During my time at realestate.com.au, I saw that the company has lots of happy customers (no snide remarks, please). But, it also has trouble convincing some agents that they should pay more over time for online real estate advertising. In this post I uncover the secret cause of that trouble and ask for your ideas on how to solve it–to everyone’s satisfaction. Both sides feel they are being reasonable. The folks at realestate.com.au feel it is only fair to charge more when you deliver more. They were delivering better and better results–especially when viewed relative to other media.
But, this group of agents have gotten used to paying a certain price and still believe that one-time price is the fair and right one. To them, a price rise is a betrayal of how things should be.
For the longest time, I couldn’t understand why this issue had become so intractable. Why was it making some agents in particular so hostile to realestate.com.au? (If agents have other reasons for being hostile, I don’t mean to address them in this post. I’m speaking particularly about pricing.)
Was it just a negotiating tactic on the part of the agents, to see if they could demand lower prices? Perhaps for some it was, but I thought the misunderstanding had a deeper cause.
Then I read Daniel Ariely’s book, Predictably Irrational, and suddenly I had an answer. Before I explain, let me quote a story from the book. (Bear with me. Even though this story is about pearls, it is relevant.) In 1973 a man named Assael began trying to sell black pearls from Tahiti to Westerners. At the time, black pearls were unknown in the West…and unwanted.
“At first, Assael’s marketing efforts failed. The pearls were gunmetal gray, about the size of musket balls, and he returned to Polynesia without having made a single sale. Assael could have dropped the black pearls altogether or sold them at a low price to a discount store. He could have tried to push them to consumers by bundling them together with a few white pearls. But instead Assael waited a year … and then brought them to an old friend, Harry Winston, the legendary gemstone dealer. Winston agreed to put them in the window of his store on Fifth Avenue, with an outrageously high price tag attached. Assael, meanwhile, commissioned a full-page advertisement that ran in the glossiest of magazines. There, a string of Tahitian black pearls glowed, set among a spray of diamonds, rubies, and emeralds.
“The pearls, which had shortly before been the private business of a cluster of black-lipped oysters, hanging on a rope in the Polynesian sea, were soon parading through Manhattan on the arched necks of the city’s most prosperous divas. Assael had taken something of dubious worth and made it fabulously fine.”
One lesson from this story is certainly that it pays to have influential friends, like Harry Winston. But the more relevant lesson is about imprinting on an anchor price. Research has proven that the first price at which a person seriously considers buying something becomes the “anchor” price against which they evaluate all future prices for that same product.
Let’s take this concept back to online real estate advertising. This product was dirt cheap about 10 years ago and justifiably so. The internet was in its infancy. Things are different today, and the ads deliver much better results and reach an exponentially bigger audience. Put simply, they are worth more.
Here’s the rub: even as the ads have increased in value, the perception of some agents of what they should be paying for them keeps snapping back like a bungee cord to that first price of the early days. Ariely’s research showed time and again that the anchor price has incredible influence on people’s behaviour. And, it seems to me, we are seeing that same dynamic play out in online real estate.
Here’s another excerpt from Ariely’s book that will be closer to your heart:
“Uri Simonsohn (a professor at the University of Pennsylvania) and George Loewenstein … found that people who move to a new city generally remain anchored to the prices they paid for housing in their former city. In their study they found that people who move from inexpensive markets (say, Dubbo, NSW) to moderately priced cities (say, Artarmon, NSW) don’t increase their spending to fit the new market. Rather, these people spend an amount similar to what they were used to in the previous market, even if this means having to squeeze themselves and their families into smaller or less comfortable homes. Likewise, transplants from more expensive cities sink the same dollars into their new housing situation as they did in the past. People who move from Los Angeles to Pittsburgh, in other words, don’t generally downsize their spending much once they hit Pennsylvania: they spend an amount similar to what they used to spend in Los Angeles.
“It seems that we get used to the particularities of our housing markets and don’t readily change. The only way out of this box, in fact, is to rent a home in the new location for a year or so. That way, we adjust to the new environment–and, after a while, we are able to make a purchase that aligns with the local market.”
My conclusion is that agents who resist paying more for online advertising today are like the person from Dubbo who has moved to Artarmon. They want to pay the same amount for something that (in the new circumstances) arguably is worth and certainly costs more.
Seeing things from this perspective takes some of the heat out of the argument. But, it won’t solve the problem, which affects realestate.com.au, its competitors and other online publishers, too. I have a couple of high-level ideas for solutions:
• One solution for online real estate publishers is to offer new products that are so dissimilar to existing online advertising products that agents don’t refer back to their anchor price for a comparison.
• Another is for agents to do a rigorous cost-benefit analysis of all the sources of leads to their business and allocate budgets accordingly.
I’d be interested to read any other ideas for solutions. I think both agents and companies like realestate.com.au would be happier if this problem was solved.
A personal note: I apologize for the time that has passed since my last post. I’m on a sabbatical year. However, I had a chat with Peter recently about something that’s been on my mind, and he kindly encouraged me to post about it. So, if you hate my post, complain to Peter! ☺ Let me also be clear that I am no longer affiliated with realestate.com.au; I resigned my position there to dedicate myself to the kids (and allow my wife the distinct privilege of working to pay off our mortgage). Of course, I still love the company and its people; I can’t hide that.