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The Shrinking Middle of the Consumer Market

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James Surowiecki:

For Apple, which has enjoyed enormous success in recent years, "build it and they will pay" is business as usual. But it's not a universal business truth. On the contrary, companies like Ikea, H. & M., and the makers of the Flip video camera are flourishing not by selling products or services that are "far better" than anyone else's but by selling things that aren't bad and cost a lot less. These products are much better than the cheap stuff you used to buy at Woolworth, and they tend to be appealingly styled, but, unlike Apple, the companies aren't trying to build the best mousetrap out there. Instead, they're engaged in what Wired recently christened the "good-enough revolution." For them, the key to success isn't excellence. It's well-priced adequacy.

These two strategies may look completely different, but they have one crucial thing in common: they don't target the amorphous blob of consumers who make up the middle of the market. Paradoxically, ignoring these people has turned out to be a great way of getting lots of customers, because, in many businesses, high- and low-end producers are taking more and more of the market. In fashion, both H. & M. and Hermès have prospered during the recession. In the auto industry, luxury-car sales, though initially hurt by the downturn, are reemerging as one of the most profitable segments of the market, even as small cars like the Ford Focus are luring consumers into showrooms. And, in the computer business, the Taiwanese company Acer has become a dominant player by making cheap, reasonably good laptops--the reverse of Apple's premium-price approach.

While the high and low ends are thriving, the middle of the market is in trouble. Previously, successful companies tended to gravitate toward what historians of retail have called the Big Middle, because that's where most of the customers were. These days, the Big Middle is looking more like "the mushy middle" (in the formulation of the consultants Al and Laura Ries). The companies there--Sony, Dell, General Motors, and the like--find themselves squeezed from both sides (just as, in a way, middle-class workers do in a time of growing income inequality). The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers. Furthermore, the squeeze is getting tighter every day. Thanks to economies of scale, products that start out mediocre often get better without getting much more expensive--the newest Flip, for instance, shoots in high-def and has four times as much memory as the original--so consumers can trade down without a significant drop in quality. Conversely, economies of scale also allow makers of high-end products to reduce prices without skimping on quality. A top-of-the-line iPod now features video and four times as much storage as it did six years ago, but costs a hundred and fifty dollars less. At the same time, the global market has become so huge that you can occupy a high-end niche and still sell a lot of units. Apple has just 2.2 per cent of the world cell-phone market, but that means it sold twenty-five million iPhones last year.

Related: David Reibstein and Michael Silverstein discuss this issue @ Wharton:
Reibstein: How did this book come to be written?

Silverstein: Three and a half years ago, I co-authored a book with Neil Fiske called Trading Up: Why consumers Want New Luxury Goods... and How Companies Create Them. Trading Up is the story of how middle-class consumers around the world are buying products at 50% to 200% price premiums in categories like homes, cars, vacations and food. We call these new luxury goods. Following the release of that book, we began doing a lot of work helping companies understand this premium segmentation. It's a very rich opportunity, with more than $600 billion in sales in the U.S. in homes, transportation, dining, travel, food and beverages, personal products and services apparel, and home goods.

I spoke with some 10,000 people during the past couple of years. Many people would come to me after my presentations and say, "We loved Trading Up, we think it's very insightful, but it's only half the story. You didn't get it all." So I listened. Most of the people approaching me were women, who were heavily into purchasing and acquisition of goods and taking care of their families and very interested in maximizing their budget. The part of the story that they said we missed in Trading Up was basically the trading down side. It was true that consumers were trading up to premium products, but they were also trading down to low-cost products and services, and avoiding the boredom and low value that increasingly characterize the middle. This polarization was reshaping the consumer goods market.

First: happy new year and best wishes for a healthy and prosperous 2010!

Second: 2010 change and opportunity.

I have been traveling extensively the past few weeks. It is always interesting and useful to observe people, their activities and gadgets.

Hands down, iPhone and iPod Touch devices dominated aircraft, airport and holiday scenes. I did see a few blackberries (one family had a company blackberry and several iPhones) and one Droid.

The recent smartphone explosion along with the introduction of useful "tablet" or "slate" devices will continue to change the way in which people use, create and interact with real estate information.

Most importantly, it will change their expectations......

What does this mean for brokers and agents?

## A) Mobile

The "killer app" - from a VP customer - for real estate buyers, sellers and professionals.

www.virtualproperties.com/iphone/

Our second major release in 9 months, your branded iPhone app provides essential website functions in a faster, easier to use application. Always on, this "app" can be accessed at home, work, on the go, while working out, dining, traveling - anywhere.

