You've got a great location, your homes are priced right, and no one can beat you on design. But, while traffic and sales are brisk, and folks seem happy to have found your community, little of what attracted and sold them will count much toward their overall satisfaction a year from now.
What will make a difference, and deliver the word-of-mouth referrals, repeat buyers, pricing leverage, and profitability every builder craves, is your commitment to long-term customer satisfaction. That commitment combined with the quality of your sales staff, materials, and workmanship, and the state of home readiness at closing, comprise more than 70 percent of what home buyers say drives their overall satisfaction with a housing purchase, according to a new study by J.D. Power and Associates (JDPA) provided exclusively to Builder prior to its general release.
Price, location, and physical design elements, meanwhile, count for only 20 percent of a buyer's overall satisfaction, with diminishing returns as time goes on. "These can be very important factors for why buyers choose a particular home, but not for their long-term satisfaction," says Paula Sonkin, senior director of JDPA's Homebuilder/Real Estate practice and co-author of the study. "This isn't a commodity business. It's a relationship business."
That's a common refrain heard among home builders that consistently rank in the upper echelon of the annual JDPA "Syndicated New-Home Builder Customer Satisfaction Study," the 2003 version of which was conducted in 21 major metropolitan markets and among more than 330,000 new-home buyers nationwide.
The results of the study, published annually since 1997, led Sonkin and co-author Dale Haines, a senior manager at JDPA, to draft "Excellence in Home Builder Satisfaction: Common Characteristics of High-Ranking Builders," a white paper that provides the housing industry with benchmarks and a guide for delivering effective (and profitable) customer service. "We are often asked what the best builders are doing to achieve excellence in customer satisfaction," says Sonkin. "We uncovered a number of common attributes and practices that characterize high-ranking builders."
Those characteristics include effectively and systematically managing buyer expectations, sharing best practices, communicating hidden value, doing things right the first time and delivering homes with fewer problems, committing to closing dates and meeting deadlines, exceeding the minimum (even beyond the strict letter of the warranty), and developing creative ways to make customers feel special.
One attribute not specifically listed, but implied throughout the white paper and among those builders that consistently top JDPA's annual rankings, is a top-down, organizational, and cultural commitment to customer satisfaction. "It's non-negotiable in this company," says Richard J. Dugas Jr., president and CEO of Pulte Homes, which ranked first in 12 of the study's 21 markets in 2003. "It's not something we compromise. Ever."
Although the JDPA white paper does not prioritize the common tactics used by high-ranking builders, effective management of a home buyer's expectations is arguably the platform for building a satisfied customer. "We're constantly talking about how to set expectations in every area [of the process]," says Mary Connelly, president of William Lyon Homes' Nevada region, a highly ranked builder in Las Vegas. "We work hard to make sure our people are aware of the needs of our home buyers."
Sonkin advises builders to tailor their customer service strategies and manage expectations with each buyer's homeownership history in mind. "If you understand where they've come from, you know what act you have to follow," she says, "A strategy that's relative to the buyer's experience with the [home buying] process provides value from the beginning."
Which is not to say that builders should kowtow to every buyer's whim and request. On the contrary, high-ranking builders work toward influencing a buyer's expectations while controlling their own performance to ensure they can deliver on them. "We tell them what we can do and then follow up with that," says Jodee Sewell, director of customer relations at Monte Hewett Homes, one of Atlanta's best builders.
Another high-ranking Atlanta-based builder, John Wieland Homes and Neighborhoods (which also builds--and ranks well--in Charlotte and Raleigh/Durham, N.C.), has noticed that today's buyers appreciate limits and direction if it means getting the home they want when they want it. "They want an organized and thoughtful process because they're all so busy," says CEO Terry Russell. "They want to be involved, but also told what to do and when to do it to move the project along."
The need to manage expectations is as much about controlling satisfaction as it is the cost and effort to ensure it. "The builder is going to be held accountable to meet a buyer's expectations, no matter who sets them," Sonkin says. "The best builders develop processes that determine, manage, and monitor those expectations through the entire process."
Consider the difference between a first-time buyer and a move-up customer. "If they've never built a home, they often expect the process to be like buying a car," says Dave Zweber, director of sales and marketing for Wensmann Homes, a highly ranked builder in Minneapolis St. Paul. "We educate them about the process and what they need to do, especially prior to construction and delivery," such as completing all of their design and finish selections before groundbreaking so those items are ordered and on site when needed--thus avoiding delays that wear away buyer satisfaction.
