DYC Studio (00:00.242)
Welcome to another episode of Marketproof Marketing. I'm Kevin Oakley and today it's just me because this episode's being recorded in advance so we can have something for you to listen to during the week of the summit because we're gonna be a little bit busy putting on the best event in the industry in Chicago. So what am I gonna talk about for you today? I just got done with a ULI panel moderated by Caroline Simmel, the Senior Vice President of Sales and Marketing for Empire Communities. On the panel were myself.

Chris Hartley, who's an area president for CAOF-90 and Homes, and Amy O'Connor, executive vice president for Shore Consulting. And the panel was around the idea of how do we expand home builder margins through sales and marketing. And so what I'm gonna do is tell you the questions that I was asked and the answers that I gave because it was a great event, but of course you had to have a ticket and be a ULI member in order to attend. So I wanna give those insights to the rest of you as well.

So when I ask a question to myself, it's gonna be the question that Caroline asked me. And her first question was, hey Kevin, in today's buyer's market, builders feel forced to throw out discounts just to keep the funnel alive. How do you generate quality traffic without having to lead with incentives? If we wanna drive quality traffic as home builders without incentives, what's necessary is to price to market. So that means that your product, your place, and your price, your value proposition have to be

correctly aligned where the market seeks you out. See, I've said this in lots of different ways, but probably the most effective one is that an incentive or a promotion is an admission of incorrect pricing to the market. It's essentially saying, whoops, we got it wrong, or we're not sure how to react to market conditions changing, or for putting the wrong thing in the wrong place with the wrong options, or for building too many of the one floor plan that nobody wants. It's some sort of an acknowledgement that

a mistake happened with product and pricing. And we have to correct it and we're using an incentive as the way to do that. The better way to do that, although it's not easy, is to reset your entire portfolio's pricing and product to the current market condition. Or at least be able to introduce floor plans, option changes, anything necessary in order to get a lower starting from price point. It's the lower starting price point that drives quality traffic. It's...

DYC Studio (02:22.862)
not paradoxically necessarily incentives, especially after incentives become the norm. Because, and some of the platforms are working on doing this, Zillow's Biability, and I think it's realtor.com just recently did something where it allowed consumers to search based upon incentives or kind of add that calculation in. think syndication platforms are gonna keep trying to find ways to do this, but in essence, in the MLS and on syndication platforms today, it is not easy.

if possible at all, for the consumer to look for homes that apply to their search criteria, inclusive of promotions or discounts. And so that means all the places that a consumer is going to go, where builder advertising is less, but the content of overall home information is more, isn't necessarily gonna have that information available.

And even recently, builders have been surveying their consumers to say, what's the best incentive that you're most interested in receiving? And I know it doesn't make any financial sense, but what they are saying is, I would like a price reduction. I would like you to fix your price to market. I don't wanna overpay for a home, even if you're gonna buy down the rate, because then that means if I need to sell or move later, I might be stuck or upside down and I can't sell it for what I need to pay off the home.

free and clear. The next question that I was asked was around online sales. Online sales programs have become the front door to the buying experience. What are the most effective strategies that you've seen to convert interest into appointments and ultimately sales conversions? And my answer was personalization. Everyone, we used to have to really fight with everyone about how fast you had to be.

that speed was important. I feel like everyone believes that speed is important and they think that they've found ways to get quick response times, whether that's using AI tools or...

DYC Studio (04:04.586)
services to answer the call for you. They think they've gotten all these ways to get speed improvement, but personalization improvement is, I would argue, more important. I would rather be, now again, it's all a matter of variation, I suppose. I'd rather be a minute slower and have my personalization be four times better. I would take that trade off personally. And the reason is because every new home is a luxury decision, meaning it's more expensive.

It's like everyone's trying to buy the most home they can. Maybe that's a better way to think about it. And every home in and of itself, even entry level, is expensive. And so what that means is that if you want to stand out, you do it through personalization. Because personalization conveys a couple different things. It conveys that you're there to serve them. You've used your time to understand what it is they're looking for.

problems they're trying to solve and you're addressing those directly. It drives me crazy when I see online sales or salespeople respond to an initial request with, if you could tell me a little bit more about what you're looking for, I'd love to help you. When the consumer has already told them everything they need to know in order to begin that conversation in a much more personalized and better way. You're telling them that you are gonna give them a luxury service because again, you're personalizing it to them with the time. Time and attention is the definition of luxury in the service business.

You're gonna stand out from the crowd because your message is gonna be more relevant. Human beings ignore almost everything almost all the time. Our brains razor in on what is most relevant and important to us and when you get something that is highly personalized to you, that's gonna stand out. And then the last piece is that you're building trust by providing service.

high-end service or luxury service that's highly relevant, you're proving that you're someone or an organization that is worthy of the consumer's trust, and that's gonna be a big differentiator. Tactically, what does that look like? I think one of the ways that I wish I saw this more was online sales teams or sales teams using their online tools more effectively, recording a video of them using a color selection tool of the favorite floor plan that they've asked you a question about, showing different options, turning on.

