Q: Why Target Marketing?
A: One Expert Shows How This Strategy Hits the Bull's Eye.
"If you build it, they will come," goes the adage. While this theory may have proved true in the movies, it doesn’t hold up when marketing commercial real estate. An effective modern marketing program must be a challenging, multiphased process that incorporates tried-and-true research techniques with today’s technology.
Ralph Spencer, CCIM, managing director of Re-Stores Realty of Orlando, Fla., and a presenter of the "Polishing the Pro" sessions, is a seasoned commercial real estate practitioner and proponent of a more focused approach called target marketing. CIRE magazine recently asked Spencer to discuss the phases of the target marketing strategy.
CIRE: The general topic of this discussion is target marketing. But in commercial real estate, can more broad-based marketing practices offer long-term or less immediate results?
Generally, there are three primary types [of marketing]: personal marketing, company marketing, and property marketing. Target marketing obviously has an impact and overrides all of those, because you have to know who it is you want to do business with. The process of making investors aware that you are a commercial specialist is personal marketing.
To focus on property marketing, the company first has to inventory its best historic customers to create a profile of its best potential future customers. There’s an exercise of target marketing that involves identifying who you’ve already done business with and finding companies or people who are similar to past customers. In property marketing, the target marketing takes on a little different methodology.
CIRE: Could you elaborate?
In property marketing, what we’re really trying to do is three things. The first phase is to inventory the property, to identify, most importantly, its dominant features and benefits. Answer the question, "Why would somebody want the property?" There’s a term in appraisal called "highest and best use." We might embrace that term and apply it to a degree here and ask, "What is the highest and best use of the property? What are the maximum number of benefits and who needs those benefits?"
CIRE: Or in another sense, it’s putting your best foot forward?
Yes, there’s no question about it. With a commercial property, one of the first questions you’ve got to ask is, "Where is the prospect?" You start by identifying prospects that are next door, across the street, in the next neighborhood, on this side of town, in this city, in this state, in this region, or in this country. The philosophy is: Don’t go looking globally if you haven’t looked next door first. Many people make big mistakes in this first phase of target marketing because they don’t really think through as to where the best prospects are.
CIRE: And the primary reasons for directing your initial target marketing efforts to prospects in your own backyard are?
They’re easier to contact. They’re easier to identify. And it’s a scale issue. If you can be successful in a very small geographic area, you can probably be more effective overall.
CIRE: What’s the next step in launching an effective target marketing program?
The second phase is to identify what size of user is best suited for the property. And that’s really a function of the property itself. If it’s a 100,000-square-foot warehouse and it can’t be subdivided, that means you’re looking for tenants that require at least 100,000 sf. If it’s an office property that’s 20,000 sf — and we know that a very rough rule of thumb is 200 sf of space per employee — the best prospect would be a company with no more than 100 employees.
The third phase or last big "circle" — and that’s what these three "rings" look like when they overlap, like the Olympic rings — represents the type of user. And the type of user is, to be very general, one who needs either retail, office, industrial, investment, or residential space. Or it could be more finite. If it is an office prospect, is it a law firm? Is it a corporate headquarters? Is it a branch sales office?
For example, if you’re marketing a big, 15,000-sf open floor plate in a suburban office building with plenty of parking, that space may be suited for a claims processing facility. They like offices with landscape and they don’t require a lot of private offices. On the other hand, if you had a similar 15,000-sf office that was located close to the courthouse and the floor had a lot of private perimeter built-out offices, then you might look at marketing to a law firm. This scenario fits all three circles. Where they overlap indicates who your best prospects are.
CIRE: Will these principles work in international markets?
I think they’re universal. Certainly, there’s somebody out there who wants to buy your property. Generally speaking, it’s the people right next door who are the best candidates in the user market. Target the people already in the building. I call it "rooftop marketing."
CIRE: Earlier we discussed the need to identify the dominant benefit of a commercial property. Could you point out some dominant benefits, of say, a commercial office building?
Let’s look at it from the user perspective and from the investor perspective. Let’s do the investor perspective first, and use the example of a net-leased property that’s been leased to a corporation. They occupy 100 percent of the property, which is a branch sales office of 20,000 sf. They’ve signed a 15-year lease with periodic rent increases. The dominant benefits of that property for the owners are security of income, low management costs, and tenant reliability. And so, one would target investors who are more passive in nature because they’re looking for reliable income streams.
