Friends with benefits?

Ravi Sinha

Diwakar Sharma was a happy man when he bought an apartment in one of the projects in Delhi-NCR on the recommendation of his office colleague. Prima facie, there was  nothing to suspect in a project where most of his colleagues had already bought homes based on mutual references. However, he was soon exposed to a ‘not-so-pleasant’ reality of developers’ mechanism to create a chain of recommendations. The homebuyers in the said project were paid an incentive for inviting more friends and family to buy  flats in the same project.  

“I did not know that I was being referred for a commission by my colleague whom I trusted. He acted like a de facto broker. Instead of creating a social neighbourhood, it turned our relationship sour for ever,” says Diwakar. 

According to brokers and property managers, the practice is more common in newer buildings, which may have several units available at once. But some buildings develop a reputation for their fraternal atmosphere as well, like the ones known for majority people from the same community living there. “It is like everybody knows everybody there,” says a broker.  

However, like any other relationship, this artificial neighbourhood needs to be nurtured carefully. Failing this, if one gets tempted by the developers’ offer to invite others for a price, like in the case of Diwakar, it leads to bad blood and lack of trust. 

The genesis

Gone are the days when the overnight appreciation of property prices was enough for the fly-by-night operators to lure the buyers with glossy advertisements. The RoI of the advertising spend by the developers was calculated with the number of phone calls in return. The economic downturn leading to an end of era of quick appreciation, however, has changed the market dynamics completely. The developers who relied on advertising were suddenly clueless and wondering how to strategise the marketing spend. Amidst the trial and error approach, the developers have been  completely exposed in the past five-seven years to the reality that it is no more a market of cold calling and direct footfalls.  

While a majority of  developers shifted their focus to the digital media, more due to compulsions of cost cutting than any marketing strategy, the healthy balance sheets of some of the grounded developers indicated that the buyer today relies heavily on word-of-mouth.

As per a recent pan-India consumer survey almost  one third of the buyers in the current market are direct referral buyers. Nearly an equal number of buyers are those who have done their homework and carried out  online search/research before verifying from the existing buyers about the project or the developers’ other projects. What these figures clearly suggest is that for a person looking for a house, developer’s goodwill is an important factor. It might give an impression that the developers should entirely shift focus on the existing customer base, but that is easier said than done. 

A wrong strategy

Given the current state of the realty market, thus, the developers know that  first person referrals can yield positive results. But using this channel by lubricating it with moolah is a wrong strategy that may backfire. Existing homebuyers should not be used as extended sales channel as this exposes the developer as a greedy marketeer on a prowl to bribe the buyers.   

It is here that the developers also need to understand the difference between creating a word-of -mouth goodwill in a holistic manner vis a vis just using the buyers as referral agents. Unfortunately, in a business that still has not learnt to address the long- term brand roadmap in its quest to address the short -term goal of sales, the thin line that differentiates between word-of-mouth and bribing the buyers is often blurred.  

All that the developers know is that a friend’s endorsement goes a long way. The prospective homebuyers are going to believe their friends more than they would believe a broker or the developer. If their friend tells them it is a great project to live in and social ambience is happening, they are going to believe it.  The catch here is whether the review is genuine or a  manipulated one, which would be eventually exposed. 

However, besides the buyers’ demographic profile and financial standing in a given apartment, based on referral buying, maintaining privacy and autonomy  can also prove to be challenging.  

Missing the mark

The realty sector is waking up to the importance of word-of-mouth publicity. But taking it to the other extreme, developers are trying their best to create artificial neighbourhoods for communities and professionals. The idea is to sell the inventory through referral marketing,  which is one of the most effective sales tools today. However, the long-term vision of creating a brand that acts like word-of-mouth referral is nowhere in sight.

Takeaways 

• Word-of-mouth publicity and its by-product referral marketing may sound to be an ideal marketing strategy  at the moment, but it could also be a double-edged sword.
• While it is good to have a like-minded neighbourhood, it also brings to the focus the privacy concerns of  the homebuyers.
• For the developers, though it has the potential of being a great sales channel and brand driver, this strategy can tarnish  brand reputation if not executed properly.   

The way out

Instead of incentivising or bribing the buyers for recommending the project to friends and family, the ideal way for the developers would be to opt for market research. With the right kind of research they can find out as to what can be done to turn housing projects as magnet for identical social profiles to invest. Entry of right TG in the initial phase of a project does attract matching gentry. Today, social profiles segment act on word-of-mouth — be it at a social gathering, event, function etc where people always move together. These social profiles always connect at small social gatherings which have a marketing flavour to it. Like any other marketing concept which the Indian real estate has killed with its over-use and abuse, word-of-mouth could also be counter-productive if not used with long-term vision to enhance brand equity and just focus on short term goals of sales.

 — The writer is CEO, Track2Realty