Real Estate Marketing

Strategy, Personal Selling, Negotiation, Management, and Ethics

M. Joseph Sirgy

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317689041
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

Real Estate Marketing is specifically designed to educate real estate students with the art and science of the real estate marketing profession.

The ideal textbook for undergraduate and graduate level classes in business school and professional / continuing education programs in Real Estate, this book will also be of interest to professional real estate entrepreneurs looking to boost their knowledge and improve their marketing techniques.

The book is divided into five major parts. Part 1 focuses on introducing students to fundamental concepts of marketing as a business philosophy and strategy. Concepts discussed include strategic analysis, target marketing, and the four elements of the marketing mix: property planning, site selection, pricing of properties, and promotion of properties.

Part 2 focuses on personal selling in real estate. Students will learn the exact process and steps involved in representing real estate buyers and sellers.

Part 3 focuses on negotiations in real estate. How do effective real estate professionals use negotiation approaches such as collaboration, competition, accommodation, and compromise as a direct function of the situation and personalities involved in either buying or selling real estate properties?

Part 4 focuses on human resource management issues such as recruiting and training real estate agents, issues related to performance evaluation, motivation, and compensation, as well as issues related to leadership.

Finally, Part 5 focuses on legal and ethical issues in the real estate industry. Students will learn how to address difficult situations and legal/ethical dilemmas by understanding and applying a variety of legal/ethical tests. Students will also become intimately familiar with the industry's code of ethics.

Part 1 Strategy in Real Estate Development Firms

Chapter 1 Marketing Strategy

DOI: 10.4324/9781315775968-1

Learning Objectives

This chapter covers many topics related to the marketing strategy of real estate development firms. It is designed to help students of real estate marketing learn:

• what the marketing concept is and how it is different from the selling concept in the context of real estate development firms
• a formal definition of real estate marketing
• how the marketing manager performs a sales analysis
• how the marketing manager performs a customer analysis
• how the marketing manager performs a market analysis
• how the marketing manager performs a competitive analysis
• how the marketing manager makes target marketing decisions

The Marketing Concept

What is the marketing concept? How is it different from the selling concept? How do we formally define the real estate marketing discipline? Here are some answers. 1

Let’s start with the selling concept. This concept is captured in Figure 1.1. Many traditional real estate firms practice marketing with a selling concept in mind. A real estate development firm develops a parcel of land (e.g., development of a residential subdivision involving 30 single-family homes). Once the units are available for sales, the marketing staff becomes involved in advertising and promotion of these units to prospective buyers. In other words, the marketing function is essentially a selling function—nothing more, nothing less. This is very different from a real estate development firm that takes the marketing concept to heart. Selling is only one small element of the marketing function. Marketing involves marketing research that guides the formulation of an integrated marketing plan. The goal is to achieve customer satisfaction, which ultimately leads to profitability (see Figure 1.2). This means that the real estate development firms starts out with good marketing research to understand the housing needs of a customer group. Suppose a real estate development firm is planning to build a retirement community with a variety of living options:

• active adult—adult community for those 55 to 60 years old in which residents enjoy the benefits of home ownership in single-family, low-maintenance homes
• independent living—single-level homes designed for the active, independent senior (ages 60 and older)
• assisted-living level 1—for residents who want a catered lifestyle in a safe and secure environment
• assisted-living level 2—for residents who require assistance with daily living activities but who are not quite ready for long-term nursing care
• memory care—for residents with symptoms of dementia
• long-term nursing care—for residents requiring assistance with all or most activities of daily living and 24-hour nursing care

To do so, the firm has to do thorough marketing research to uncover the exact housing needs and preferences of six different market segments (active adult, independent living, assisted living level 1, assisted living level 2, memory care, and long-term nursing care). The product (different housing structures and amenities), the price (pricing of the different elements of the product line), the place (the location of these different elements of the product line), and the promotion (the messages and media placement of these different elements of the product line) have to be guided by marketing research related to the aforementioned six market segments. Customer need assessment (i.e., marketing research) is paramount to marketing effectiveness, and it is essentially the first stage in the marketing cycle (see Figure 1.2). The information unearthed from marketing research should pave the way for formulating an integrated marketing plan and implementing this plan (integrated marketing effort), which is essentially the second stage in the marketing cycle. This means that the real estate developer uses marketing research to plan the product mix (e.g., the various types of residential structures suited for the six different market segments), to price the various housing structures (as a function of cost, competition, and customers’ willingness to pay), to find optimal location sites for the planned structures (as a function of customers’ location preferences and other structural, environmental, and legal conditions), and to promote these housing structures to the various market segments (as a function of understanding the housing needs of the various customer groups and their media habits). The third stage of the marketing cycle is customer satisfaction. This means that customer satisfaction is a very important objective. The marketing effort of the firm is evaluated as a direct function of customer satisfaction. Marketing success is acknowledged only if customer satisfaction is achieved. How do real estate development firms recognize whether customer satisfaction is achieved? Through customer satisfaction research! That is, the firm conducts periodic surveys of the various customer groups to capture the degree of satisfaction they experience with the various elements of the marketing mix (product, price, place, and promotion). The result of customer satisfaction is profitability—high levels of customer satisfaction should translate to high levels of profit-ability. The feedback loop is reflected in situations when the firm does not achieve its stated goals and objectives. This causes stress in the system, prompting the real estate developer to conduct more marketing research to uncover problems in the planning of the marketing mix, the implementation of the mix, and the method of performance evaluation (i.e., customer satisfaction research). Once the problems are identified, corrective action follows to ensure that the system meets the stated organizational goals and objectives.

