20150520 Reader MM2 PART 2

Reader Market & Means 2, 2014-2015

Reader

Reader Market & Means 2 First semester, second Quarter, second year

CU10382

Foreword 2


Contents Foreword ................................................................................................................................................ 3

PART 2 - FINALS ....................................................................................................................................... 4

1. Lesson 7, Real Estate Calculations 2 ......................................................................................... 5

2. Lesson 8, Project Development ................................................................................................. 7

3. Lesson 9-1, Market Principles ..................................................................................................... 8

3. Lesson 9-2, Customer Development ........................................................................................ 10

4. Lesson 10, Place Branding ......................................................................................................... 12

5. Lesson 11, Housing Market and Lifestyles .............................................................................. 15

APPENDIX A: AN INTRODUCTION TO CUSTOMER DEVELOPMENT ............................................... 16

APPENDIX B: THE CUSTOMER DEVELOPMENT MANIFESTO ......................................................... 17

APPENDIX C: BUSINESS MODEL CANVAS ..................................................................................... 18

APPENDIX D: THE WORLD ACCORDING TO AMERICA 2003 ......................................................... 19

APPENDIX E: Article “URBAN ECONOMICS AND FADING DISTANCES” Saskia Sassen .................. 20

APPENDIX F: Newspaper article “DE STAD ALS MERK” ................................................................. 21

Foreword 3


Foreword

This reader summarizes the learning

material for your Market and Means 2

midterms and finals.

In this reader you will find the mandatory

literature, presentations, references to

books that you need to learn and

exercises as a preparation for your

exams. The reader consists of two parts;

Part 1 covers the midterms and Part 2 the

finals.

We advise you to learn the study material

included in this reader well. Make good

and clear summaries of the literature and

presentations so you have a good

reference.

Good luck with your exams.

Welcome to the Course Market & Means!

Vlissingen, may 2014,

Ir. A.T.F. Schuwer

Ing. P. Sijstermans MCD

PART 2 - FINALS 4


PART 2 - FINALS

Lesson 7, Real Estate Calculations 2 5


1. Lesson 7, Real Estate

Calculations 2

For this lesson we’ve made use of the Excel file “Lesson 6 NPV PV FV GIR.xlsm”.

In lesson 6 we have discussed the concepts of Present Value, Net Present Value and Future Value. In this lesson we practiced with them and added the concept of Gross Initial Return. Under excel-tab “MM3 Explanation DCF“ you will find some cash flow schemes we made together in class. Please study these scheme’s. In the first scheme we computed the future values (FV) for the present value (PV) €100 this year to the following eight years at an interest rate of 5%. Try it with other percentages. In the rows 11 to 13 we calculated the Present Value of FV5. We were calculating backwards from FV tot PV. Look into the formulas and try it with other values for the interest rate in cell C6. In the rows 19 to 25 we took another cash flow: y0=-€100, y1=-€50, y2=+€80, y3=+€100, y4=+€50 This time we’ve calculated the NPV of a series of cash flows that’s why it’s called Net Present Value.

As you can see, the NPV of this series of cash flows is €34,10. When researching the NPV of a series of cash flows at a certain desired return, we now speak of a discount rate instead of an interest rate. Applications are in the calculation of the value of a piece of land development or to investigate whether an

investment which generates a series of cash flows, is profitable (>0) or not (<0). In the example in the rows 19 to 25 we used a discount rate of 9% - let’s say we want at least a return of 9% on our estimated cash flows. And the result is a NPV €34,10. In this example you have a 9% return on the cash flow and a positive result of €34,10. In many cases these calculations are made to examine the amount of money you can spend on for example buying a piece of land in year zero (the NPV) at an interest rate you have to pay to a bank. The IRR is the Intern Rate of Return – the return within the series of cashflows with the NPV included. At this rate the NPV will be €0. Try to replace the 9% discount rate with the value of the IRR. What do you think happens?

Lesson 7, Real Estate Calculations 2 6


In the last example, rows 28 to 35, we made the residual €34,10 part of our cash flow. We stated that we owe 6% interest to the bank (discount rate). The resulting NPV is still a positive €13,50 and IRR is 9%. Look what happens if you change the discount rate to, for example, 9%? Try other percentages?

Gross Initial Return - The Friday Centre

What is your selling price for a 10 year old Conference Centre with an annual income of € 265/m² NGA and a GIR of 7,25%? To answer this question, the Gross Initial Return (GIR) is a common used method. The GIR is the ratio between the return on a year’s basis and the total investment needed for this return. For example: the annual earnings from an investment property amount to 300 euros. The investment itself was 5,000. The GIR is 300 / 5,000 = 6%. If you know your annual earnings and have a hunch on which return you demand on your investment, you can calculate what the maximum investment should be regarding the estimated annual revenues, namely: 300 / 6%. Now you are able to make real estate with rental objects (or long term

cash flow generating investments). GIR's are being benchmarked all the time. Click this link for an example of a real estate benchmark http://www.vastgoedkennis.nl/docs/publicaties/site/IPD/IPD%20Netherlands%20Annual%20Index%202009.pdf DOWNLOAD AND MUST DO HOMEWORK! Excelsheet “Lesson 6 NPV PV FV GIR.xlsm” MORE READING http://en.wikipedia.org/wiki/Internal_rate_of_return

http://en.wikipedia.org/wiki/Net_pre

sent_value

http://www.globalstate.nl/arachna/e

nglish/103/real_estate_terms

Lesson 8, Project Development 7


2. Lesson 8, Project

Development

A guest Lecture by Mr. Frank

Heyligers, independent developer.

