Home Builders Told New Consumer Mindset Embraces Happiness, Family and Friends

Home Builders Told New Consumer Mindset Embraces Happiness, Family and Friends

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 PCBCaudience 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. 

    For a fuller discussion on social currency, more than 170,000 people have downloaded their free copy of a publication designed to bring marketing and advertising professionals into the digital era — “Oh My God What Happened and What Should I Do?” 

  • Two-thirds of consumers are angry at big corporations, he said. “There is a sense of betrayal by big institutions to treat you fairly.” And this has been seen by many retailers as a chance to relate to the public with messages resonating with outrage. 

    In 2008, as their most trusted source of product information, 83% of those surveyed identified somebody they knew or someone who had the product. 

  • Material things aren’t as important to how consumers feel as they become more internally directed in the contentment culture. In the U.S., on a scale of one to nine, happiness received an average score of 8.1 in importance, compared to 6.7 for wealth. In China, those scores were 7.3 and 7.0, respectively, Smith said. 

    In the U.S., 18% of those surveyed said that more material possessions would make them happier, compared with 68% in China. 

    Relationships with friends and family were at the top of the list in importance for U.S. respondents. And 76% agreed that they preferred to spend money on experiences they could share with others.

New Business Models

Sharing the stage with Smith at PCBC, James Chung, president of Reach Advisors, emphasized that builders need to be creating new models for their businesses to correspond with the demographic changes now afoot.

The good news from a demographic perspective is that the U.S. population is projected to grow by about 100 million over the next 100 years.

However, more than half of that growth will be among minorities and the younger population is on an ascendant path, both suggesting a shift in housing demand that many experienced builders may not be geared up to meet.

In the meantime, among the 65+ population headed for a 36% increase over the next decade and contemplating moving to smaller homes, selling existing trade-up homes will become more difficult, with demand veering to properties for households just starting out.

Long-time builders also seem disposed to continuing to build for households comprised of married couples with children, Chung observed, when their predominance has steadily evaporated — from half in the 1960s to one in five in 2010.

Chung also cited the growing need for housing to accommodate lifestyles with which traditional builders may have little experience.

For instance, some communities have recently seen single women account for 40% of sales, many of whom, depending upon the locality, are beginning to surpass their male counterparts in earning power.

The gender gap in how leisure time is spent is growing dramatically, he added, a departure from the baby boom generation, which closed that gap.

Young Gen Y women are more engaged in sports and fitness than young men; they have accounted for 93% of recent growth in running. And young women are more productive in how they employ technology, he said, using it to save money or network at work while men are using it to play video games or gamble online.

Chung emphasized the importance of looking at what is occurring in local markets because factors vary significantly around the country.

For example, only 30% to 40% of adults in many major metropolitan markets have married. In San Francisco, the share is one in five. However, in many cases, this may only represent delayed marriages, he said.

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