Two and a half years ago, five of the biggest builders in the country gathered in a focus group to discuss selling options online. "They loved the concept, but didn't think it was necessary," recalls Howard Weiner, president of Chicago's BuilderFinish.com, an online option Web site, who convened the group. "One builder said he offered only two options per category. If his customers wanted more, he told them to buy a house somewhere else."
Those days are going, going, gone. Thirty-two builders and a group of major suppliers came together in late June to form a new venture, New Home Technologies, to make the dazzling array of options available, via builders' Web sites, to home buyers. Suppliers, including Whirlpool Corp. and Masco Corp., will provide up-to-the-minute information on products, including warranty, price, and perhaps maintenance information, directly to consumers, who can spend as much time as they like perusing what their builder chooses to show them: appliances, carpeting, flooring, and lighting choices. The venture -- a spin-off project of the 30-member consortium of big builders, Builder Homesite Inc. -- is slated to debut late next year.
"I know we will sell more options because of this," said Lisa Kalmbach, senior vice president of KB Home of Los Angeles, one of the builders involved in the venture. "The consumer is demanding more information from us, and this will allow their questions to be answered quickly, by the supplier, at the source. This will really allow us to improve customer service. I believe this is the solution for us." She adds that the Web project will be a boon to suppliers, too, who currently must furnish their information in various formats to accommodate different builders' information needs. "Right now, we're handing out their brochure," says Kalmbach. "If I was the supplier, and I knew I could control the marketing information in front of the consumer and get a direct connect to the consumer, I'd be pleased."
That was part of the attraction when a group of BHI builder members and invited suppliers met at Masco Corp. headquarters on June 27, in Taylor, Mich., to formalize participation and planning. Suppliers attending the meeting included Honeywell, Masco, Progress Lighting, Square D, Therma Tru, Weyerhaeuser Building Materials, and Whirlpool. Other companies, including Clopay, Levolor/Newell Rubbermaid, Kohler, Mohawk, Owens Corning, Shaw, Wilsonart, and York have expressed interest or are reportedly considered candidates to the spin off group. Costello said the group is looking for one supplier per vertical category to contribute to the combined effort, as a full partner in this BHI project.
Terri Connett, the manager of new business development at Whirlpool Corp., said she hopes the new, standard software format will allow suppliers to provide the information the home buyer wants, in formats on which builders and suppliers agree. "In the long run, we'll all be better for it," says Connett.
For Kira McCarron, vice president of marketing at Toll Brothers, in Huntingdon Valley, Pa., the future is now. "People come into sales centers with print-outs of what they've done online, and they want to review it with the sales person on site," she says. Despite the rich features found on Toll Brothers' "design-your-own-home" interactive Web site, "One hundred percent of our options are not available online," McCarron says. "It's one of the things that needs to improve."
Obviously, the Web browser will never replace the consumers' need to actually see and feel the product, nor is it intended to, emphasizes McCarron. As envisioned, it will help consumers make better-informed options decisions. "Ultimately, they will go to a model home or a design studio to see the color and feel and touch the product," she says. But by the time they arrive at the design studio, having visited the options available to them via New Home Technologies, their eyes will have opened to many more of the possibilities.
This may help prevent the buyers' remorse that kicks in after a buyer moves in and discovers that the cabinets could have gone to the ceiling, or a stainless steel oven is only a little more expensive than the regular oven that came with the house. The NAHB estimates that buyers spend about $2,100 on options after moving into their home -- money that could have gone to the builder.
Not So Fast
Haven't we heard this Internet hype before? The Web was going to deliver targeted, informed customers, gift-wrapped to the builder -- and make it easier to conduct transactions. Builders and suppliers responded with multimedia sites rich with information. But the option selection process is plagued with so many variables, few until now have mustered the will and a way to tackle the job of moving the process online.
Buyers generally spend between two and four hours at a design center, or with a sales agent, making typically more than 110 separate decisions on options for their new home. The process, even with caring, informed sales agents who have anticipated every question a new home buyer might have, is fraught with emotion and with the possibility of mistakes, for both the buyer and the builder.
Nancy Butner, the contract marketing manager at Whirlpool Corp., knows the option selection well. Before moving to Whirlpool's headquarters in Benton Harbor, Mich., she ran the design department at John Wieland Homes.
"Designers know they have to get from point A to point B," she says, to help the buyer navigate the options selection process. "We just didn't have time" to explore all options, and there was sometimes a great deal of uncertainty about how adding a double oven or making a cabinet change would affect the final cost of the home, and how that price change would affect the buyer's monthly mortgage payment.