Our software makes sure the app is up to date with the latest property information and technology. It includes property comparison tools and unlimited use mapping services. Stop paying for maps on a per click basis.

Your organization must be in this space.

There will be competing devices, though it is not yet clear who will successfully challenge the iPhone infrastructure.

## B) "Tablet or Slate" computing and real estate

There has been no shortage of hype recently about these new devices. From my perspective, the real change will be to traditional laptop formats. Physical keyboards will certainly be available for some time, but, virtual keyboards (via touchscreens with "multi-touch" gestures) will take over the volume portable device space.

Many real estate firms have published traditional magazines, as a marketing and advertising vehicle.

This conceptual video, by Bonner Mag+ neatly summarizes digital magazine possibilities with emerging devices:

http://www.bonnier.com/en/content/digital-magazines-bonnier-mag-prototype

The video reinforces the benefits of high quality, well organized information. Our Main Street single entry cloud software generates timely media and text content for many publications in different formats, including html and pdf. Our clients do not need to add yet another vendor and platform to support these emerging applications.

www.virtualproperties.com/rt/ms.html

## C) Your Website

The iPhone app explosion is changing buyer and seller information convenience and access expectations. Does your website address these changing customer desires?

Accelerate your website with our Main Street cloud software's new customer portal tools. From lead generation to transactions and customer for life, Main Street manages your world in real time.

One vendor.

Virtual Properties is your trusted technology team - since 1995. Do you have the right people, platform and technology partner for 2010 and beyond?

The Profit and Peril of Mashups

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What is a "mashup"? According to this wikipedia entry, "In web development, a mashup is a web page or application that combines data or functionality from two or more external sources to create a new service."

Real estate brokers and agents may wish to take advantage of "free" internet api's (application programming interface). Websites such as flickr, facebook, youtube, yelp and many others offer programatic interfaces to their data and media.

What are the benefits of such API's?

  • Aggregate local information around properties for sale or rent.
  • Enhance your website "experience".
  • Avoid the cost of collecting and managing local information.
What are the costs and risks of using such API's?
  • Bad data. Automated information aggregators often lack local expertise. Information may be outdated; a long closed restaurant may still have a review on your website.
  • Inappropriate content. I created a Facebook demonstration for a client some time ago. The resulting page included an advertisement for Filipino Girls.
  • What motivates the data aggregator? Is their strategy aligned with yours?
  • Does the data make your site more generic?
  • Competitive stealth advertising on your site. Savvy competitors will figure this out and place their content on your site via the API's.
What are the alternatives to "mashups"?

Your agents have a wealth of local market knowledge. Hire or appoint a "blog-o-spondent" or "blogger-in-chief". This person creates and aggregates your own content (text, audio, video, maps) on your blog, around your website(s) and via appropriate social networks. Over time, agents and staff post directly and incorporate your listings, services and our unlimited use maps (for a fixed price). Create your own platform that emphasizes your brand. This approach improves recruiting, retention and internet marketing in ways that you control and at a much lower cost than traditional advertising.

Main Street reliably supports the tools you need, from blogs, dynamic short links, lead management, surveys and multimedia to market reports and live charting tools.

As always, there is no "free lunch".

Play Offense

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Marketer Peter DeLorenzo offers useful advice to automotive marketers:

I sense an overreaction on the part of Detroit marketers right now, especially at General Motors, and it's not a good look. Any more whining and it will start drowning out the message, which is exactly what Detroit automakers can't afford. Rather than discussing the "winding down" of their marketing options, or rationalizing how they will still get their message across while abandoning marketing opportunities left and right, Detroit automakers should be upping their marketing presence and going on the offensive. American consumers aren't going to find out about Detroit's most competitive offerings - the ones that merit serious consideration - by osmosis, are they?

As if right on cue, a perfectly-timed demonstration of how it should be done is the insert Audi placed in several national newspapers yesterday (Audi also sponsored special network news broadcasts of the inaugural with limited commercial interruption), which was, for all intents and purposes, a "State of the Union" message for the company, reminding everyone of who they are, what they stand for, and how they go about the business of building great cars, all revolving around the word "Progress." Here's an excerpt:

"To us, it's taking what seems undoable and then doing it. It's discovering what no one else has bothered to discover. It's turning skeptics into believers. And it's taking the thinking that won on the racetrack and putting it on the road.