There are even differences among those who have owned a home before but have never been through the home building process. "Not all buyers are identical, and their expectations and needs for information and attention can vary considerably," says Sonkin. The best builders, she says, create strategies that accommodate the buyer category (first-time, resale to new, and new to new) that comprise the bulk of their sales.
Many top-ranked builders use customer satisfaction and feedback surveys of their own (often issued and collected by independent agencies) to help refine those approaches. "Our first goal was to simply measure satisfaction [among buyers] and find out where we were, not to improve anything [right away]," says Dugas, regarding an internal, independently issued survey initiated by Pulte in 1993.
Within a few years, Pulte had its benchmarks and set off to make system-wide improvements, though the company retains that initial survey--sent to every one of its 28,000-plus buyers 30 days after closing. "Our divisions read it cover to cover," says Dugas. "Our managers absolutely want to know what customers are saying about their performance."
Venture Homes, the top-ranked builder in Atlanta, conducts targeted feedback surveys at several key stages of the buying, building, and warranty processes, even among prospects. "We ask them about the process and the people involved," says marketing manager Darren Drevik. "It allows us to continually improve what we do at every stage."
Meanwhile, buyers of M/I Schottenstein Homes in the Washington area are not only educated about the building process at a preconstruction meeting but also encouraged to visit the site and report what they see. "It's another set of eyes on the process," says division president Tom Dunn, who issues a hard hat to every buyer at the contract signing. "It makes us better."
The desire to apply those results toward understanding and managing expectations from the first contact to every callback enables high-ranking builders to consistently exceed their home buyers' hopes in a managed, systematic, and reliable way. "You can't merely do more than whatever the customer expects," says Sonkin. "That approach is neither profitable nor sustainable."
Share best practices
During the last six years, Dugas and his senior management team have mandated that every division and trade partner follow an evolving inventory of best practices. "We learned what operations were doing things the best way and standardized those practices," he says. "It's not rocket science, but we execute it extremely well all across the system."
Mandating procedures--in Pulte's case, right down to dictating the schedule and discussion topic of home buyer meetings throughout the process--may appear to be micromanagement run amok, but Sonkin says it's critical. "To be successful, buyer satisfaction must be viewed as a priority that begins at the top of the organization," she says. "If the president or CEO doesn't buy into the program, no one will."
Which does not preclude grassroots input on the plan. For instance, when William Lyon Homes created and distributed a policy and procedures manual of best practices for construction operation, it consulted and considered input from its field managers. "It does not come down from an ivory tower, but from real experience in the field," says Connelly.
High-ranking builders take several paths to communicate best practices and other customer service news and ideas, from internal training, newsletters, and intranets to ad hoc visits of superior division locations, participation in builder clubs, and regular meetings among staff at all levels. "We suggest builders communicate as many ways as possible and as frequently as possible," says Sonkin, thus drawing attention to the commitment and fostering the culture while imparting the information.
As Pulte franchises around the country started to realize the benefits of improved buyer satisfaction--not just in home sales and referrals, but as preferred buyers for landowners looking to partner with the market's best builder--employees actually began seeking out information and best practices among better-performing locations instead of waiting for them to be identified and communicated from the corporate office. "After 10 years of doing this, we don't have to fight the communication barrier very much," says Dugas.
Communicate hidden value
Despite ranking among the top four builders in the JDPA survey of the Twin Cities market in each of the last two years, Wensmann Homes was hardly satisfied. Among several changes designed to boost customer satisfaction, the builder created a "customer coordinator" position to serve as a liaison for the buyer's contact with the sales department and the field--which often keep different hours that make it difficult to regularly connect. "We needed someone to facilitate communication and keep the buyer informed," says Zweber.
In addition to acting as the buyer's advocate among disparate divisions of the company, the job also helps Wensmann maintain a consistent message and voice as buyers move through the system. "When the person making the commitment and the person charged with delivering on the commitment do not communicate, buyers will get something they didn't expect," says Sonkin, which translates into a perception of dishonesty and/or incompetence ... and surely dissatisfaction.
Case in point: After years of conducting JDPA's annual survey, Sonkin and her research team have witnessed frequent disconnects between sales and construction. A common example concerns energy-efficient products and features being installed--but not sold--in new homes. "It's not unusual to sit down with salespeople and ask about energy efficiency and find out they don't know or aren't aware of what is being done," she says, while the superintendents point out all sorts of features.
