Margie McGregor, MBA Candidate
According to the Borrell Associates report, 2013 Real Estate Outlook, real estate advertising was projected to grow by 9.7% to $27.2B, while the online advertising category was projected to grow by 16.9% to reach $15B in spend. These estimates make the real estate industry number one in the online advertising marketplace. Traditional marketing techniques, such as advertising, are becoming less and less effective over time. As a result, the real estate industry could potentially billions of dollars on promotions that may not be effective.
Why is it so important that the real estate industry re-evaluate their marketing spending? The rising business model that promises greater reliability is the Internet. So the next question becomes, how can real estate agencies compete with the Internet, the source of perfect information? In the age of perfect information, consumers have the ability to learn everything there is to know about a product and the potential experience they would have with it before they make a decision. The ability to predict a likely future (or lack thereof) with a product or service before the purchase is referred to as the absolute value.
In Absolute Value by Itamar Simonson and Emanuel Rosen reveal what influences customers’ decisions today, and marketing is not necessarily the answer. Consumers are much more likely to turn to sources they feel like they know and can trust, such as their peers. Our decisions as consumers are no longer limited to what happens to be in front of us. We have immediate access to a wealth of information from sources that we perceive as being more reliable than what marketers push towards us.
If marketers are no longer the answer, then what is? Simonson and Rosen have developed a new influence mix of three different sources to whom consumers turn to when making purchase decisions: the individual’s prior preferences, beliefs, and experiences, other people and information services, and marketers.
THINK POINT #1: What? The Movement from Relative to Absolute
The influence of “relative forces” such as traditional branding, loyalty, and positioning that used to drive customer experience predictions is rapidly diminishing. The amount of information easily accessible to consumers is infinite. The shift from relative-to-absolute-value-driven decision-making is largely due to technology and our ability to sort through this information.
In the past, the goal of marketers was to sway consumers to make “irrational” decisions. However, this “emotional” way of making consumer decisions is on the decline with access to perfect information. According to Simonson and Rosen, an irrational decision is one that is inconsistent with the economic concept of value maximization. In short, better or more rational decisions are being made based on the information available to customers.
Zillow, an online real estate research tool, is a good example of how rational decision-making is on the rise. Potential home buyers can log on to Zillow and research the value of homes in neighborhoods that they are interested in, and compare these values to advertised prices. As the process of achieving absolute value becomes more obtainable to consumers, real estate agents need to consider the value-creation role they might play in the home-buying process. More first-time homebuyers are turning to the Internet to educate themselves on how to buy a home. How can real estate agents increase their value and offer something that the Internet cannot provide to home-buyers?
THINK POINT #2: So What? How Marketing Changes Forever
The brand of a company, and molding this brand to be a direct reflection of the firm’s mission is the main concern of marketers. However, brand names are playing a reduced role as a cue for quality. According to Simonson and Rosen, no brand’s claim to fame is safe, and in today’s age of absolute value, the impact of brand equity will diminish.
It used to be the case that strong brands with solid customer loyalty could introduce new products or services with confidence, and would always have consistent positive performances. However, brands no longer have this luxury. In addition, price can no longer be an indicator of value. “If it’s expensive, it’s probably good” is not a truism that can be relied on any longer. Finally, brand loyalty is also on the decline. Consumers are moving away from “sticking to what they know” and instead researching each purchase in search of something that may provide a better experience. It is also important to note that this decline in brand loyalty is most prominent in larger purchases such as computers, cars, or cameras.
These changes in marketing open doors for others. The decline in brands as quality representations means lower barriers to entry for newcomers to the market. While brand equity has not completely become irrelevant, its reduced role in the customer decision-making process makes it easier for lesser known brands to be more widely considered.
