The Pervasiveness of Luxury

I just completed an eight-hour consulting project for a developer. They wanted my insight on some spec homes that were not selling. I know I gave them the right advice, but I’ll bet it is not the advice they were hoping to get.

I’m my own worst critic and this presentation was 39 slides long and had lots of bullet points and lots of text. That basically equals a boring, lousy presentation. Showing is better than Telling, and I had to give the presentation in static form, and then also use it for a later follow-up live presentation. So I ended up with 39 slides and too much text. Really only a couple smashed home the point I wanted to deliver.

That point was: If you can’t compete with Holiday Inn Express, you shouldn’t build homes.

 

Actual Holiday Inn Showerhead

 

My best slide was titled “The Pervasiveness of Luxury” and I used this showerhead image. Below it, I had these facts: *Granite Slab Vanity*Cherry Cabinetry* Tile Floors in Bathroom *Big Showerheads *Energy Efficient Lighting * Complimentary Breakfast?

My point is that this weekend, we spent two nights in a Holiday Inn Express in Glenwood Springs. It’s pretty amazing what $100 a night gets you over Spring Break. All of the above. There was an added bonus: The Holiday Inn has an outdoor pool and hot tub. It was too cold to use those. But they had an unadvertised friendly-use-agreement with the next door Hampton Inn to use their indoor pool and hot tub at no charge. I guess the Hampton Inn guests could use the Holiday Inn pool in the summer.

My point: as consumers, we are expecting, nay, DEMANDING things be luxurious. If we’re going to spend our money with 9.5% unemployment (Colorado and Colorado Springs’ present rate) and a never-ending cycle of lousy news, then gosh-darn-it, we better get a lot of bang for our buck.

Increasingly, the consumer’s buck goes further. Yeah, gas is going up, but the reason people are not outraged by globalism like maybe they ought to be, is because they’re such incredibly empowered consumers. Why are people stoked about IKEA moving into Park Meadows? Well, how does offering “a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them” Sound good? Target is easy to attain design. Starbucks is over 80,000 options at your fingertips for less than $5.

If you’re a builder, and you’re producing a product under $400K (where most local builders like to be), you 1.) are appealing to the top 10% of the marketplace in terms of household income. Whoa. 2.) you are competing with a number of recent other expensive acquisitions and purchases that embraced a lifestyle of luxury and customization. Finally, 3.) the buyer plans to live in this residence for 10 to 15 years. Whether they do or not doesn’t matter; what they say is “10 to 15 years” so moving into something that is already antiquated… doesn’t… make… sense. No one would buy an iPad without WiFi. They wouldn’t buy a TV without Hi-Def or HDMI (they wouldn’t have bought a TV without HDMI after 2007). The consumer knows that Southwest doesn’t charge for baggage or offer change of ticket fees. The consumer might know that a Holiday Inn Express offers granite vanities, tile bathrooms, a multi-setting oversized shower head AND a really cool personal pancake maker in the lobby that churns out an individually-custom- cooked slab of buttery goodness in 45 seconds, and that’s $102 a night.

Now it’s easy to read this and think “that assaults my profit margin!” The reality couldn’t be more different: the consumer is WILLING to pay more if they get more. Frankly, Southwest made me a customer for life this month when I rebooked my Cape Cod vacation. I had purchased five tickets for my family, and when I booked them, I had to select the terrible 10:30 pm arrival into Boston. It’s a total blast traveling with three boys in the middle of the night down MA3. But I found out that they had changed their fares, and now the 5:45 pm arrival was actually $2 per ticket less each way. I asked if they could pretty please change my ticket. They did. And they gave me a $10 credit, because the five new one-way fares were each $2 less. Did you read that? They not only: 1.) did what they said they would do they 2.) did it without me begging and 3.) when there was money leftover, they gave it back to me. I’m sorry, but as the provider for a family of five who has spent five years in the real estate recession, anyone willing to give me $10 back on my $1200 of luxury-dollars spent on airfare is a winner in my book. A $204 pair of nights in Glenwood and a $1200 airfare expense are both discretionary expenses in our budget; I was surprised and delighted with the value I received on both occasions.

If I was in the market for a $350,000 to $400,000 purchase… I sure as hell better be surprised and delighted with the value I get.

Never has it been more important to keep your home updated. In fact, there are now two classes of homes: updated, and out-of-date. There is no such thing as “market value” with an above-rate version of a home that is all updated and a sub-rate version of a home that is out-of-date. I showed a perfectly fine home that is taxed to the dollar as much as my own, two blocks from my residence. My re-finance appraisal estimated my value at $380,000 last year. This home is listed for $299,900. I showed it last week to a pair of buyers looking to do a flip. There’s one big, expensive project to do in the back, but really, it’s a tidy clean house with not much broken, plus it is stucco/cedar/tile roof. There are huge possibilities. These folks saw the possibilities, but still judged it as too expensive. It’s $299,900. It’s 4000 square feet on a 14,000 square foot lot in Pinecliff. The problem? It’s 1983 inside. Five years ago, this was okay. It just wasn’t updated. You’d pay more for the updated. Now, because it’s not updated, it’s priced like the bank-owned properties, and people will knock off 5 to 10% whenever they do offer on it because all they see is “the work”.

I mean, if Holiday Inn made me cook my own pancakes… if Southwest treated me like United has recently (like a mooing chunk of cattle)… if Zappos didn’t offer me two-way shipping for my strangely-shaped feet… I wouldn’t use them. But because they do make life luxurious and better and all-inclusive, I’m loyal to a fault.

When a company gets me loyal to a fault, I connect. I attach. I go out of my way to use that brand over other brands. If you need more proof, read Guy Kawasaki’s Enchantment. Guy was the Macintosh evangelist for Apple in the early 80’s. The man knows of what he speaks. It doesn’t cost a lot more to make something enchanting. In fact, it costs a lot more to make something NOT ENCHANTING. Because if you fail to go that extra distance and connect with the

Richard Branson. Billionaire Shoe-Shiner

consumer, they go out of their way to AVOID YOU. But if you go just a couple steps, like Guy’s example of Richard Branson personally shining his shoes… you use that pervasiveness of luxury to create a salient point of lifetime connection.

 

The cost of failing to connect is the cost of losing all future business.

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