Simply, failing to communicate across all functions not only delivers a mixed message to the buyer, but erodes the value of investments that were intended to boost sales and profitability.
One barrier, says Sonkin, is the different perspectives that builders and buyers have regarding the home building process. "Customers do not necessarily notice what is obvious or commonplace to the builder," she says. "It's the builder's responsibility to educate the consumer and point out the 'hidden value' in the home," at every stop along the process.
With that, Sonkin encourages builders to explain not just the existence but also the benefit of hidden features, such as improved comfort or lower energy bills in the case of energy-efficient measures ... and in plain English. "Most home buyers don't speak fluent 'builder-ese'," she says.
Like many high-ranking companies, builders for John Wieland Homes and Neighborhoods take their buyers on a walk-through prior to drywall installation, in part to explain what's in the wall (and why) and also allow owners to alter or upgrade the electrical scheme and junction box locations. "They feel in control, and we often have the opportunity to sell upgrades and extras," says Russell.
In addition to garnering feedback on the construction process toward refining and managing expectations, M/I's hard hat giveaway also helps take the mystery out of the construction process for many buyers.
Focus on fewer defects
It's no secret: Deliver a house with fewer problems, and buyer satisfaction goes up. "It's a direct relationship," says Sonkin. While 90 percent of home buyers surveyed by JDPA in 2003 experienced at least one problem with their homes within 18 months after move-in, those purchasing from a high-ranking builder averaged 25 percent fewer problems than the market average.
Here's more proof (in case the correlation still isn't obvious): Among the top 20 builders nationwide in JDPA's 2003 survey, the average number of problems experienced per home buyer was about 10; the average among the rest was nearly 14. Builders achieving the highest level of overall satisfaction delivered homes with an average of fewer than six problems. "Buyers see problems as scars, even after they're fixed," says Sonkin, relating a callback to the first dent in a new car.
High-ranking builders, she says, make the commitment to fix problems--and there will be problems--before the home is occupied. How? By building it right the first time and delivering completed homes. "Builders should complete the house before closing and the final walk-through with the buyer," says Sonkin. "Don't approach the walk-through as an opportunity for the buyer to find problems."
Her research backs up the claim that an incomplete home at closing translates into more warranty service calls that quickly erode buyer satisfaction. Builders whose buyers reported no problems (and thus no visits) on the 2003 JDPA survey earned scores that were nearly 20 percent higher than those reporting just one visit, and 43 percent higher than builders called back to the house three or more times.
High-ranking builders have come up with some creative ways to deliver the ever elusive "zero-defect" home and thus boost customer satisfaction while lowering warranty costs and reducing damage to their reputations. John Wieland Homes and Neighborhoods, for instance, requires every home it builds to be certified prior to occupancy.
Wieland's four-step process for achieving 100 percent home readiness--which, according to JDPA research, accounts for more of a buyer's overall satisfaction than price and location combined--begins with a 400-point inspection by the home's builder (the company's term for a super) that is then verified by the neighborhood quality manager. Problems found on either walk-through are fixed and then verified as such by the regional quality manager. Only when all 400 items on the original checklist are squared away does the home earn certification, thus signaling its readiness for occupancy.
One result of such diligence is a relatively easy (and enviable) orientation with the buyer. "What they find usually falls in the category of personal preference," says Russell, such as a slightly different shading on one of the kitchen cabinet fronts or a misshapen shrub in the yard. "There's maybe three to five things at most, all very minor."
These days, however, no builder can reach such status, or hope to keep the costs of an internal inspection process in check, without effectively setting and communicating production standards with its trade partners--and holding them accountable for meeting those expectations.
"You're only as good as your worst sub," says Dunn, who inherited a division with a poor record of customer satisfaction three years ago and immediately started swapping out subs who could not (or would not) measure up. "Right now, we're just focusing on blocking and tackling. There's a long way to go."
Even if subs don't have a lot of customer interaction, their workmanship and adherence to the schedule are critical for delivering a completed home on time, as promised. "Ensuring our contractors are with us in this process is huge," says Dugas. Pulte's best practices for trades include keeping a clean and neat jobsite. "They may not be talking to customers day to day, but the processes they follow are geared toward achieving outstanding customer service and satisfaction."
