More than Ever, Marketing is Good Business in 2021
Optional or Essential?
Marketing is considered optional by many businesses. During good times, when sales are strong, this seems to be the case. But when companies are stress-tested by the market, weaknesses are revealed. Stressful times are not optimal for building new skills.
Marketing and the Business Model
In the MBA sense, when we say ‘marketing,’ we mean the entire marketing function, including the sales function. Marketing strategy sets the foundation for the sales strategy. Marketing strategy includes choosing target markets, positioning and creating competitive differentiation and messages. This in turn is the basis for prospecting, sales meetings, negotiations and contract closing.
“Branding” is the first execution of strategic marketing, including positioning, naming, logo design and brand design systems.
The “communications” part of marketing—the ‘marcom materials’—is part two of marketing execution, and is built on the strategic and branding foundations, including the creation of broker selling tools, digital advertising, social media, signage, etc.
In parallel, the sales strategy can be built on the marketing strategy. Sorry brokers, the sales function does report to marketing. Of course you might have been wearing that hat yourself. But should you? You know your product and you know your prospect better than anyone. But is the development of the positioning strategy, message and media channels really your skill, or the best use of your time?
The options for assigning the marketing role are to use an internal marcom staff, or to outsource. Both cost money (although marcom staff is already a committed expense) and they approach the job differently. Internal marketing tends to focus on corporate brand consistency, speed and efficiency. Internal departments are tasked with high volumes of production and fast turnaround. Contrastingly, outsourced marketing partners are engaged more selectively and assigned to more strategic work.
Although marcom can effectively be managed for efficiency, marketing strategy will not perform at its best if it’s regarded as business expense and managed for cost reduction. While costs are always an issue, rather than minimize the impact of marketing strategy on the business bottom line, developers and owners have an opportunity to put marketing to work supporting their top line and be rewarded for it supporting brokers with the best brands and selling tools available.
Business Model Review
Here’s a quick business school refresher on the three core functions of any business: Finance, Operations and Marketing. Depending on the industry, the details will vary widely, but profitable businesses need all three in balanced proportion to create an environment of healthy tension between them:
CRE Finance: Investment strategy, P&L management, cash management, Returns (IRR and ROI)
CRE Operations: development, construction, management
CRE marketing: positioning, message, communications media channels, sales and leasing support
If they are not in proportion, the business will become imbalanced and operations or finance win all the c-suite arguments. Even if brokers put on that marketing hat and push hard to represent the wants and needs of tenants, they tend to focus more on selling features and benefits rather than objective truths about competitive options or other conditions of the tenant world.
Core or Outsource
Companies don’t need to do everything themselves. Sometimes the execution of parts of the model are outsourced: Operations can be completely outsourced. Real estate companies are great at this, such as when architectural design, construction and property management are outsourced.
Marketing and leasing can also be outsourced. But companies that aren't focused on a balanced marketing function, one that sets the direction for sales, are taking a risk. Outsourced leasing firms often offer to “throw in the marketing for free.” If that’s the case, owners would do well to vet the credentials of that department and not just accept a portfolio of past property marketing design projects.
There is plenty of intuition and experience among small teams of managing principals who call all the shots. But should they self-perform the marketing strategy when they don’t self-perform many of the operations functions? Should they delegate the marketing function to their sales partner? What blind spots might be lurking in such an approach, and what gaps might be at risk of opening up?
The Cost of Imbalance
If the business model short changes its marketing function, the company might settle for setting the selling and branding strategy based on the property amenities, location, size and architectural design alone. They might fail to focus on the target customer in other ways and simply let brokers bring their own networks to the offer. What was done to save money on marketing may well show up as a cost somewhere else, such as: longer leasing timelines; fewer prospects and tours; slower investor payouts; slower fund raises or investor commitment. (note: we could model examples of this, such as the cost of leasing that runs 6, 9 or 12 months longer, and the opportunity cost relative to marketing spend, etc)
Stress Tests
As COVID and other broad economic pressures are redefining the use and purpose of office properties, retail spaces, mixed use and other asset classes, there might be an even greater job for the marketing function. Developers and owners may need to take on the task of redefining the value proposition of various assets or asset classes, and differentiate them to very different customers in the marketplace.
Early Signs (of WIIFM?)
Brokers have long been the selling and leasing engine for commercial real estate companies. But if ‘getting marketing strategy right’ is on them, we expect that they are going to ask: “What do I get for the 50% of the sales commission?”
If developers are lucky they will actually have that conversation. Otherwise, the CRE firms who understand the importance of balancing strong marketing with the other functions of the business will be the ones getting the attention. They will be the ones leading the industry as it transforms and embraces new opportunities in very different markets. And they will be the ones to attract the best broker talent.
Leading Change
Are we still in the same golden age of real estate? Are location and amenities the biggest priorities for tenants? Or are we at the frontier of a new market, where the design, use, returns and even the customer are all changing? If so, who more than those in the marketing function can best ask the questions and frame the new needs and opportunities? And how should real estate developers and investors uncover different kinds of answers and new ways of thinking? How will they design the next golden age of real estate?