Marketing Evolution in Real Estate/;

Marketing Evolution in Real Estate

Summary : Besides the historical tour of the Indian Real Estate market's shift from an unregulated sellers market in 70s and 80s to a buyers market now, this articles discusses whether, going forward, will Real Estate Marketing follow a process driven FMCG  OR an unregulated industry like Bollywood OR will it follow the footsteps of Uber and Olas (where hiring dominates ownership).

[ Also published in the magazine "Realty Plus" ]

While interviewing a mid-management sales personnel, I asked, “If wishes were horses, what would be your wish list for the real estate market?”

He replied, “Project should be sold out within a week of announcement. Nothing should be available after the foundation.” When I asked him if there was still anything that he would wish. He continued “If everything is sold at foundation, we won’t need to spend money in advertising and, I would then do away with large sales team, and…”

“….And what?” I asked with a curious face.

Expanding his imagination, he carried on, “And, we could then tell the brokers that we will not pay brokerage, and they should collect the same from the buyers”

Those who are laughing at the above ‘fairy tale’, will get a shock to know that above is nothing but a true picture of the real estate market of 70s and early 80s. The Supply bottleneck economy of those times just required a product on sale; the queue was ubiquitous in every market. Sales was hardly a focus area and marketing was limited to businesses sending postcards and letters to customers’ homes and calling them during dinner, pushing out their messages with whatever budget they had. They hoped that consistent, repeated distractions and interruptions would convince customers to buy.

Also as real estate market then was dominated by cash, most developers preferred selling the project to few large private investors. And the end-users had to put in lot of efforts in locating these investors.

Times changed and by early 90s, NRI money started coming to India. Changes in income tax laws coupled with development of Housing Finance meant popularity of a new marketing jargon “Full Cheque Payment”. Builders started moving from bulk sales to retail sales. However, the focus of the sales team of real estate companies was still the investor, as this class formed over 80% of the sales. Real Estate was still marketed as an investment product. The only difference was that, buyers now had to interact with sales personnel as against the owner. The brokerage now was paid by the developer and not the buyer, indicating a shift in the bargaining power.

Last ten years, saw competition in real estate intensifying. Advertising and communication started playing an increasing role in real estate sales. The bigger change, however, was the increasing shift focus towards end user. This also meant a sea change in the way projects were branded indicating arrival of retail end user as the dominant customer.  

And now going forward, this retail domination is only going to increase. GST and RERA would mean a huge transaction cost (GST plus stamp duty), thus reducing the share of sales to investor (especially short term investors). The marketing teams of Real Estate companies will have to position their products more towards end users and long term investors. Also, instead of cribbing about RERA, marketing teams will have to use RERA to their advantage and make strategic gains by expanding the market. Earlier, being averse to high project-related risks, few retail investors would put their money in under-construction projects. The Escrow Account mechanism along with high penalty for delays means significant reduction in associated risks thus enhancing the Risk-Reward ratio for the buyer. This is a new class of buyers that could enter real estate.

Many sales personnel say that GST is discouraging buyers from buying under-construction. These sales personnel have to work towards educating the buyers with the qualitative benefits that  under-construction projects offer, like the freedom of buying apartment of one’s choice, reduced risk (owing to RERA) etc.

Another big challenge for marketing teams would be competing against rental homes. Home buyers typically only compare interest v/s rent. Customer education with focus on the qualitative benefits of buying a home (community benefits, choice of interiors etc) will play a key role. How automobile companies would fight with Olas and Ubers of the world could provide some insights.

With significantly rising spend on advertising and communication; Marketing and Business Development teams will have to increasingly focus at additional stream of revenues through Brand Extensions, Line Extension as has happened in FMCG sector.

However, at the same time real estate industry needs to keep the industry away from unhealthy trends towards advertising spend that have dominated the film industry where the share of marketing cost has increased from barely 5% of the costs just two decades ago to about 20-25% of the costs.

Another lesson to be learnt from film industry is that fact that increasing larger monies towards cost of stars has ruined the industry. Besides affecting the profitability of producers it has made leading star cast the only USP ; script has seen erosion in its marketing power. The ‘star’ equivalent in real estate is land. Typically Marketing and Business Development team overpay towards land resulting in landlords garnering a disproportionately larger share of the value chain. Also when larger payment is made towards land, the advertising communication focuses more on the location than on the other benefits, thus undermining other benefits offered by real estate products.

Coming lastly to the most talked about segment in real estate which is Affordable Housing. Most of the developers have followed the principle of Marketing at the Bottom of the Pyramid. And, therefore, have worked towards offering their products at the lowest possible price points. The challenge possibly lies in offering larger value at a mid price points. Affordability in housing will not be about low pricing but about higher value at reasonable prices e.g. developers could work towards technological innovation in flexi-homes where a 2 BHK apartment becomes a 3 Bed room (without a hall) at night. So a customer would pay a price of 2 BHK and he effectively gets three bedroom.

Real Estate - the most expensive consumer product, therefore, may not ape one particular consumer product market industry but innovation here will be driven by learning from experiences of many different markets. And achieving this may involve a huge amount of research which is something that has been been missing in real estate. But now with so much data available, owing to increased transparency in govt operations and large number of websites dedicated to real estate, it is probably high time that market research and insights guide the business than FSI and FAR..

@Deepesh_Salgia