Optional Enthusiasm

When land developer Dan Nickless started Capital Pacific's Homes in Denver more than five years ago, he was looking for a way to set his company apart from the competition. Aiming at Colorado's $250,000 to $350,000 first-time and first-time-move-up market, he faced a competitive field of almost 20 national builders and many more local companies.

Nickless and his vice president of sales and marketing, Paul Gortzig, understood that new-home buyers were confused by builders' option-selection process, and often surprised at the costs it added to their homes. Says Gortzig, "Homebuyers were upset that they would start with a base price of $300,000, and before they knew it they were up to $350,000." So they decided to differentiate the company by the way they sold options.

Building buzz
Capital Pacific's strategy was to try to get customers excited about the value that the company's options would bring them. To do so, they turned to some well-known specialty retailers:

• Creative Touch Interiors for flooring, tile and countertops
• CompUSA Digital Home for low-voltage electronics
• The Great Indoors for appliances

Capital Pacific decided not to open its own showroom, but rather send buyers to these vendors to choose options. This ensures that buyers get knowledgeable sales and installation personnel, along with solid warranties.

The company has also been careful about the language it uses to brand its options process. Its advertising includes an image of a boy surrounded by candy with the caption "Remember what it was like to be a kid in a candy store?" Capital Pacific salespeople don't even use the word "option," preferring "choices" instead. Even when homebuyers make a major change, like converting a living room into a guest room with a bath, it is not "customization," but "personalization."

Capital Pacific isn't the only builder that grasps the importance of word choice to upgrade sales. "The buyers' perception of marketing vocabulary is very important," says Mark Drumm, director of marketing with the Hills Communities, Cincinnati, Ohio, which offers homes priced at just over $100,000 to first-time homebuyers. "You don't want to imply that your standard offerings are inferior, so it is best to use nonjudgmental words like 'luxury appointments.'"

Easing sticker shock
According to Drumm, the appointments most buyers want are better kitchen cabinets and appliances, as well as more expensive flooring in the kitchen and bath. These can raise the price of an entry-level home almost 10 percent. "If new-home buyers get the appliances and finishes they really want, it can cost them an extra $10,000," Drumm says. To help the bill go down easier, the company uses the same strategy that car dealers do: stressing monthly payments rather than total cost. "If they roll the cost into their 30-year mortgage, the additional monthly payment is minimal, and they get what they really want."

Capital Pacific eases price anxiety by letting buyers know that they will pay the same price to the company's retail partners as anyone else would. Buyers aren't charged an extra markup by the builder; instead the retail partners give the builder a portion of their standard markup. Capital Pacific feels there is less need for additional markup, since it is not carrying the risk of stocking all the items, nor does it have to keep up to date in the ever-changing world of product upgrades, according to Nickless.

It seems to be working. Jay Reetz, Capital Pacific account manager at The Great Indoors, says there is a great deal of interest in upgrade items such as three-door refrigerator freezers, ranges with warming ovens and stainless finishes. And the company has established itself at a steady 350 to 400 home sales a year, which is as sweet as candy in a highly competitive new-home market.