Gross National Happiness of Bhutan.

Project Development is:

• about searching for the importance of the place and bringing together a target group (of potential customers) and the specific qualities of the place you are developing

• Act and plan your project as it was your own! You can spent your money only once and try to generate a cash-inflow as soon as possible

• From a cash flow's point of view it's most efficient if big expenditures can be postponed as far as possible in the future (and incomes as soon as possible)

• Start with composing a risk assessment as soon as possible and evaluate this assessment periodically. Each recognized risk should be quantified and provided with management measures --> no open ends :-)

• Another aspect of risk management is to place (financial) responsibility for specific risks as much as you can at the actors whom are in control of such risks.

Acquisition:

• Land acquisition always has to be done according to the goals of your

company and is, in most cases, described in the company’s mission statements (e.g. in center positions, only housing zones)

• Your just acquired land must be strategically situated (e.g. you can develop it independently from other stakeholders, direct road access or most interesting part, or only possible road access etc)

Acquire land & property according to the goals of your company and

your project

Market Research:

• What is the core-identity & what is core-quality of a spot? - Try to identify target-groups who are specifically interested in this quality

• What are future trends in housing demand

• In what way is your future target-group developing

Find your specific target group within the mass

Lesson 9-1, Market Principles 8


3. Lesson 9-1, Market Principles

“How would you explain marketing? The first few words that usually pop into a person's head are 'marketing equals sales!' Marketing is NOT just personal selling or even just advertising. Most people define marketing in a very limited way. Marketing includes activities such as public relations, sales promotion, advertising, social media, pricing, distribution and many other functions.

Companies have increased their marketing budget's dramatically. For example, it is estimated that companies spend over 15 billion dollars annually on marketing to JUST KIDS in the USA only. This is an increase of over 2.5 times more than they were spending in 1992. The cumulative function of marketing is to communicate, deliver and create value to the consumer. In addition, companies must take into consideration their employees, stakeholders and society. The most successful companies around engage in very consumer-oriented marketing. They spend enormous amounts of time, money and resources examining the everyday lives of their customers and create products to fill a need. Examples of companies that are known for creative, leading-edge marketing are Disney, Pepsi and Apple.”1

1 http://education-

portal.com/academy/lesson/introduction-to-

marketing-definition-and-applications.html#lesson

The Five P's Marketing is made up of five elements: product, place, promotion, price and people. The elements must be used in a cohesive plan to effectively target the consumer. A product can be either a physical product or service. Place is where the product is purchased. Price is the amount a consumer pays for the product and promotion consists of the communication tools used to effectively get the company's message out. People is about your consumers en the needs they have. The definition of marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners and society at large. Also included in the definition are all of the activities that help businesses reach their target market effectively. Exchange The ultimate outcome for marketing is when a successful exchange occurs. For example, today you desire a fast food lunch. As a consumer, you must give up something to receive something that you would rather have. Most consumers will relinquish money to receive a product or service. In order for the exchange to qualify as successful, there are some basic rules that must be met: The exchange is successful if:

1. There are at least two parties, 2. Both parties must also be

exchanging something of value to each other,

3. Both parties communicate clearly their intentions,

4. Finally, the parties should accept the offer and want to engage in a deal with each other.

Lesson 9-1, Market Principles 9


An exchange is not always successful. You might really want to buy a sports car, but one of the exchange steps might not occur. For example, you might not have the money to accept the salesperson's offer. MUST READ literature is:

1. MANAGEMENT OF URBAN DEVELOPMENT PROCESSES IN THE NETHERLANDS; Agnes Franzen et al. Chapters 4.5, 4.6, 7.2 and 8.1, 8.2, 8.3, 8.5 to (and) 8.8

DOWNLOADS Prezi lesson 8-1, Market Principles: http://prezi.com/ircfazxnvjny/?utm_campaign=share&utm_medium=copy&rc=ex0share

Lesson 9-2, Customer Development 10


3. Lesson 9-2, Customer

Development

“Customer Development is a four-step framework developed by serial entrepreneur and business school Professor Steve Blank for discovering and validating the right market for your idea, building the right product features that solve customers’ needs, testing the correct model and tactics for acquiring and converting customers, and deploying the right organization and resources to scale the business. At a high level, Customer Development is about questioning your core business assumptions. In other words, Customer Development teaches that rather than assume your beliefs about your business to be true, you should apply an engineering, or scientific method, to what is really not a scientific endeavor (building a business), in order to validate the ideas. The primary advantages of implementing the framework are that you don't spend gobs of money discovering what works, but rather save the money for executing and scaling what you have already shown to work. An organization applies a learning process, rather than merely executing what you assume to be the right business model. If implemented properly, Customer Development helps a business become highly focused, capital and resource efficient, and while not a guaranteed success, more likely to find Product-Market Fit and market traction. The process resembles the scientific method:

