It’s all about customer engagement: the case for omnichannel real estate.
Dec 08, 2020
Real estate’s digital transformation is leading to customer experience and customer engagement becoming a key differentiator amongst industry players.
New booking channels are driving increased fragmentation of rental demand. Operators need an “omnichannel” distribution strategy to effectively harness demand and realize best value from residential assets.
A more flexible and convenient rental proposition (e.g. offering short, medium and long-term stays) is needed to better engage renters and optimize conversion within distribution channels. This requires the support of management tools to ensure successful execution that is of genuinely accretive value.
Offline distribution tools and networks remain an important part of the overall mix. The continued relevance and value of these channels should not be overlooked by operators.
New devices and technology innovations will rapidly lead to new high-value distribution channels emerging. This will prompt a fundamental rethink of the core technology infrastructure required to enable the effective distribution of residential inventory.
As other industries have found (e.g. retail), a new "digital lexicon" will help industry players to align their investments in customer acquisition and customer experience with the lifetime value of a customer transacting across multiple channels.
An inconvenient truth: real estate is actually all about customer experience
Whether renting a home to a “tenant” or renting an office to an “occupier,” few industries work quite so hard to obfuscate the all-important relationship with the person propping up the value chain and writing the cheque; the customer.
Across industries and sectors, more often than not, market leaders share a common trait; they obsess over their customers. That obsession is what drives the clarity and purpose with which they engage and serve them. Customer insight and customer experience are culturally embedded into the business, fuelling the innovation of new products and services to further delight customers by solving ever more meaningful, real life pain points.
Customer-centric innovation is unsurprisingly significantly enabled by the adoption of technology. Whereas so many industries have already experienced their digital transformation and seen the resulting step change in innovation, the explosion in “proptech” implies that the real estate industry is living its digital transformation right now. Consequently, the sector finds itself in the midst of a “customer epiphany” - both a precursor and a catalyst to a step change. We can say this with a high degree of confidence. It’s a well documented, well trodden path, as I’ll go on to explain.
Technology has already started to make real estate assets more accessible by opening up new channels through which customers can discover property, experience it and transact. It's now also beginning to surface the data necessary to allow those customer experiences to be measured, optimized and automated. Technology is not only facilitating existing offline customer experiences, but powering new online ones - and, critically, allowing both traditional and emerging channels to be better understood and monetized.
The retail paradigm
Today’s retail experience is virtually unrecognizable from that of the mid-1990s. The retail sector experienced its own step change which, very broadly, can be attributed to the following phenomena:
A digital revolution (i.e. the advent of the web) fundamentally changing consumer habits.
Competition soaring as a result of enabling technologies breaking down barriers to entry, and forcing existing players to innovate and differentiate.
A potted history of the retail sector’s transformation might look something like this:
First retail went online. Soon after the advent of the web came ecommerce; a new way for consumers to experience a retailer’s brand online, shop their products and buy.
Then retail went mobile. The proliferation of smartphones and tablets meant that retailers needed to embrace new formats; SMS, mobile-friendly websites, native apps, etc.
Eventually retail went omnichannel. Constantly evolving technology, rapidly changing shopping habits and soaring consumer demand for convenience and instant gratification forced retailers to realign their infrastructure with delivering a consistent brand experience across any emerging channel or device.
Over a 15 to 20 year period, the concept of what it means to be a retailer has changed fundamentally. Existing players were forced to upgrade outdated and obsolete legacy infrastructure to something that was not just fit for purpose, but future-proof. New entrants, by comparison, could rather enviably start from a blank canvas - choosing from a smorgasbord of relatively low-cost enabling SaaS platforms.
Fast forward to today. Even the most traditional retailers have adopted the language of ecommerce to reflect their digital customer epiphany - “LTV”, “CAC”, “NPS”, “customer journey”, “conversion funnel”, “basket abandonment”. This new digital language has given birth to a set of metrics that enable today's omnichannel customer experience to be further honed and optimized. This is the language of digital customer-centric innovation. It is the modern lexicon of customer obsession. It has become the industry norm, and rightly so. Look no further than the recent collapse of Philip Green’s Arcadia Group for a salient lesson in what happens if you fail to read changing customer demand, adapt your business and invest accordingly.
So how is all this relevant to residential real estate?
Well, the residential sector appears to be experiencing a very similar evolution:
First real estate went online. Listing websites like Rightmove, Zoopla, Craigslist, etc. made it easy for customers to browse inventory and book viewings - although transactions are still typically completed offline or through a separate channel.
Then real estate went mobile. Native smartphone apps like Airbnb offered customers a more engaging browsing experience and streamlined online transaction process - i.e. instant gratification. At the same time these new apps also offer greater booking flexibility and convenience - short, medium or longer-term stays all in one place.
Finally real estate goes omnichannel. The proliferation of new OTAs (online travel agents) and apps has meant that rental demand is becoming increasingly fragmented, and needs to be engaged through an ever-increasing multitude of online and offline, direct and 3rd party channels. The consumer browsing and booking experience is further powered by constantly evolving technology and devices.
“The average customer attempting to book a single reservation for accommodations online switched nearly six times between websites and mobile channels.” McKinsey.
These parallels between retail and real estate are not astounding; they are, after all, deeply intertwined. There’s nevertheless absolutely no doubt in my mind that we’ve been here before - and consequently there’s a bunch of valuable insights and takeaways.
