Key to success: Understanding consumers' needs

Key to success: Understanding consumers' needs

Satyasuryawan, Contributor, Jakarta

One no longer hears the rumbling sounds of trucks used for
carrying soil. Neither does one see the large crowd of workers.
Hectares of fresh, red land lie empty and deserted except for
wild, untended scrub and tall grass. The surrounding roads are
badly damaged with no sign of repair work in sight.

This is today's sad picture of an area in Cibinong, Bogor,
which was originally prepared for 200 houses planned to be set in
scenic and serene surroundings.

Some 60 developers in Depok -- about seven kilometers from
Cibinong -- have also suffered a similar tragic fate. Some of
them stopped work just shortly after the initial stages of their
projects. The rest abandoned their sites, leaving them dotted
with unfinished houses. This catastrophic situation is caused by
nothing else than the economic crisis. Prices of building
materials have skyrocketed due to the inflation. High interest
rates and the banking crisis have also made it extremely
difficult for developers to obtain loans from banks. Consumers'
purchasing power has dwindled as well. Developers of upper and
lower-middle income residential estates are mostly falling apart
and the remaining few are lying low until there are some signs of
improvement in the economy.

Among the few survivors is PT Karka Yasa Profilia Plc. One of
its successful projects is the modest and low cost residential
estate Griya Yasa Lestari located in the Bojong Gede area. The
company, with its head office in Solo, Central Java, is also
considered a reputable blue chip on the Jakarta Stock Exchange.
In 2000, Karka's sales went up by 350 percent and again by 250
percent in 2001. These tremendous achievements were highly
commended by Investor magazine, which cited the company as the
best share issuer in the property business in 2002.

Even among developers of low cost housing, only a small number
have managed to stay in business through the entire economic
crisis. Most of them are on their death beds in the "emergency
room" of the Indonesian Bank Restructuring Agency, unable to pay
back or even make installment payments on loans from banks. Some
of their assets have been auctioned off by the Agency and some
have been taken over by larger and healthier developers, who are
able to weather the stormy conditions due to their sufficient
liquidity. In a situation like today's, getting loans or other
facilities from the banks is just wishful thinking as the strict
supervision applied by the Central Bank makes it more difficult
for banks to provide loans for property businesses.

Good luck or the hand of fate aside, PT Karka Yasa Profilia,
which is managed by young professionals, very much relies on one
unique and proven marketing strategy. It is simply a deep and
comprehensive understanding of the property business, which
naturally includes consumer behavior and the entire nitty-gritty
of the financial market. With their current track record, no one
is underestimating Karka's prestigious achievements to date.

Developers of modest and low-cost houses realize that the
profit margin in this business is small. Therefore when an
economic crisis forced large developers to sell their houses at
much reduced prices, many smaller-scale developers followed suit
but, unfortunately, found they could no longer survive in the
business. They used up their small profit margins to cover
working capital and the discounts.

Karka, however, has refrained from selling its houses at
reduced prices. Although price is an important factor to consider
for consumers in this segment of the market, aside from the
location, the quality and the design, Karka has gone against the
trend by raising its prices. Still, it provides facilities for
buyers in the way the down payment is made.

This price-raising policy is based on the company's
understanding of the needs and the behavior of the buyers of low-
cost houses.

People in the middle-to-low income brackets actually have the
capacity to own a house but their purchasing power has never been
tapped. "Their problem is not paying the installments but rather
making the down payment. Therefore we try to help them by trying
to find loans for this down payment, for example from the
Workers' Social Security funds," said Dwi Bagus Handhoko,
president director of Karka Yasa Profilia.

Karka also prefers banks offering commercial home loans rather
than those providing subsidized home loans because in the case of
the former the down payment is more affordable and can be paid
after the house is occupied. In other home loans, the down
payment must be paid after the loan agreement has been signed.

To be able to compete with other developers, PT Karka Yasa
Profilia also offers modest houses with more modern designs to
avoid giving the impression of cheapness. The infrastructural
facilities are like those of an upmarket estate, with broad roads
and wider alleys. Although the price is Rp 500,000 more
expensive, the buyers do not object to this arrangement and opt
for these better-quality Karka-designed houses. The houses it
sells do not just meet functional requirement but are also
adjusted to the need of the consumers as more support facilities
are provided such as parks, houses of worship house and sports
halls.

Logically, every developer could adopt Karka's trick. However,
many developers of cheap houses fail to realize the looming
danger.

As referred to earlier, the profit from selling a low-cost
house is very small. That's why the property business in this
market segment is vulnerable to the investment waiting period and
the huge cost of promotion. If the company has a big capital, it
is always all right to promote its houses during, for example,
the grand real estate exhibition held annually in the Senayan
Convention Hall. Idle land, also, won't trouble the coffers of
the company as profits may come from other projects.

For small-scale developers, however, the problem of idle land,
for example, can easily turn into a big blow. If the houses
cannot find buyers and promotion is not financially possible, the
company may go bankrupt. It must continue paying back its loans
to the bank or else the land or other assets will be confiscated.

Karka overcomes the problem of idle land by cooperating with
companies building houses for their employees. Many companies
have entrusted Karka with such projects based on their lower
prices, strategic location and payment system that matches the
buyers' purchasing power.

Karka has cooperated with PT Pos Indonesia for the
construction of 150 houses for the latter's employees. It has
also teamed up with PT Argo Pantes, PT Dynaplast and Shangri-La
hotel for the same purpose. Cooperation has also been established
with government agencies such as South Jakarta regional
administration, the Ministry of Finance and Army headquarters for
the construction of their respective employees' houses.

By adopting this method of marketing, the developer has
successfully gained a captive market. Contractors and
construction material suppliers readily do business with Karka as
they are sure that Karka has its buyers and that payments will be
made in a shorter period time. Similarly, the banks also trust
the company and extend loans to it. This method has also
successfully overcome the problem of land availability usually
faced by small developers. Sometimes a company planning to build
houses for its employees has got its own land plot or has a piece
of land close to land that Karka manages.

The Plaza Semanggi project in the former Graha Purna Yudha
building, which is being developed by the Agung Podomoro Group,
also marks a synergy between buyers' demands and the objective of
developers. Of course, a bank cannot just easily extend loans for
this Rp 300-billion project. However, under the built-operate-
transfer (BOT) system, PT Primatama Nusa Indah, the subsidiary of
Agung Podomoro that is developing Plaza Semanggi, has established
synergies with three other investors: PIKKO for financing and
capital, ProLease Asset Management for property marketing and
land leasing and Hari Darmawan Corp. for merchant/tenant affairs.
The four of them have closely interrelated businesses.

Synergy and integration in property marketing, as shown above,
will ensure the survival of this business and greater
profitability on the part of the companies involved.