Value Based Business

Builders who believe that their marketplace will be driven largely by frugality and belt tightening as traumatized consumers emerge from the first financial crisis in the U.S. since the 1930s are in danger of misreading the mindset of their prospective customers, J. Walker Smith, executive chairman, The Futures Company, told a PCBC audience in San Francisco on June 22.

Consumers are going through the biggest shift in decades in how they decide which products and services are worth buying, he said, and they are looking for what leads to happiness.

"One predictor of happiness is relationships with others," Smith said. Consumers are creating a "culture of contentment," he added, which is "more and more rooted to their intimate relationships with others."

Referencing the latest consumer survey research and comparing it with earlier findings, Smith suggested there are several things that home builders should keep in mind as they approach their buyers:

■"Debt is just bad," in the minds of consumers, and it "influences their judgments," he said. "There is a visceral fear or distaste for being obligated in that way, and this does have an important bearing in how they think about housing."

In sharp contrast to the boom years, when the economy was going strong and there didn't appear to be much risk in taking on more debt, "risk is back on the table," he said. Consumers believe that "you can't get to a better life by taking on financial risks and they are more attentive to the consequences."

With good reason, about three-quarters of today's consumers say they are aware of the need to identify and manage risk; 61% say they have cut back on spending because of concerns about the future and 60% are concerned about the state of the economy in general.

The challenge for builders is to take the risk out of buying. Smith cited several examples where corporations and retailers have done just that: Hyundai's assurance plan, in which buyers who lose their job can return their car without adverse consequences; Jos. A. Banks' risk-free suit, which provided refunds for job losers; BioVigil's clean hand monitor for restaurant workers; a MasterCard program that enables borrowers to impose credit limits in various spending categories; and builders who have offered recession-proof houses that made payments after owners lost their jobs.

■Just because they are taking on more responsibility in the face of significant financial constraints "does not mean that consumers want to retreat from the marketplace or are pessimistic about life," Smith said. Eleven percent currently believe that their personal happiness and well being are on the decline, he said, compared to 44% who expect to see them increase.

In reaching out to consumers, "don't echo their fears, but resonate with their enduring optimism," he advised.

■"You have to connect with the consumer in a very different way," Smith said, suggesting that people are spending considerably more time in social networks and, more importantly, being influenced by what their friends like.

"The similarity of choices is much greater under social influence conditions," he said. And "the stronger the influence, the stronger the effect."

"The house I'm going to buy is the house my friends like, the house that gets talked about on social networks," he said. "This is the new connection with others."

Seventy-seven percent of today's consumers say it is important to be seen as a good neighbor, 89% as a good friend, Smith reported.

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