Real estate agencies can no longer depend on their reputation to gain and deliver business. In order to keep pace with this change in marketing, real estate agents need to be intentional in reaching out to customers and communicating to them the value that they can provide. In order to do this, agents will want to emphasize networking strategies over marketing strategies. Consumers will often turn to their peers when doing research prior to making purchase decisions (or buying a home) and if a real estate agent has worked to make connections with a home-buyer’s peers, s/he is more likely to reach those consumers.
THINK POINT #3: Now What? A New Framework
A customer’s decision to buy is now based on a mix of three related sources: prior preferences, beliefs, and experiences, other people and information services, and marketers. Simonson and Rosen assert that this new framework drives the consumer decision-making process.
Prior Preferences, Beliefs, and Experiences (P)
The prior preferences, beliefs and experiences aspect of this framework refers to all information that has been learned from previous experiences, attitudes, or feelings. Simonson and Rosen refer to this source as “vague and unstable,” in that outside stimuli are less effective than in the past, and yet they can still influence our preferences.
Others: Often Trusted and Diverse (O)
The others source of influence in the decision-making process is often regarded as the most influential and the most useful. Others includes all other sources of information not included in the other two sources (P (Prior) or M (Marketers)). Others includes peer reviews, opinions of experts, or websites that provide information. However, an important aspect about others that should be considered is that there is potential for biased information. Each review written has an element of bias: however, consumers often see reviews to be the most useful in making decisions.
While marketers may be the first group that comes to mind when consumers think of purchase decision influences, marketers are often regarded as the least trustful group. Marketers are less trusted because they have a vested interest in making a product or service appear a certain way, and their primary goal is to sell, not to give consumers perfect information about their product or service.
What exactly does this new framework mean? This framework can actually help business people in the long run by analyzing weights that can be applied to each aspect of the marketing mix, and then make decisions as to where to invest marketing dollars. For example, if the market that you are operating in is very others-dependent, you will find customers where the purchase decision is more influenced by others, such as a social media sites.
The decision of buying a home is one that is of high importance, involving high risk, high quality information and lots of choices. What this means for real estate professionals is that while there is a wealth of information available about the home-buying process for consumers to access, real estate agencies can help with this process by offering a service of filtering through that information and providing a peace of mind for this important, potentially high-risk decision. While home-buyers may be bombarded by information and advice from their peers when they enter the market, real estate companies and agents can provide value by offering to buyers what their peers and online experts cannot: a piece of mind and hand to hold throughout the process.
Many of the claims made in Absolute Value may seem extreme; however, remember that revolutions such as this one described in this book never happen overnight. The shift away from traditional marketing techniques is one that will happen slowly as the availability of perfect information increases.
Secondly, remember that this shift will not occur consistently across the board—the influence mix for some products may remain the same while it changes for others. Consumers have better information allowing them to make more educated decisions. Essentially, marketing is becoming less about what companies say, and more about what they do.
Real estate companies need to shift their focus away from advertising, and instead think less about what they are saying, and what they can do to attract customers. It is essential that real estate agencies form a competitive advantage outside of the traditional marketing spectrum in order to stay ahead of the absolute value trend. The age of information is quickly progressing, and with potential customers having access to almost all the information they need in a home-buying process, real estate agencies must be constantly re-evaluating their competitive advantage. Whether it be making more of an effort to create a network of customers or expand their services offering support that is unique and not easily replicated, the actions of real estate companies speak louder than their words.
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Rosen, Emanuel, and Itamar Simonson (2014). Absolute Value: What Really Influences Customers in the Age of (nearly) Perfect Information. New York: Harper Collins.
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Corbett, Jeff (2014), "Why Digital Marketing Fails For The Real Estate Industry. "BoomTown. BoomTown Blog, 30 Jan. 2014.
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About the Author
MBA Candidate - Health Care, Baylor University
Margie is a graduate student from The Woodlands, Texas. She earned her Bachelor’s degree in Marketing from Baylor University, and is pursuing her MBA with a Healthcare Administration concentration at Baylor University. She plans starting her professional career in either Houston or Dallas in 2016.