Pam Danziger has spent years studying the spending habits of affluent consumers, but in November she observed a first. In a series of focus groups she was conducting in Westchester County, N.Y., where the median family income exceeded $105,000 in 2008, she heard a group of men claim bragging rights for spending less than their peers on their plasma TV, or Lexus sedan, or remodeled kitchen.
“I’m used to that kind of discussion among women,” even among Saks and Neiman’s buyers comparing the prices of Jimmy Choo shoes, says Danziger, CEO of Unity Marketing, a market-research company in Stevens, Pa. “What’s significant is that men are now saying the same thing,” in the same spirit of competition and bravado that helped many of them achieve financial success in the first place.
Mark Richardson has observed a similar phenomenon among his social set in and around Washington, D.C. But as co-chairman of
Case Design/Remodeling, a large high-end remodeling company, the observations are personal. “Three to five years ago, it was very much a discussion of keeping up with the Joneses,” he says. At cocktail parties and business functions, “People would say, ‘We’re using Case’ with their chests puffed out. The sense was ‘nothing but the best,’” combined with a remodeling lust that encompassed not just the kitchen and master bathroom, “but also the waterfall and deck.”
The conversation is more subdued now. Even humbled, Richardson says. “Now they’re saying they found an alternative to Case or Pella; they’re using this ‘nice guy’ builder they met. And they’re proud of that — proud not just to conserve energy, but to conserve their financial resources, too.”
“The luxury consumer’s power used to come from how much money they had to spend,” Danziger says. “Today it’s much more about how smart they are.” And how chastened, she might add, by the poor return they’ve received on many of the investments they made in more go-go times.
The same chastened thinking applies to consumers across the socioeconomic spectrum, from six- and seven-figure households to middle-class consumers who spent only modestly even when the funny money was flowing.
A Smaller Fix
Marketers are responding in turn. Mercedes-Benz, Audi, and BMW, for instance, are “tweaking their marketing messages to target consumers who may begin to spend more but remain in an austere frame of mind,” according to TheWall Street Journal. Don’t buy the Benz for the hood ornament, in other words, but for its safety features and hybrid engine.
And remodelers? “Nobody needs luxury,” Danziger says. On the other hand, given the recessionary chilling of high-end home sales, she has seen an uptick in consumers warming to the notion of improving the homes they have. In a recent online survey, GfK Custom Research found that 36% of U.S. consumers were planning a major remodeling project, and that 50% would like to, but say they “don’t know if [they] can afford it.”
The positive bottom line, according to Richardson, is that “Americans are addicted to remodeling. They still need a fix,” even if they’ve abandoned dreams of the whole-house renovation in favor of installing crown molding and some built-ins.
What’s different, of course, is that not only are homeowners spending within their means, but they’re doing so more cautiously, with an eye on value. Whether young couples seeking to improve the fixer-upper they bought in a short sale, or empty-nesters who have written their final tuition check, homeowners are looking for quality, both of the product’s workmanship and of their buying experience. They’re doing their research, taking their time, and looking for people they can trust to serve them wisely.
Here’s how to prepare for that role.
Just Discuss It
At Case Design/Remodeling, the leading salesperson in 2009 wasn’t an aggressive, “sign today” salesman but a personable, patient, and pregnant mother of two named April Case (no relation) Underwood. She estimates that her 2009 sales were $200,000 above her 2005 volume, which went down in many remodelers’ history books as their biggest year ever.
Her secret? Sure, pregnancy and parenthood bond Underwood to many of the homeowners she works with, but other factors — replicable processes and attributes all — are also at work. A few years ago, “I felt that people were chasing me down” in their rush to remodel, she says. Today, the research and meetings that these clients didn’t have the patience for then are becoming critical stages of the selling process.
Credit: Dan Page
Education: Case Design has been holding homeowner seminars for 20 years, but attendance has tripled recently, Richardson says. He notes that some remodelers find seminars frustrating, as contracts are rarely signed at them. “When homeowners go to a seminar, however, they feel that they’re doing something.” They’re researching and getting comfortable.
In turn, his company has consciously invested more time and energy in a ‘just-discuss-it’ approach aimed at closing a design contract or feasibility study, rather than a construction contract.
The warm-up call: Underwood considers this a pivotal part of her sales process. “People are stressed; they’re wondering if they can afford this. They want to make sure they’re not throwing their money away,” she says. In 2005, where many were happy just to have a remodeler call them back, they’re now listening for signs that the remodeler cares about them, knows exactly what she is doing, and is acting with their best interests in mind.
To that end, Underwood listens carefully during the call, jotting down project notes as well as, when relevant, the names and ages of children and pets. This attention to detail resonates with and reassures nervous homeowners, she says. “When I go to their house, it’s almost like we’re meeting for the second time.”
The downsell: With average job sizes way down, and financing tougher to come by, remodelers must improve their close ratios as a hedge against lower volume. Richardson has found that using different sales techniques — and “not trying to swing for the fences” of big project sales — can increase close ratios by as much as 50%.
“In the past, we followed the fantasy,” he says, referring to the bubble-driven money that homeowners spent lavishly even when they had to borrow it from their investments or home equity. “Now we’re guiding the fantasy. They’re using their own money, and the banks want to get paid back.”
One method is to present remodeling options in three categories: the must-do (rotting wood, dangerous conditions), the want-to-do, and the future idea. “Remodelers can be their own worst enemy by letting the fantasy grow out of control,” Richardson says. Today, “you really have to be a financial adviser, a voice of reason,” who is as quick to encourage clients to stick within their means, as to stretch.
Different price points: It’s a fallacy to believe that consumers want the best of everything, Danziger says. When she and her husband remodeled recently, she wished that the architect had presented “A, B, and C price points. In some cases, I was perfectly fine with good,” she says.
A case in point is private spaces versus public spaces. For her master bathroom, Danziger saw no need for the “deep bathtubs with bells and whistles” that are so common in expensive homes. A shower was just fine. But for the kitchen, site of frequent entertaining, she wanted “top-of-the-line the whole way.”
Underwood appreciates price-point distinctions and strives to value-engineer projects where possible. With certain cabinet lines, for instance, she can give the client the option of two kitchens with identical floor plans and appearances (when the cabinet doors are closed), but that can cost $2,500 less by selecting the box construction line.
Sell expertise, not product: “Remodelers should realize that homeowners have done their due diligence,” Danziger says. “They know more about the remodeling business than you could have imagined several years ago.” Above all, that knowledge extends to products, which they can easily research — and compare prices for — online.
For that reason, Danziger says, remodelers should seriously rethink conventional billing practices. Charge for design. Charge for expertise. “And to hell with the markup,” she says. “People may not be willing to pay for it because they know they can find it cheaper.” Why not help them get the best price on commodities, and charge instead for what is unique to you?
Most remodelers may not be ready to abandon markups, but they can find better ways to sell their expertise. For her part, Underwood always has a well-rounded project portfolio to show prospects and vividly helps them to visualize the design possibilities using descriptive, carefully chosen words.
“I’ve always tried to help people feel comfortable, and that they can trust me,” she says. “Now they want even more reassurance that I know what I’m doing, and I’ll hold their hand through the process.”
—Leah Thayer, senior editor, REMODELING.