Out of Touch - Lacking Customer Insight

Scarcity creates value; rarity even more so. A truism which seems to be ignored by many of the developers at work in my locale.

I live on a peninsula which is literally within spitting distance of the city. It started life as a working class suburb and many of the properties on the peninsula are tiny Victorian era 1 or 2 bedroom worker's cottages.

Of course the whole suburb has been gentrified in the last couple of decades and it is amazing what some people with vision, imagination and money can do to a worker's cottage. But the fact remains that even gentrified cottages are small and sit on tiny plots of land.

We have seemingly experienced a baby boom on the peninsula over the last few years and mothers pushing their ubiquitous Bugaboo prams are everywhere. What is craved and treasured by residents are large family homes with a decent sized garden and off-street parking. Castles to house the burgeoning families of the increasingly wealthy bourgeois. Yet almost none exist, so expanding families (or simply those singles or couples with a thirst for space) inevitably admit defeat and move off the peninsula.

This morning, on the way back from dropping the kids at school, I walked past the latest, newly completed development, on one of the last remaining large-scale development blocks we have on the peninsula. A block created by tearing down a dozen or so worker's cottages.

And what has the developer erected? A dozen or so 2 bedroom townhouses with pocket handkerchief back yards. The 1890s worker's cottage gives way to the 2008 worker's cottage.

It is mind-boggling really. Rather than thinking constructively, based on some sort of customer insight, the developer has done the usual and stuck to a supposed "winning formula".

Imagine if instead of 12 boringly 'same' tiny townhouses the developer had erected 3 substantial 5 bedroom dwellings with expansive backyards. In other words they created the unobtainable.

Even in today's market, the unobtainable property carries a price premium. It is unobtainable because everyone wants it (demand) and no one has it (supply).

Fundamental economics at play again. When demand outstrips supply an upwards price adjustment balances the market and super-profits are to be made.

We have become a society of non-thinking formulaic business people who ignore customer insight and therefore miss significant economic opportunity.