Trading Down

Starbucks_line_2 Next time you stand on line for a $4.00 cup of steamed milk and espresso ask yourself how, during a time when America was littered with dime-a-dozen coffee shops, when Krups, Braun, et al, were manufacturing affordable, home coffee brew machines, when a cup of coffee was $.60 a cup and that was considered too much, could Starbucks enter the markert with prices 200-400% higher than the norm.

I’ve asked myself that 1,000 times over the years. Usually after I ask myself how it is that during that same decade, during a time when Americans where making conscious choices to pay more for almost everything – $350 billion to be exact according to the authors of Trading Up – did real estate think to Trade itself Down by launching one discount model after another.

Forget about what it actually costs to list and market a home. I hear the arguments all the time. The average Realtor spends less than 1% of their commission to get the job done. So what! If you can sustain a business model with that markup – rock on.

No one cares what Starbucks charges. They care even less about their COGS. People gladly pay the price.

Starbucks, Callaway, W Hotels, William Sonoma and other brands like them get their high markup because Americans value innovation and upscale service.

Real estate is under scrutiny for one reason: Whatever innovation or service real estate provides must not be good enough or impressive enough. Certainly, in many cases, it is no different that it was two decades ago. The marketplace is saying it doesn’t feel it should pay a premium price for the same old real estate brokerage experience.

W Hotels has "Whatever Whenever". You’re in your $500 a night room and you need something odd like a Cuban cigar at 2:00 am. Pick up the phone, dial 0. Someone who sounds like they are your old friend attends to your need. Might cost you $200 but if you want a Cuban bad enough …

Same person lists a million dollar home. Fee is somewhere around $50,000 – $70,000. Does their Realtor have a Whatever, Whenever? If not, if all they get is a voice mail that says, "Hi, this is Alice. I’m either on the phone or away from my desk…" Where does that leave Joe consumer?

No URL. No alternative number. No cigar.

Real estate needs to start investing in the consumer. Not what it THINKS they want. Not what they seem to enjoy. Real estate needs to KNOW what they want. And what they VALUE

Do you know what that is? 

– Davison