BASIC MARKETING 18th Edition by Jerome McCarthy William Perreault, Joseph Cannon

Exercise 34

Mountain View Builders*
*Erik Hardy did the research for an earlier version of this case.
Larry Lindgren, who seven years ago founded Mountain View Builders in Asheville, North Carolina, is excited that he'll complete his first LEED-certified "green" home this month. The LEED (Leadership in Energy and Environmental Design) rating means that the home uses 30 percent less energy and 20 percent less water than a conventional house; construction waste going into landfills must also be reduced. The house will be the model home to showcase Larry's new development, which includes four more homes that he hopes to complete in the next six months.
Although Larry is excited, he is also nervous. Rising interest rates and an uncertain economy have reduced demand in the local housing market. People who do buy a home are more price-sensitive. That's a problem because building a green house usually increases construction costs-but customers are not always aware of the benefits that come with the higher price tag. So Larry has to figure out how to find home buyers that are willing to pay a premium for his "green" homes.
Prior to building this home, Larry tried to make environmentally responsible building choices that didn't increase his costs. However, two years ago while at the National Association of Home Builders' convention in Orlando, Florida, Larry visited a booth that described LEED Certification and it appealed to him. He also met a number of new suppliers who were offering sustainable building materials. When Larry returned from the convention in Orlando, Mountain View Builders salesperson Karen Toller told him that more home buyers were asking about environmental and energy-saving features. Larry thought the time was right to commit to building at least a few homes that met higher environmental standards.
Larry kept his eye out for a good piece of property for his project. Before long he found a 3-acre parcel of land about 15 minutes from downtown Asheville. The land had a nice mix of hardwood trees and a small stream, but lacked the panoramic mountain views expected by high-end home buyers in the area. Nevertheless, Larry thought the property would be ideal for a small neighborhood of moderate-size green homes. He purchased the land-and his first green project was under way.
Larry worked closely with a local architect, Katie Kelly, who had won several awards from the Green Building Council for her innovative designs. Katie proposed that each home follow a theme based on a classic Appalachian farmhouse design that would blend well with the rural surroundings and fit the concept of clustered development. Clustered development allows a builder to increase the number of home sites allowed if land is set aside for open space. For example, regulations usually required at least one acre for a rural home site. However, in a clustered development, the county would allow Larry to build five homes on 1.5 acres of his land if he dedicated the remaining 1.5 acres as open space controlled by a conservation easement.
Initially, Larry thought the additional two home sites and preservation of open space would be a huge benefit for his project. However, to get the development permit, he had to provide the county with a special land survey and biological inventory of the site. This extra survey work cost Larry $25,000 more than was normal.
Larry is behind schedule with construction because working with new types of materials has slowed him down. In some cases his workers even had to be trained by factory representatives on the proper installation of materials. In addition, many of the materials in a LEED home-such as low-E windows, blown foam insulation, a high-efficiency furnace and water heater, and Energy Star appliances-have premium prices. As a result, Larry's LEED-certified homes cost about 10 percent more than a conventionally built home of the same size. However, LEED homes do offer buyers a number of benefits. Toxin-free building materials help combat indoor air pollution- and green homes are less likely to have problems with mold or mildew. Energy and water savings for the homes Larry is building should be $2,000 to $3,000 per year. Plus buyers can feel good that their homes produce fewer greenhouse gases, reduce dependence on fossil fuels, and send less construction waste to the local landfill.
Larry priced the five homes he is building at $250,000 to $300,000-about 10 percent more than similar non-LEEDcertified homes in the area. So far, the homes are getting a few looks, but none has sold and he hasn't had an offer. The feed- back that Karen Toller hears is that people like the homes, but think that the price seems to be high; they like the general idea of owning a green home and saving money on energy, but they don't focus on the benefits. Perhaps that is because real estate agents in the area have little experience with green building and are used to talking about value in terms of "cost per square foot."
Karen Toller works full-time as a real estate agent-and Mountain View Builders is one of her clients. She receives a 1 percent sales commission for every Mountain View home that is sold. She typically writes the listing that all real estate agents can read on the Multiple Listing Service (MLS) Web site and also handles the contract to complete a sale. However, with no movement on Larry's new houses and with prime spring selling season coming up fast, Larry has asked Karen to meet with him to discuss ways to spark more interest in his development. Larry wants a plan that will bring people out to see his new homes and development-and a way to ensure that they are aware of the benefits he is offering.
Larry wonders what needs to be done to tell customers about the benefits of green building. Some other builders are advertising in local media and developing brochures to leave in a rack outside of their homes-but Larry has not needed to do that before. He wonders if he might be able to generate some inexpensive publicity by working with the local newspaper; it has run several feature stories about the environment but none about green building. He also thinks he needs to do more to convince real estate agents about the benefits of green housing. One idea is to ask someone at the Green Building Council or possibly his architect to put on a seminar, but Larry doesn't know if real estate agents will show up. He also wonders if putting signs in his model home to point out the environmental benefits might be helpful.
When Larry started his project, he thought his green homes would sell themselves, but now he wonders if he isn't ahead of his time.
What do you think of Larry Lindgren's marketing strategy so far? What promotion objectives should Larry set for his marketing strategy? What are the advantages and disadvantages of targeting communications at consumers as compared to real estate agents? What would you recommend as a promotion blend?