Customer acquisition cost: Can it define a real estate brand’s true value?

[ecis2016.org] In a real estate market where large real estate brands are unable to command a premium for their properties, can client acquisition cost serve as a true indicator of the brand’s value? We examine…

Fierce competition in real estate has eroded the brand premium of most of the leading names in the business. In Bengaluru, for example, a leading real estate brand in a particular micro-market, is selling units at the same price as a lesser-known developer. In Gurugram, the price difference for similar projects by the leading brands and others, is either very small or non-existent. This raises several fundamental questions:

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• Why should real estate companies spend on branding, when they are not able to command a premium in the market today?
• Does spending on branding have to be justified with the bottom line of the business?
• Is it okay to adopt the approach of small and mid-sized builders, who avoid spending on brand campaigns and only look at ROI-driven sales campaigns?
• Are these companies justified in their callous approach to customer-centricity?

In this scenario, a brand’s true worth could be better judged, in terms of its client acquisition cost. Even when the fierce competition restricts a premium brand from commanding a higher price point, its ability to attract repeat buyers and referral buyers, is the reward for the brand’s worth. This enables the leading brands to reduce their marketing and brokerage costs. In the final analysis, this leads to higher profit margins.

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Subhankar Mitra, managing director – advisory services, at Colliers International India, agrees that the brand plays a key role for a developer, in terms of client acquisition. The industry has a diverse range of players – some are credible and some are not and there are fly-by-night operators, too. Therefore, the trust and reliability factors play a far greater role. “Those who have an impeccable track record of quality, commitment, timeliness and professionalism, find it much easier to attract customers wherever they launch a project, even during a lean period. For the rest, they have to hard sell their product, spending huge sums on advertisements, promotional activities, pay out to channel partners, etc.,” says Mitra.

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Amit Modi, director of ABA Corp, maintains that it definitely helps, when a repeat home buyer, or even someone who has resided in a rented accommodation in one of our projects, comes to us with an aspiration to either purchase or upsize his living conditions, without us putting any effort into the acquisition or conversion. “At the same time, we are also mindful that a premium does not involve a single facet. Rather, it is a mix of legacy, amenities, features, as well as trust of the home buyer, based on either one’s own previous experience or strong word-of-mouth publicity by someone they completely trust. From traditional tools like newspaper and television advertising, the buyers are now also looking more closely into social media avenues, the editorial thought leadership of the brand, etc. These necessitate changes in the distribution pattern of budgets for client acquisition. What it comes down to, is peer-to-peer validation, trust and track record legacy, strength of the product along with its amenities, features and the lifestyle on offer. Word of mouth marketing, which does not involve any major monetary allocation, brings down the cost of overall acquisition,” says Modi.

How is brand value calculated in real estate?

JC Sharma, VC and MD of Sobha Ltd, points out that in these challenging times, due to the Coronavirus pandemic, customers prefer established and time-tested names, which have emerged as trusted brands. It is not so important to look at how developers calculate their brand value but how customers perceive the brand value of a real estate company.

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“A brand’s value can mean different things to different people. Some people use the cost-based approach and others go by a market-based approach. However, these are not adequate ways to look at a brand value, which has immense intangibles associated with it. To calculate the brand value, one needs to identify the objective of the valuation and use appropriate methods and assumptions to determine a fair value. For example, our brand value is directly derived from the goodwill we have created amongst our stakeholders, based on delivery of high quality products on time,” says Sharma.

In the housing market the core catalysts have been quality and design-led thinking. Those players who have worked hard on their product and have delivered it on time, stand to gain during challenging times. Building trust, is the only sustainable way to lower customer acquisition cost and survive in a cut-throat marketing environment. The top builders who have invested years in product, amenities and maintenance, to earn the goodwill of the home buyers, find it comparatively easy to sell in the cluttered and competitive market, thus, reducing their client acquisition cost.

Standing out as a real estate brand, is more akin to working in customer service than in a brick-and-mortar business. If the developer is faced with a situation like ‘there is a problem with this existing buyer and I do not know what to do’, then, it is time to revisit its C-SAT (Consumer Satisfaction Score). Else, it may lead to a vicious cycle of constant increase in the client acquisition cost, leading to lower profit margins.

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(The writer is CEO, Track2Realty)

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Source: https://ecis2016.org
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