Channel optimization: building on the past whilst preparing for tomorrow
So let’s go back to residential real estate, and work on the assumption that it's living its step change right now. Just like retailers back in the mid-noughties, residential landlords and property managers are being forced to rethink their operating infrastructure and realign it with delivering their core product - in this case an accommodation product - to better meet the evolving needs of customers. They are therefore tasked with delivering a consistent and engaging brand experience across countless emerging channels and devices in order to attract customers into their properties - and then, in an ideal world, to retain them within their ecosystem and drive up their lifetime value.
Today, those customers - whether you refer to them as “renters”, “guests”, ”tenants” or otherwise - are increasingly hard to pinpoint, to track and therefore to understand. They are engaged both online and offline and, as mentioned above, they can also be acquired through both direct and indirect (i.e. 3rd party) channels.
So, assuming the goal is to optimize the financial performance of the asset, a prerequisite is for an asset to be exposed to as much relevant rental demand as possible - that exposure is what enables the operator to test and iterate various distribution strategies, understand conversion rates and ultimately optimise the core metrics of customer acquisition and retention.
To put some of this marketing jargon into relief, here are some concrete examples of the channels I'm referring to:
Online acquisition channels (just a few examples):
Property portals, booking websites and apps
OTAs (online travel agents)
Offline acquisition channels (just a few examples) - yes, offline acquisition remains an important part of the overall mix:
Walking into a local estate agent’s office and making a rental enquiry
Visiting, calling, or sending an email to a travel agent
Visiting, calling, or sending an email a relocation agent
Direct acquisition channels (just a few examples):
Proprietary booking website (online)
Proprietary app (online)
Proprietary local office or branch (offline)
Indirect acquisition channels (just a few examples) - N.B. these typically supplement core direct channels due to the fact that a referral fee is typically charged, or a commission paid, this increasing the cost of acquisition.
OTA (platform fee charged)
Property portal or listing site (license fee or marketing fee charged)
Referral from an online/offline partner (commission or affiliate referral fee charged)
Not all of these channels are of course relevant to all business models. So as a residential operator a fundamental exercise is to understand:
Who is the customer audience you are looking to engage?
What are the best channels for reaching that audience? i.e. where do your customers hang out?
How can you leverage your distribution channels and the enabling technology infrastructure to create a defensive moat around your asset management strategy over the long-term.
The challenge facing any residential operator today can be boiled down to things. Firstly, how do you access the full spectrum of rental demand relevant to each asset. Secondly, how do you channel that demand into a digital management system that allows you to manage it, interpret and analyse it, and ultimately make your operation scalable.
The future of distribution
All of the above examples are anchored in the industry that we know and are familiar with today. The current pace of change, however, suggests certainly that broader technology innovations are set to imminently shake up the real estate industry beyond anything that we might deem familiar. An example that springs to mind is smart TVs and connected homes. Mark my words, people will soon be viewing a travel or property show on Netflix or YouTube (or Airbnb?) and will be able to click on an embedded link, see the property’s pricing and availability, and book it with a click of their TV remote. And that's just the beginning.
The way we perceive “distribution” is about to be fundamentally challenged. Today's world requires a technology stack designed from inception to deliver an omnichannel channel, omnidevice customer experience, whilst also allowing for it to be honed and optimized.
The 5 pillars of omnichannel property management
“86% of buyers are willing to pay more for a great customer experience.” PWC
Just like the retail sector of the noughties, customer engagement and customer experience is the new battleground for residential real estate. It is both where value is created, and where players differentiate. Customers have of course always been at the heart of real estate - but, with competition set to increase, never more so than right now. It is precisely because the customer is inherently omnichannel that real estate players are therefore obliged to pursue a business strategy that is omnichannel first.
So what does that look like? At Lavanda we believe there are 5 core pillars of “omnichannel” property management:
Flexibility & convenience. As consumers increasingly demand flexibility and convenience, operators are becoming obliged to offer a more customer-friendly set of short, medium and long-term rental options. Ultimately operators must define a minimum length of stay - i.e. the minimum period that a resident is able to occupy a unit - ranging from just 1 night to 12+ months. With the right toolkit this can easily flex throughout the year either to best capitalize on strong seasonal demand, or fill voids as they might appear.
Distribution. To ensure best value and high levels of occupancy, the goal should be to optimize the marketing of available inventory across a blend of online and offline, direct and indirect channels. Target a clearly defined customer audience, expose your product to the broadest possible spectrum of domestic and international demand, and aim for total visibility of the cost to serve customers acquired through each channel.
Revenue management. Individual units must be priced to capitalize on the strength and seasonality of demand, and then further optimized to perform within the context of the relevant distribution channel and its audience.
Customer experience. Engage, delight and retain customers with a consistent brand experience across all channels, both online and offline. This needs to start with their first interaction, and continue through to their eventual check-out (and beyond). Happy customers boost retention, repeat booking and referrals - all of which are key to driving down acquisition costs over the long-term.
Analytics. Optimize the financial and operational performance of your portfolio by tracking granular metrics with a view to powering a process of continuous iteration and product development.
If your real estate business is gearing up for a step change and you're interested in exploring what omnichannel can do for you - please do get in touch! Lavanda has a team of omnichannel experts on hand to help armed with informative case studies ready to share.
About the author
Guy Westlake is the founder of Lavanda, the award-winning SaaS platform used by the world's leading student and multifamily portfolios to optimize revenue performance with a more effective blend of short, medium and long-term rentals.