Figure 1.1 The Practice of Marketing in Traditional Real Estate Development Firms Guided by the Selling Concept

Figure 1.2 The Practice of Marketing in Modern Real Estate Development Firms Guided by the Marketing Concept

A Formal Definition of Real Estate Marketing

Here we present a formal definition of real estate marketing guided by the marketing concept. Real estate marketing involves anticipating, managing, and satisfying demand via the exchange process between buyer and seller of a property. As such, marketing encompasses all facets of real estate buyer/seller relationships. Specific marketing activities include strategic analysis, target marketing, property planning, site selection, pricing of the property, promotion planning, and marketing management. 2

This definition of real estate marketing can be depicted as another process or cycle as shown in Figure 1.3. These are strategic analysis, prospect strategy (target marketing), product strategy (property planning), place strategy (site selection), price strategy (pricing of the property), and promotion strategy (promotion of the property). We will discuss strategic analysis and target marketing in some detail in the remaining parts of this chapter. Chapter 2 will cover product and place strategy, while Chapter 3 will cover price and promotion strategy.

Figure 1.3 The Marketing Process in Real Estate Development Firms

Strategic Analysis

Strategic analysis involves an assessment of the internal and external environments (see Figure 1.4). An assessment of the internal environment involves an analysis of sales and customers, whereas an assessment of the external environment involves an analysis of the market and the competition. 3

Note that strategic analysis is not conducted in a vacuum. In other words, the marketing manager does not simply start out with strategic analysis, and then all prospect, product, place, price, and promotion decisions are based on the information reflected in that strategic analysis. Strategic analysis is a continuous process of information gathering, data collection, and analysis. The marketing manager starts out with an assessment of the internal and external environments, but this assessment is further guided by the many decisions the manager has to make concerning prospect, product, place, price, and promotion strategies. This point is accentuated by the double arrows between strategic analysis and the five Ps (prospect strategy, product strategy, place strategy, price strategy, and promotion strategy) as shown in Figure 1.3.

Internal Analysis

As previously mentioned, internal analysis (or an assessment of the internal environment) involves a sales analysis and a customer analysis.

Sales Analysis

A sales analysis focuses on plotting sales trends over the last several years (or as far back as possible, depending on data availability) and making an attempt to explain sales fluctuations. 4 That is, the marketing manager makes an attempt to explain factors that may have contributed to high levels of sales as well as low sales. Examine Figure 1.5. The figure shows a sales trend of residential homes. The x-axis shows the time scale: 1994–2014. The y-axis shows dollar sales in millions. The sales trend for residential homes for retired people seems to have continuously increased up to 2003, then decreased slightly all the way to 2009, and then shot up in 2012 and 2013. The challenge for the marketing manager is to explain this trend. Perhaps the slight decline between 2003 and 2011 was due to the sluggish economy, which then shot up in 2012 and 2013. Or perhaps in the early years (1995–2003) the upward sales trend was due to increased promotion expenditures, which decreased a little between 2003 and 2011, and increased again in 2012 and 2013. In this case we have two hypotheses: (1) Sales of residential homes for the retired may have been influenced by changes in the gross national product (GDP, a measure of economic well-being), and (2) sales of residential homes may have been influenced by changes in promotion expenditures directed to retired consumers. The marketing manager at this point should test these two hypotheses by gathering GDP data and promotion expenditure data (campaigns directed toward retired consumers) from 1995 to 2013. These two trends (GDP and expenditures) should then be plotted. If the expenditures trend curve looks more similar to the sales trend than the GDP trend, then one can conclude promotion expenditures may have influenced the sales trend. This information is important because such an inference is likely to prompt the marketing manager to allocate a higher level of promotion expenditures to jack up sluggish sales. Of course, this analysis is highly superficial, in the sense that marketing scientists would say that one cannot make a casual inference based on such an “eye-ball inspection” of the trends. A more rigorous analysis has to be conducted using multiple regression, in which sales could be treated as the criterion variable and GDP and promotion expenditures as predictor variables, with a host of other covariates. Even then one has to be very careful in assuming causality because such tests are correlational in nature, not experimental. However, given the nature of the data and in the absence of other information, the marketing manager could rely on such analysis, as long as he is cognizant of the uncertainty of the causal associations.

Figure 1.4 The Elements Involved in Strategic Analysis Performed by the Marketing ...