but also how builders feature products has changed in recent years. Brian Hutt, director of design studios for U.S. Home, says the industry has gotten smarter about showing off its products, both in models and in design centers, which has contributed to bumping up margins, including his company's. In 1997, U.S. Home had five design studios and the average spent on options per closing was $6,000. For the first quarter of this year, with 24 studios up and running, the average spent per closing was $18,824.
Hutt credits the increase to some key changes in the company's approach to selling options that other builders have picked up on too: First, make the selections process less daunting for buyers, and, second, offer options in a retail environment: "We used to have the customer select options in the garage of a model home. Now, it's a much more pleasurable experience. Everything is easy to find. It's Saks Fifth Avenue vs. Filene's Basement." A more personal approach has helped buyers feel less hurried, he says, and more comfortable with their choices, even as they add more to their shoppingcarts.
Toll Brothers, for instance, uses model homes in some markets, design centers in others, and both in still others. The larger communities tend to have their own design centers with a separate design staff, while smaller ones more typically use model homes or incorporate the design center into a model home and use the builder's salespeople.Model homes and design centers work in tandem to turn products and special treatments into must-haves for buyers. A survey of 500 production builders conducted for Big Builder by Readex shows that builders often mix and match the two, depending on which best suits the size and type of community: Thirty-four percent of those surveyed house their selections in model homes. About 47 percent sell product options from another location, and 17 percent use both.
The company, renowned for its ability to generate high volumes of upgrades, relies heavily on merchandising in all its models. U.S. Home takes a different approach, showing one "included" basic model in its first-time-buyer markets. The builder is confident that enough comes standard to avoid looking bare-bones. Efficiency plays a part in its design studios too. The builder uses a template that's easy to replicate, providing economies of scale and keeping designers from having to reinvent the wheel. The builder has come up with, for instance, an innovative, space-saving approach to showing cooktops and sinks: It pops them into drawers, making it easy for customers to pull out and view them. Cabinet doors are wall-mounted and can be pulled off for viewing. The centers keep close track of what sells well, allocating more space to the best sellers to maximize return on net assets.
Hutt, who admits to continually tweaking product displays, says he has focused in recent years on maximizing space without losing the impact. U.S. Home's studios average 2,500 square feet, quite a contrast to the huge spaces built by KB Home and K. Hovnanian. Its newest studio, in Royal Palm Beach, Fla., is 2,000 square feet. "You'll see these great big spaces. They're not necessary," Hutt says, noting that return on net assets, a Lennar mantra, isn't served by operating warehouse-size studios.
Taking a more minimalist approach hasn't hurt Lakewood Homes, either. For the past two years, its center has been named by J.D. Power and Associates as being highest in customer satisfaction in the Chicago area. Christopher Shaxted, the company's executive vice president, used to wonder if the company should replace its center with a sophisticated, expensive one. He has stopped wondering. He figures it's best to go with what works, which is convenience for customers and letting them work with the same person who sold them their house, even though it seems to buck the trend of having lots of product and dedicated staff.
Convenience and keeping the process simple also are the reasons cited by builders who believe that merchandising packages work. "Time is very important to the buyer," says Rose Giles, K. Hovnanian's merchandising manager for the Northeast region. "They could spend hours piecing things together." So Hovnanian offers coordinated wall and floor packages. Because kitchens and flooring are the likeliest upgrades, and ceramic tile is hot these days, those categories get special merchandising effort. Not only does packaging simplify things for buyers, it simplifies things for the builder and its partners. U.S. Home appreciates that telling plumbers to install, say, the platinum package leaves little room for mistakes.
Though bundling of products has taken the headaches out of coordinating that certain design look, not all builders have taken to it. "A couple of my builders tried to create [packages], and they fell flat," says Chris Johnson, president and owner of DesignTec, in Newport Beach, Calif. "People want something very individual to them," she says, explaining why she thinks packaging doesn't usually work. Barbara Stowers, sales and marketing VP for Taylor Woodrow's Southern California division, agrees with that approach, having worked hard to put together packages of options, only to have customers repeatedly say they wanted to get such-and-such a package — except for one element in it.
Along the same lines, Toll Brothers combines options that inherently are bundled, says Kira McCarron, Toll's vice president of marketing, but, she says, "we leave options as unbundled as we can to put the consumer in the driver's seat."
Signs denoting individual options, once ubiquitous in models, have fallen out of favor, Johnson says. Many builders prefer to list standard features and options in a brochure or on a prominently displayed list. Toll Brothers frames its list of what is optional and places it near the entry, having decided that plaques interrupt the flow of home presentation, McCarron says. Approaches at U.S. Home differ by division and may include individual signs on options, mounted lists, or sheets to be carried around.
Hovnanian and Winchester Homes, in Greenbelt, Md., use brochures, though both plan to put option information online soon. Giving buyers an earlier look, they say, will speed the selections process. U.S. Home, too, is about to give buyers a chance to use the Web in picking options: Its Sacramento division will offer all options on its Web site in order to slim down the selection process.
Will high tech ever replace the real touch? "[The Web] is a good way to get a first impression and information," says Carlyn Guarnieri, principal and cofounder of Carlyn and Co. Interior Designs, in Great Falls, Va. But it can't create the pivotal element of merchandising, she says: emotion. "No builder wants to hear that. You can't measure it, but it's the most important factor."
Diane Kittower is based in Rockville, Md.
Published in BIG BUILDER Magazine, August 2002