DYC Studio (06:08.696)
turning off. I wish I saw more use of the tools that builders have on their websites now because that also is a training method. A lot of consumers may not realize that those tools are available or they're a little bit unsure of how to use them. All right, the next question that I got was, when resale inventory was at historically low levels, you warned of the sleeping giant that would one day reemerge to take market share from your construction. Well, it's awake, but overpriced. Most people in our industry say that when rates come down, pace will return, but hold on.

doesn't the resale market have to correct to see any resurgence in activity, especially since builders are already offering deep rate buy downs today? This is a great question. I really like this one a lot because typically it acknowledges that there's some incorrect thinking occurring around this. If rates go down, it will unstick the market overall. People will be incentivized to move more than they have to put their home up for sale, to consider that job offer and relocation.

It definitely helps a lot of things, but her question correctly notes that we are already more affordable than used homes. And it prompted me to kind of answer it in this way, to think that typically the reason that used homes outcompete new is because new homes are more expensive, which they're not right now, and because of availability. I mean availability in two ways. Availability in the places that people want to live. So a lot of times used homes are in infill locations where there's no opportunity to do new construction.

That's gonna continue to be a challenge, but there's sacrifices that consumers making there. They're not gonna get as much space or features or the latest energy efficiency, all of those things. But just availability generally. Historically, home builders have not had high levels of finished inventory available. And so it was kind of a feast or famine of we have a lot of inventory or we have no inventory. And right now we still have...

available inventory and we have affordability. So I think the key here really is to make sure that the consumer knows that you have both. And it's not just affordability kind of in a vacuum, but affordability in comparison to a used home. I think what would be really interesting to see is a builder, probably a smaller builder in a particular market. Do a series of videos kind of tongue in cheek comparing your new product to a similarly sized home.

DYC Studio (08:28.084)
or a used home with a similar number of bedrooms, kind of point by point, not with a checklist of black and white text, but with a video where you are kind of comparing and contrasting in a fun, entertaining way. This is crazy everyone, because you can afford this in new construction, which has all these additional benefits, and it doesn't have other people's toenails on the carpet, and it looks more modern, the layout's more modern, it's how people wanna live. So affordability is clearly in our favor.

And then if the market gets unstuck, then it will help overall. So I don't think we have to like say that the use home market has to kind of clear out or fix itself first in order for builders to get momentum. I think if we can clearly communicate that and one fun kind of entertaining way would be to do it in a series like that.

That would be something interesting. The last question that we really talked about was a big picture strategy of volume and margin. In a market where most builders are chasing sales volume with discounts, what bold strategies can achieve both volume and margin expansion? In other words, you're celebrating New Year's Eve a little over a year from now and you say to yourself, I'm so glad my team implemented blank. And I kind of said the premise of the question I don't like because if you want both volume and margin, it requires a really strong brand.

That is the benefit of having a fantastic brand and reputation. Awareness and reputation together is brand with promise, which can't be addressed with short-term thinking. So the analogy that I use a lot for this is if Disney decided that they needed to have 10 blockbuster movies done, filmed, complete in the can in a week and a half or a month and a half, they couldn't do it. Not for a trillion dollars, not for all the money in the world.

All the money in the world is not gonna solve the time reality of what it takes to create a movie from start to finish. And the same is true of developing a strong brand reputation. It's gonna take time. so the best way, paradoxically or ironically or depressingly, to get both volume and margin is to do all of the work that needs to be done day in, day out for years at a time.

DYC Studio (10:32.982)
Otherwise, the reason I think it's important to say I don't agree with the premise of the question is it creates this false hope. And that was kind of the last question was what do you think about 2026? Right now, if not much changes, I don't know why much would change, meaning expect similar market conditions in 2026. Unless interest rates drop significantly, the market becomes generally unstuck.

we get some new insight in how AI or offsite manufacturing is gonna improve affordability of construction. It's gonna be tough. And the sooner that everyone no longer lives in a make-believe fantasy world of getting volume and margin without something else incredible happening, the sooner we can get back to the things that we should be thinking about that can improve one or the other.

Like let's work through the volume of our inventory so we can fix the volume that we have on the ground and put better product with the right selections at the right price for the current market instead. Now the one asterisk to here, to this whole idea is pre-sales. So there are builders who still predominantly or exclusively sell pre-sale homes.

which are gonna have higher profit margins. There's less unknowns. You're getting real world, real time feedback on what customers want and don't want in their homes versus pre-speccing and building out hundreds of inventory homes. So pre-sales are a unique opportunity. And I think someone on the group said, that like, no one does that. And to which I said, well there is still one rather large home building organization called NVR, which unless something's changed that I'm not aware of.

When I worked there for two years, the only time you had a single family spec home was a model home that needed to be sold and or bought back to use as a model.

DYC Studio (12:10.478)
or someone died or lost their job who had already put in a deposit that was under the construction, in the construction process, and then had to back out for one reason or another. We didn't start Spec Homes. And so is that a challenge to that company in today's environment? I'm sure it is, because they don't have that immediate answer of availability for single-family homes. And so that might be challenging for them in the current market. But does it allow and position them to still be flexible and nimble in a way that other builders can't be? Yeah.

and it also improves margin on the homes that they do sell. And if you can build those homes fast enough and you can get your turn is the phrasing. How long into the year can we sell and still close that home?

For some builders, the answer is by the time we're done with June, can't, nothing else will close this year. So we're already thinking about next year in terms of closings. Some builders can sell a new build all the way up until early September and still close that home in the same calendar year. That's what we mean by turn. All right, that's it for the episode. Just wanted to give you some of those questions and answers that I thought were interesting. The audience really responded well to and can help us all as we start thinking about the end of 2025 and the year ahead. We'll see you next time.