I became a born-again Maslow nut during the post-dot-com, post-9/11 period that we Bay Area hoteliers like to refer to as the “five-year hangover” starting in January 2001. After five years of phenomenal times for Bay Area hotels, we experienced a bubble burst heard round the world. Suddenly assets became liabilities. Someone once told me that all businesses have a start-up phase, a throw-up phase, and a grow-up phase. My goal in 2001 was to graduate to the grow-up phase as quickly as possible.
Burning the midnight oil reading Maslow and his iconic Hierarchy of Needs gave me the confidence to take a contrarian path in the hotel industry wreckage that was 2001-2005. Rather than purely living in trench warfare for half a decade, we decided to focus on the higher needs of our employees, customers, and investors. Creating peak experiences for these three constituencies helped us to create peak performance for my company. And, almost exactly seven years later, our annual revenues are triple what they were back then.
OK, how does this relate to residential real estate? I was scooping sun-dried tomatoes on my spinach salad at the new Whole Foods Market that moved into my ‘hood (thank you John Mackey!) when a business colleague came up and slapped my back. Given that I don’t have too many back-slapping friends, I immediately recognized the fraternizing embrace as a real estate developer I’ve known for years. He told me he hasn’t been sleeping well for months because all of his residential real estate developments were going “sideways.” Wasn’t that a movie a few years ago about drinking a lot of wine? Now I understand the reference. But, and this is the honest to God truth, he said he’s been reading my book PEAK and he’s now sleeping so much better. I wasn’t sure how to take this. I have a few books bedside that are my trusted version of Sominex. Fortunately, that wasn’t what he meant. He said, “Now I understand the pain and suffering you were going through a few years ago and why the Hierarchy of Needs was your savior. I’m applying your Maslow theory to my little debacle and it’s amazing how relevant it is and how easy it is to teach everyone in my company about this.”
Suddenly, I realized that what we’d experienced in hotels seven years ago was being repeated for home developers, investors, brokers, and, certainly, home owners. The bubble bites, doesn’t it!? But, my conversation with this developer was truly enlightening as it’s one more piece of evidence to suggest that this PEAK theory is relevant to all kinds of industries. Let’s first examine the problem.
The problem is the bubble has burst, which means that home buyers have moved from the fright of not buying quickly enough (for the last few years, waiting six months could cost you 10% in a price increase) to the fright of whether buying a home in this marketplace is a prudent investment. So, based upon the idea that people need their base survival needs addressed first, smart home developers are first and foremost figuring out ways to communicate the safety and intelligence of making the investment. One clever developer I know created a forty year line graph showing the ebbs and flows of Los Angeles residential real estate values and then the specifics around their neighborhood. What this graph demonstrated was the idea that values do go up and down – this isn’t the first time there’s been a marketplace devaluation. But, the neighborhood graph of values showed that this particular area had held its values historically better than the overall metro market. So, in essence, this developer was trying to allay the survival fears of the home buyer to say, “I know you have worries about home values, but this is a safer bet given that this neighborhood has performed better over time.”
But, just addressing a buyer’s survival needs isn’t enough. As my developer friend told me, “We have become much better listeners. The second level of your Customer Pyramid suggests that customers make a commitment when they have both their expectations AND their desires met. Rather than dropping our prices like all of our competition is, we’ve chosen to add value or provide upgrades to the homes that specifically address the desires of the customer. A year ago, we might have charged them an extra $10,000 for hardwood floors. Now, we provide it for free. We try to have our salespeople come up with three desires per customer that we can translate into value. We show these prospective buyers just how much they’re saving on these upgrades, but it also means we aren’t cheapening the values in the neighborhood. In fact, we’re improving the values because we’re creating better homes.”
So, I asked my colleague, “I understand how you address the two lowest levels of the Customer Pyramid – expectations and desires – but how do you address the “Unrecognized Needs” of the customer to create the self-actualized experience that is found at the peak of the pyramid?” He said he was still trying to figure that one out. Since then, I’ve given it some thought. Why not make a special offer to the prospective buyer: as icing on the cake, we will offer you $5,000 to be used in one of the three following ways: (a) we throw you the most over-the-top housewarming party, anniversary, or birthday party for you and all your friends in your home, (b) we give you a $5,000 credit at Best Buy for you to buy whatever kind of home entertainment system or technology you want, or (c) we donate $5,000 to the charity of your choice in your name. While other developers will drop prices at the drop of a hat, you can create a memory or something of real value by “investing” your $5,000 in a manner that truly makes a difference for the buyer.
If you’re in the residential real estate field or just own your home or condo, just remember Winston Churchill’s line (although Winston wasn’t particularly Maslovian): “When you’re going through hell, just keep going.” As I learned with the hotel biz, “this too shall pass.” Rather than fighting in the trenches every day and just dropping prices as your solution to get sales traction, consider how you can appeal to the higher needs of your prospective customers. I promise it will differentiate you in the marketplace. In a time when everything has become commoditized, differentiating yourself and your product is the sign of a peak performer.