Client-acquisition cost, or the cost of selling each housing unit, not only affects the overall project cost and the developer’s brand, it also speaks to the organisational culture and the extent to which the builder can be trusted.
In a housing market like India crying for trust and transparency, it is the client acquisition cost that speaks volumes about the developer’s track record, goodwill earned over the years, responsive brand conduct, and the ability to deliver future projects as per the commitments made.
Case in point: A Noida-based developer recently reprimanded his sales and marketing team for what he alleged was a wasteful expenditure. As per his assessment, he had made all possible efforts to sell the newly launched project. Right from the print ad with mainline dailies to TV commercials and digital advertising to radio, he had spent close to 7 percent of the project cost for faster sales. Yet, the project was still seeing pretty slow sales.
What added insult to his injury was that a project in the vicinity, available in almost the same price band, didn’t have to spend a fortune to drive sales. Not only was the competing project selling faster, its builder had stopped taking fresh bookings after selling 70 percent of the inventory in the initial stages. He was naturally looking forward to opening the sales again at the time of possession to command a better premium.
This is definitely not a one-off incident where one developer has spent a fortune on marketing his project but failed to get traction, while a neighbouring project with a much lower marketing spend has done wonders.
What should have been an easy answer to this anomaly is actually a complex subject within the built environment of Indian real estate. This is because of the developers’ inability to understand the home-buying behaviour of Indians at large and much-needed buyers’ psychology: Developers who are brand-conscious and conduct themselves with accountability are always spending less amount on sales and marketing in the long run, compared to the return on investment or RoI-driven breed that wants a quick-fix solution with the new launch or when the sale is slow.
In real estate markets the world over, client acquisition cost is the key and the developers who are callous towards buyers after having sold the unit end up paying more with their next launches.
Take the case of this Bengaluru developer who after having handed over the project to the society some 10 years back was approached by the RWA (residents' welfare association) for maintenance of wear and tear. The developer willingly extended a helping hand and even spent Rs 2 crore for the same. When I asked the developer whether it made business sense to him, he candidly admitted that the effort was a smart marketing strategy and worth the price. The move would reduce his client acquisition cost. How? An ad campaign of the same amount may or may not reward the developer with the five to seven new clients. But the word of mouth and the buyers who would upgrade to bigger houses, added with the referral clients, would reward him way too handsomely.
Another developer runs through a consumer connect programme where the developer’s team reaches out to the buyers of existing projects to get feedback. It is then internally analysed and in many cases the developer reinvests in the already delivered projects to earn the buyers’ goodwill. This naturally leads to more upgraded buyers in the future portfolio and the referral buyers.
There are other developers who in order to keep the existing home buyers happy and, more importantly, hooked, run a loyalty programme for them to refer more buyers. It not only reduces the client acquisition cost but also keeps a chain of loyal home buyers.
A brand’s true worth may be better weighed in terms of its client acquisition cost. Even when fierce competition does not allow a premium brand to command higher prices, its ability to attract the incremental repeat buyers and referral buyers acts as the reward point of the brand worth. With incremental repeat buyers and referral buyers, the leading brands, even if selling at a competitive price point, reduce their marketing and brokerage cost. Hence, in the final analysis, it leads to higher profit margins.
Real estate recommendations are definitely not like the endless stream of recommendations offered by Amazon, Netflix, Spotify, and most other online businesses. With the house being their costliest purchase, and most emotional asset class, the buyer has to be really satisfied with the product and the developer to act as a catalyst to lower the builder’s client acquisition cost. If this smacks of utopianism in the housing market, well, there has to be something exceptional about the builder to turn buyers into brand ambassadors.
So, even for a cost-conscious builder who would think twice before investing to please existing home buyers, in sheer monetary terms, it could mean better premium and lower client acquisition cost. And it definitely helps when a repeat homebuyer, or even someone who has rented an accommodation in one of the developer’s projects, comes back with an aspiration to either purchase or upsize their home without the developer putting any effort into the client acquisition or conversion.
In a larger context, today when there is fierce competition as well as eroding trust in developers, standing out as a real estate brand is more akin to working in customer service than it is to being in brick and mortar business mindset.
In a larger context, today when there is a fierce competition and eroding trust, standing out as a real estate brand is more akin to working in customer service than it is to being in brick and mortar business mindset. If a question like “there is a problem with this existing buyer and I don’t know what to do” is confronting a real estate company every now and then, it is time to relook at its C-SAT Score (Consumer Satisfaction Score) and, more importantly, reasons for the low C-SAT Score. Failing which could lead to a vicious cycle of constant increase in the client acquisition cost, leading to lower profit margins.