Now, let’s imagine that that 20,000-sf building is a multitenant building with the largest tenant occupying 4,000 sf, and it has a vacancy of around 10,000 sf. Well, now the dominant benefits are that the building has a lot of potential activity, there’s probably some upside because it’s in a good market, and you’ve got 10,000 sf to lease so you can get a new tenant who’ll be paying their rent.
CIRE: Therefore, in this second scenario, there’s an opportunity for the investor to reap greater financial rewards?
That’s correct. Now, let’s imagine that it’s the 10,000 sf that’s vacant, [and] now we’re looking at the user market. How does it apply there? We have to look at the dominant attributes of that particular 10,000 sf. If it’s on the ground floor, and if we can name the building after that tenant, then we would target a tenant looking for a high identity, such as a sales operation. But if the 10,000 sf is in the back corner of the second floor, and it’s all open floor plan, then we may be looking for some kind of processing or back-office operation.
CIRE: Can you describe the kinds of tools — such as software and statistical data — that are needed to launch an effective target marketing program?
Let’s ... discuss the kinds of lists that are available. You could start with telephone Yellow Pages, a cross-street index, or the real estate tax assessment rolls. It could be building directories if the target is office buildings, or if you’re into retail, it would simply be taking an inventory of a property and doing strip maps of who’s there and who’s not there. It would be that kind of information.
Moving into the use of computers, I’d highly recommend a notebook or laptop computer that has a CD-ROM and access to the Internet. Some of the most popular programs are Bigfoot [http://www.bigfoot.com/] with the Yellow Pages or Yahoo-Real Estate [http://www.realestate.yahoo.com/] with the contiguous user feature, or the Dun & Bradstreet [D&B] Marketplace [http://www.iconinc.com/bzone/dandb.cfm], which is a CD-ROM that contains all the businesses in a market.
CIRE: Could you assign any typical costs for an effective target marketing program?
Let me answer that by putting this into perspective. Phase one of target marketing property is to really do the property inventory and the market analysis. Phase two is to come up with the value or the rental rate. Phase three is to establish and identify the target market. Phase four is to do the marketing plan and budget.
Target marketing is more time intensive than it is cost intensive. If one invests in basic directories ... the out-of-pocket costs are pretty much completed. The rest of the expenses would be in hours spent on the marketing program. For the average property, a very thorough target marketing program could be accomplished in three to five hours. In some instances, there may be additional costs involved in accessing some records, and those generally are going to cost between 10 cents to 30 cents per record. For most properties, and this is on the high end, in the initial target group there should be between 300 to 500 targets maximum. It is only after that first wave has been exhausted that you move out to a bigger market for a property.
CIRE: Is there any yardstick that measures the effectiveness of a target marketing program before there is a need to incorporate any significant modifications?
If a property marketing program is well conceived from the onset ... 90 to 120 days provides a good evaluation point. Actually, there is another phase to target marketing and that is the feedback phase or the evaluation phase. You should do it formally on property marketing every 90 to 120 days to refocus on the targets and refocus on the benefits from the property based on what you’ve learned initially.
CIRE: During that time period, some elements of the property or the market may have changed?
Right. You might have initially identified a site as a great place for a particular kind of business, but after you’ve taken three or four prospects through the site, they may have explained to you why the site is not usable. Then you have to realize that maybe your initial plan needs to be revised.
CIRE: Along with direct mail and direct phone contacts, what are some other tactics used in target marketing?
Once you know who to contact, you can identify the mediums needed to contact them. I am not against, in any way, listing properties on the Internet. However with Internet listings, it’s not real easy to identify who are the targets.
There are a wide range of other programs, but what one wants to do, though, is to implement a program that is the most effective for the dollar. Get the biggest bang for the buck. A property sign and direct mail accomplish these objectives. And I recommend direct solicitation as a follow-up to direct mail. [These] would be the most effective elements of target marketing. Co-brokerage is an additional marketing program in which you would share your information with another broker, and that’s what the Internet does to some extent.
CIRE: Given advancements in information technology — and you just mentioned the Internet — do you anticipate any dramatic changes in target marketing in the next century?
The answer very clearly is yes. We are heading toward a stage where target marketing will be much easier because of the level of information available. Identifying and contacting companies and individuals is much easier today than it was three to five years ago. That’s because of the availability and accessibility of information.
What it means is that we can be much more effective when we do the first phase, which is to identify who needs the property and who can benefit from the property.
Contact Ralph Spencer, CCIM, at (407) 650-1161 or firstname.lastname@example.org.