If there's one thing today's buyer can't stand, it's a missed closing date. As part of the home readiness equation factored in JDPA's annual survey, hitting the closing date is simply one less thing for the buyer to worry (or complain) about. "High-ranking builders know it's a stressful time for their buyers and treat the closing date as an absolute, drop-dead deadline," says Sonkin.
She points to evenflow production schemes that enable builders to gain better control of the construction process and costs, allow time for completion inspections prior to closing and orientation, mitigate labor delays by keeping high-quality, high-demand subs busy, and avoid the time crunches caused by trying to close several homes in a short period of time. "Evenflow production has significant benefits for both buyers and builders," says Sonkin.
As with other aspects of delivering customer satisfaction, striving and planning to meet every closing date requires a philosophical commitment--the less complicated the better. "We simply focus on the fundamentals: delivering a great house the day we said we would deliver it and making sure it's ready to close," says Chetter Latcham, president of Shea Homes' Colorado division in Highlands Ranch, Colo., which topped the JDPA rankings in the Denver market.
As important as meeting a closing date, says Latcham, is fulfilling a callback appointment. "When we set a date for a warranty item, we get there that day, fix the problem, and clean up when we're done," he says. "It's simply a matter of focusing on the little things that customers want. If we do that, they really like us."
Exceed the minimum
If you build homes, you have a plan for servicing problems under warranty ... or should. Sonkin's research, not to mention common sense, says that resolving warranty problems in a timely manner is absolutely critical to achieving high levels of buyer satisfaction.
At Farnsworth Development in Mesa, Ariz., which ranked second in the Phoenix market behind Pulte in the 2003 JDPA survey, the policy is to make sure every message and e-mail gets a response before closing the office, if only to acknowledge the call. "Even if you can't answer the question, the buyer will be patient with the final solution," says president and CEO Craig Ahlstrom. "That's half the battle."
The other half, says Sonkin, is avoiding a strict adherence to even the best-laid plan. "The ability to resolve warranty problems is incredibly important," she says. "Blind adherence to strict standards, however, can drive satisfaction lower, not higher."
As with setting expectations for the entire process, a builder's willingness to be flexible and recognize the circumstances of both the problem and the buyer when scheduling a service call is the key to defining a "timely resolution." A buyer should not have to wait a week for a furnace repair in midwinter but may appreciate the convenience of the builder addressing several minor issues on the same day.
Fewer visits, remember, equate to higher overall satisfaction. "Every time you go into a customer's home, it's a visit," says Sonkin, who advises builders to minimize visits by diagnosing several problems or issues during the same call in addition to coordinating several trades to fix them on the same day.
There are times, of course, when builders are asked to make a service call on an item or problem that is officially out of warranty, requiring a delicate touch if the request is refused.
While the cost of tackling such calls can get out of hand quickly, Sonkin encourages builders--and points to their high-ranking peers as examples--to maintain some flexibility in their operations and a cushion in their profit margins in the name of sustaining buyer satisfaction. "There are a certain percentage of buyers who require a little more attention," says Ahlstrom. "It may cost a little more money and effort, but in the end they become advocates."
In addition to offering (and selling the value of) a standard 5/20 warranty, John Wieland Homes and Neighborhoods fosters a culture that allows the kind of flexibility Sonkin encourages. "Our people are given the latitude to make decisions that are right for each buyer," says Russell. "We're building a home for them, not ourselves."
Likewise, Venture Homes provides a financial kitty for its warranty staff. "There's a slight budget for going above and beyond, to exceed expectations and gain more satisfaction," says Drevik, noting that the company achieves up to three times as many referrals per homeowner than its competition.
Connelly's policy is simply to respond to every call. "We go out and look at everything, even if it's out of warranty," she says. "Usually we can remedy it easily, which earns us a customer for life."
Make buyers feel special
To help her think outside the box, Connelly bought a home ... specifically, a William Lyon home in the Las Vegas market. "It really raised my awareness of the process and the pressures that a home buyer goes through," she says.
Short of mandating that all employees buy homes built by their companies to gain a similar perspective, high-ranking builders are renowned for developing creative ways for their customers to fully appreciate the buying experience and ultimately feel special throughout the process. "Many builders do not routinely take into account the factors that drive home buyer satisfaction from their customer's point of view," says Sonkin. "The best builders use buyer satisfaction to guide their decision making and prioritize issues."