It was common to hear, "I didn't know I could get that," afterwards, she recalls. "The process for the home buyer is overwhelming. I don't think the buyer is ready to make all those decisions, and sometimes they think they can change their mind along the way." It's an emotional process, too, says Butner, and the emotion is unpredictable. "For some people it's not the appliances, but the flooring." Another person may be upset because they didn't know the builder offered lighting choices or different fireplace designs.
Whirlpool now offers a virtual showroom focused on options, says Butner. A builder assigns a code and password to the buyers, who enter their personal information, to build a profile -- is there a new baby on the way, is there a need for a large home office? Drop-down menus for different rooms facilitate the selection process, says Butner. There's a menu for each room offering options, from the laundry and the kitchen to "other" if there are appliances somewhere else, like a wet bar in the living room. The buyer can proceed room by room, viewing standard, high, or premium brands. With each click on each choice, the financial impact of the choice is shown. "Most home buyers want to know what costs two hundred bucks more than standard," says Butner, who said she believes that most buyers are ready to spend more if the choices are presented to them clearly and attractively.
For the builders, the virtual showroom allows them to inform the customer about the deadlines by which customers' choices must be entered. "They want the decisions made prior to framing so they can order things on time," explains Butner.
The builder is in control of the virtual showroom and determines what information is shown to the buyer, says Butner. "Builders present a standard package for an entry-level home, or several packages at different price ranges for mid- or upper-level homes."
One thing that a Web showroom precludes is a buyer venturing onto a manufacturers' Web site and seeing 800 different options, only three of which the builder offers in the price or size-category of that particular buyer.
One area in which the Web might pay unexpected benefits is the reduction of builder errors. "The gas stove. I hear this over and over," says Frank Guido, president of Chicago's Aareas Interactive Inc., which offers online options to builders. Noting that electric stoves are the standard, Guido says: "Whenever a buyer picks a gas stove, the builder must pay to have a gas line installed. It costs one hundred dollars." Time after time, the builder forgets to add the gas line installation charge and ends up absorbing that charge himself, he says. When the selections are made online, if someone chooses a gas stove, the gas line installation charge can automatically be added to the bill and displayed to the consumer so there are no surprises. Guido also has seen plumbers show up with a two-hole sink that does not accommodate the three-hole sink that the buyer chose.
Three things now make the builder-supplier strategic partnership on the Web possible and even inevitable, says Tim Costello, the president and CEO of Builder Homesite. First, consumers are using the Web to an even-greater degree to educate themselves. "Go into a big bookstore and you'll see racks of magazines about one-time decisions: new car purchases, weddings, vacations," he says. "There is very little about home buying and options selection. Consumers are on the Web, seeking that information."
Secondly, builders and suppliers want, and are better prepared, to furnish product information to consumers in customized formats that satisfy the needs of all three parties -- builders, suppliers, and consumers -- but in a way that allows greater local control of the information.
Finally, the technology has matured so it's more consumer and supplier-friendly than it was even a short while ago, and builders have learned to present options, even on a dial-up modem, in a clearer manner than ever before.
The meeting to decide whether or not to form the collaborative venture between builders and suppliers was hosted by Masco in its Taylor, Mich., headquarters. About 60 people gathered, from the 30 major builders, and a variety of suppliers (see "Expanded Membership"). It was almost July 4, and the conference was akin to a Continental Congress for the new Webbed nation of New Home Technologies. Jonathan Smoke, vice president and CIO of Beazer Homes USA, says, "The meeting did go very well. I would say we [home builders and manufacturers] all have some level of healthy skepticism about the task that lays ahead, and none of us are going into this with a lack of appreciation for what it will take it make this successful."
Costello emphasized that getting high-level competitors in the same room can be difficult. "It was bumpy at first," he acknowledged, "but eventually, they bonded for the greater good. They checked their egos at the door," he says. "Together, they can do more than separately, but more and more competitors will learn how to work together. With acquisitions, they may be closer than they think."
He would not disclose how much each strategic partner would have to contribute, and arrangements are still tentative and subject to change, but the new supplier-builder venture envisions a two-tier partnership in which one tier of investors has seats on the board and other decision-making powers. The company is seeking one exclusive supplier per vertical category, says Costello. The strategic partnership needs $5 million to get off the ground, he says; one million has been raised so far.
Costello sees New Home Ventures as the answer to a manufacturers' dream: to be a partner with the builder rather than a distant supplier. And the builder can fulfill the consumers' dream of getting the home equipped exactly as they'd like. "By doing this, we also help build the standard platforms that will help to develop digital assets in this industry," says Costello. By this time next year, it will be clear whether the new venture is a reality, or merely a castle in the air.