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Economy Oct 5, 2012

Freebies: Can it really lure property buyers?

By Shajai Jacob

The type of marketing strategies that Indian developers employ to sell their products in a tough market may often seem strange to property marketers in other countries. Nevertheless, these marketing strategies are based on a deep understanding of their target clienteles, which are as various as the Indian real estate market. In India, the aspirational quotient cannot be under-estimated and can often be capitalized upon. Certain add-on offerings - or 'freebies' - often appear to have no logical connection to the actual considerations property buyers would have. However, they in fact address well-researched 'points of attraction' within their targeted customer base.

The marketing tactic of offering lifestyle-oriented freebies is often quite effective when it comes to high-end premium homes.

This dynamic is especially true in the case of the noveau riche (newly rich) class of buyers, but can apply equally to customers coming from established wealth. In India as in most other countries, a plush foreign car is a valid external manifestation of the level of 'arrivedness' that a buyer of a luxury home wishes to portray in the first place. Likewise, gold is a highly accepted and coveted asset of appreciation that appeals directly to the Indian senses. Foreign travel still maintains sufficient glamour to attract attention as a value-added offering packaged into a property deal.

Often, such offerings meet with a level of success that foreign market analysts are challenged to explain. This is because they are pertinent to a highly individualistic national psyche, and are usually played out at times of the year when the country's property buying sentiments are at their traditional peak.

Not all of these incentives hit the mark, because not every type of buyer can be tempted with 'freebies'. The Indian middle-class is highly price-sensitive, and the current buzzword in this market segment is 'correction'. These buyers, who are on the market for homes costing between Rs 35-75 lakh, have an eagle eye on the final bottom line and have been primed for a possible reduction in prices. In fact, such a reduction has been long awaited in the primary cities.

Given the high demand for mid-income homes in cities such as Mumbai, Pune, Bangalore and Delhi-NCR, whether such a correction will come at all is a big question mark. In most cases, developers have the financial wherewithal to stay firm on their official market prices. They see little sense in marking down their price tags and possibly signalling what, from the buyers' perspective, is a long overdue correction.

The alternative strategy is often to announce incentives. However, because the base pricing of the units in these projects reduces their margins, these incentives tend to be far from extravagant. For instance, a hi-fi sound system or a microwave oven as an inducement to buy a 2 BHK in the suburbs of Mumbai is unlikely to work for a budget-conscious buyer who is more concerned with how much the EMIs will impact the family budget. Freebies only work in the mid-income housing segment if they actually add value to the property or lighten the financial burden on the buyer in some way.

Conversely, the marketing tactic of offering lifestyle-oriented freebies is often quite effective when it comes to high-end premium homes. Thanks to the considerably higher base price and the proportionately better purchasing power of the target clientele, developers can afford to raise the ante on the add-on offerings. In cases where there are two or more luxury home projects of more or less equal attractiveness in a single location, these freebies can become very decisive differentiators. High networth buyers evaluating all available options often respond to the cake with better icing, given that they intend to buy one cake or the other anyway.

by Shajai Jacob

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