In their research for the white paper, Sonkin and Haines found several instances of creative thinking among high-ranking builders, such as providing a representative to help out, as needed, during the buyer's move-in and stocking the home before occupancy with essential (but often overlooked) household staples.
In addition to its certification program, John Wieland Homes and Neighborhoods is piloting a Saturday morning get-together among pre-closed buyers in the same neighborhood to align their expectations with the builder's warranty policies and procedures. The casual get-togethers are used to impart information about home maintenance and to establish relationships among neighbors.
The invitation-only, two-hour program includes a continental breakfast and features a PowerPoint presentation that walks buyers through the warranty request process, as well as live product demonstrations and a Q&A session. "It's basically a lesson in how to care for your home so that a service call is appropriate and covered by the warranty," says Kelly Ann Rulis, Wieland's customer service manager.
Those efforts dovetail with an extensive homeowner handbook binder presented to buyers at their contract signing, which is supplemented with laminated, quick reference guides that outline seasonal maintenance tips and warranty highlights. Finally, upon move-in, the builder packages a house-shaped cardboard container with essential care items, including spackle and a putty knife, cleaning products, the gas fireplace key(s), and quarts of touch-up paint per the home's decor, among other items.
Meanwhile, Farnsworth Development maintains an on-site customer service center in each of its communities that streamlines the service call and response process and gives the company's warranty service staff a face and name. "It personalizes the process when an owner can just walk over to the customer service manager's office and make a request," says Ahlstrom. "They're spending a lot of money and expect to be treated special."
Reap the benefits
Consistently high-ranking builders in the annual JDPA survey have created cultures that respect customer service and satisfaction above all, and there are tangible benefits to such commitments.
For instance, "truly delighted" home buyers--those giving their builders a perfect score--delivered an average of more than seven referrals, a third more than those only a notch lower on the satisfaction scale. Similar trends follow for attracting repeat buyers.
Some other benefits of a commitment to customer satisfaction include lower warranty costs, pricing leverage, increased market share, and market differentiation. "If a product is similar, it's the non-product-related things that will make the difference in a competitive market," says Sonkin.
Dugas views customer service as the path that will ensure Pulte's long-term sustainability and its continued growth. "It's the key to running this business for the long term," he says. "I can't think of one single thing we can do [toward that goal] than delivering fabulous customer service."
* Atlanta: Venture Homes; John Wieland Homes and Neighborhoods; Monte Hewett Homes
* Austin, Texas: David Weekley Homes; Pulte Homes; KB Home
* Charlotte, N.C.: Ryan Homes; John Wieland Homes and Neighborhoods; Pulte Homes
* Chicago: Lakewood Homes; Pulte Homes; Del Webb
* Dallas/Ft. Worth: Huntington Homes and Pulte Homes (tie); Fox & Jacobs
* Denver/Colorado Springs: Shea Homes; Village Homes; Engle Homes
* Ft. Lauderdale, Fla.: GL Homes; Minto Homes; Centex Homes
* Houston: Pulte Homes; David Weekley Homes and Morrison Homes (tie)
* Las Vegas: Pulte Homes; Del Webb; KB Home
* Minneapolis St. Paul: Pulte Homes; Centex Homes; Ryland Homes
* Orlando, Fla.: Masterpiece Homes; David Weekley Homes and Lennar (tie)
* Palm Beach, Fla.: DiVosta Homes; GL Homes; Centex Homes
* Philadelphia: J.S. Hovnanian Enterprises; Pulte Homes; Forino Homes and Ryan Homes (tie)
* Phoenix: Pulte Homes; Farnsworth Development; Del Webb
* Raleigh/Durham, N.C.: Pulte Homes; Centex Homes; Beazer and John Wieland Homes and Neighborhoods (tie)
* Sacramento, Calif.: Centex Homes and Del Webb (tie); Elliott Homes
* San Francisco/Bay Area: Pulte Homes; Christopherson Homes; Centex Homes
* Southern California/San Diego: California Pacific Homes and Del Webb (tie); Lennar
* Tampa Bay, Fla.: Pulte Homes and Suarez Housing (tie); David Weekley Homes
* Tucson, Ariz.: Pulte Homes; Del Webb and Robson Communities (tie)
* Washington, D.C.: M/I Schottenstein Homes; Pulte Homes; Ausherman Homes
Source: J.D. Power and Associates' 2003 "New-Home Builder Customer Satisfaction Study"