And it's why now is the time for the company with four rings. Progress moves things forward. Progress changes the category. Progress leaves the others behind.

Progress is Beautiful."

What opportunities exist for real estate brokers to play offense?Do these things and your broker value equation rises significantly with customers, agents and staff.

Why Don’t Real-Estate Agents Use Better Photos?

Lauren Baier Kim:

Considering the bleak state of the housing market, one would think that agents and sellers would be working overtime to market what’s out there. Yet when Developments visits real-estate sites, we see many listings featuring poorly taken, grainy photos that do little to show what a home looks like, let alone what might be special about it. Worse, some listings include no photos at all.

The other day we came across a Jupiter, Fla., listing (at right) for a $665,000 home featuring just one shot of a home half-obscured by some sort of shrubbery.

We called the listing agent, and you can imagine our surprise when we learned that the brokers, a husband-and-wife team, actually own the home. Carla and John Morris of Prima Properties of Jupiter have placed their house on and off the market multiple times, according to Ms. Morris. She wouldn’t say how long the home has been for sale. They haven’t been able to add extra photos yet, but they plan to, she says, “It’s good to have the photos.”

The Online Open House: Pro still and VR photography for real estate.

The Cachet of Professional Home Photos

Kimberly Stevens:

THERE has always been a certain status attached to owning a home that is featured in a magazine. And a certain pleasure, for a homeowner, in leaving the evidence lying casually on the coffee table.

But now there’s another way to flaunt the importance of your house, and your affection for it: hire a well-known photographer yourself to immortalize it. To some, that’s even better than a magazine photo spread, because the results can be displayed in entry halls and over fireplaces, just like any piece of art, or bound in a book.

“We fetishize homes now, in a way that we never used to,” said Todd Eberle, a photographer whose work appears in Vanity Fair and in prominent museums. He has been hired by many celebrities, including Martha Stewart and Bill Clinton, to document their homes and offices. His clients, he said, want him both to memorialize their homes as they really are, and at the same time to “take it to a different level, and somehow improve upon the reality.”

Jon Miller, an architectural photographer and an owner of Hedrich Blessing, a firm in Chicago that has been documenting American architecture since the 1930s, said he had seen a marked increase in homeowner commissions in recent years.

“People have a lot of pride in their homes, and they want to glamorize them,” he said.

Ann Brenoff:

A picture may be worth a mere 1,000 words in other circles, but in real estate, it enters the realm of deal or no deal.

With an estimated 80% of home buyers starting their search on the Internet, photos are to home sales today what curb appeal used to be: the place where first impressions are made.

According to a National Assn. of Realtors survey of the Web features that buyers found "very useful," 83% mentioned photos, 81% liked detailed property information and 60% named virtual tours.

Every day, decisions about which homes to see — and which to skip — are made based on what a buyer sees online.

"If you can't get them in the door," said Coldwell Banker agent Kenny Bellini of Santa Monica, "you can't sell the house."

Bellini and his wife, Izumi Tanaka, generally shoot their listing photos themselves, as do many other realty agents. And, as he is quick to admit, photography skills aren't part of an agent's training — even though posting quality photos on the Web has now become one of the services an agent must offer clients to stay competitive.

Making Every Pixel Count

Vivian Toy:

IN real estate, a picture can be worth more than a thousand words. Much, much more. When selling properties online, agents and Web designers say that the pictures buyers see of houses and apartments for sale are often the first — and sometimes the only — chance for a seller to make a good impression. Less-than-flattering pictures can turn buyers off and lead to lonely open houses.
Virtual Properties has created high quality still and panoramic images since 1995. Learn more, here.

The Virtues of the Virtual Tour

Pew Internet & American Life just released a study of online virtual tour users:

Since the dawn of the Web in the early 1990s, internet advocates have argued that one of the Web’s most powerful applications would be to open up new worlds to people and help them easily experience faraway places.

A new survey by the Pew Internet & American Life Project finds that 45% of online American adults have taken advantage of this internet application and taken virtual tours of another location online. That represents 54 million adults who have used the internet to venture somewhere else.

On a typical day, more than two million people are using the internet to take a virtual tour.

Some of the most popular virtual tour destinations include museums, tourist and vacation locales, colleges and prep schools, real estate, historical exhibits, parks and nature preserves, public places such as the White House and the Taj Mahal, and hotels and motels.

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