• Observing and describing a phenomenon

• Formulating a causal hypothesis to explain the phenomenon

• Using a hypothesis to predict the results of new observations

• Measuring prediction performance based on experimental tests

When building a business, the process is used to discover, test and validate the following business assumptions:

• A specific product solves a known problem for an identifiable group of users (Customer Discovery)

• The market is saleable and large enough that a viable business might be built (Customer Validation)

• The business is scalable through a repeatable sales and marketing roadmap (Company Creation)

• Company departments and operational processes are created to support scale (Company Building)”2

Customer Development is about making good analysis of your product; in what way it fits a need of potential customers and how to get many customers. It doesn’t matter if you want to sell a new car-engine, a new toy, a game or the things we tend to be doing while dealing with Delta Management matters such as organizing a new spatial plan for a faraway delta in which new economic centers, urban area’s or touristic and agricultural function’s. As long as you are creating functions, you have to think from a customer’s point of view. Making

2 http://market-by-numbers.com/customer-

development/

Lesson 9-2, Customer Development 11


assumptions about the need for your product, the way you want to ‘sell’ it and the way you want to promote it are essential in making a plan. DOWNLOADS The PPTX’s of lesson 8-2: Customer Development short for lesson 8 '15.pdf, downloadable on the VLD-system.

MUST READ literature is: 1. AN INTRODUCTION TO CUSTOMER

DEVELOPMENT 2. THE CUSTOMER DEVELOPMENT

MANIFESTO See appendix A and B. See Appendix C for a Blanco Business Model Canvas for the entrepreneurs amongst you.

NICE TO KNOW information:

• www.steveblank.com

• “The Startup Owner’s Manual, The Step-by-Step Guide for Building a Great Company”, Steve Blank and Bob Dorf, 2012.

Lesson 10, Place Branding 12


4. Lesson 10, Place Branding

“‘The city that we seek, conditions the city we will find’ (Sharpe & Wallock, 1987). “Flushing really is an dull and ugly city with mostly low-cost labor inhabitants”. This is an image that probably many people have of Flushing. Chances are that inhabitants themselves, have a much more positive image of their residence and place of birth. It's amazing how different the images may be that people have of a city. Branding for the favor of businesses and residents. Why is image so important to the city. What image actually, how does it work and why it is so difficult to change a negative image? On the scale of regions rages a bitter battle for residents, knowledge and grace of companies. For a municipality as Flushing, who has to compete with other cities in the region in order to get new residents or attractive facilities and employment, a negative image is disastrous. The consequences of a negative image of a city are reflected in particular in a slump in investment by businesses, increasing unemployment coupled with reduced purchasing power and declining population numbers (W.J. Meester, P.H. Pellenbarg, 2001, E. Avraham, 2004, E. Avraham 2000). All the more reason for cities to present themselves, compared to other cities, in a good way. The proper marketing tool for this is "city branding" or "place branding". Originally, "branding" is one of many marketing tools used in selling products and consumer goods such as shoes or shaving cream. Until the 90s, it is as a marketing tool for geographical areas, an underused tool. In the few cases that have been deployed, this instrument was generally limited to promotion purposes

only. The reason for this was threefold. First, there was only limited knowledge of marketing among city-councils of cities, secondly the early phase of the application of marketing for cities and thirdly, the lack of awareness of the difference between the meaning of a geographical place versus a product (Kavaratzis, 2004). Meanwhile, one realizes that a product as a residential area, is many times more complex than a product such as shaving cream; a geographical place is not a produced product, the government is not a director and inhabitants are no common consumers in a way they are when comparing a geographical place with an ‘normal’ product (M. Kavaratzis, G.J. Ashworth, 2005). Since 1990 "city branding" or "place branding" is becoming an important tool for promotion of cities. Building and maintaining a good image is one of the most important components.

The English word 'branding' literally means: giving a thing, such as a person,

building or product a brand. The definition of a 'brand' is a product or service that to competitors is distinguished by a unique character and a unique combination of functional attributes and include symbolic values. Place-branding does the same for a geographical place (Hankinson en Cowking in Kavaratzis, 2004). The sports brand Nike for example trying to conjure up an image of success, fun and sportsmanship on the consumer. Cities also represent a functional, symbolic and emotional value (Rainisto 2003 in Kavaratzis) which in the most ideal case of a successful branding, meets the needs of the inhabitants of that city. With locations this ‘charge’ consists of the unique qualities of the location on one place apart from the other (S. Dormans et al, 2003). These qualities include being on a lake, sea or channel, the relative tranquility of the area or just a busy and dynamic environment of wide range of facilities or employment. In addition to physical elements, a core-



quality of an area may also consist of 'soft' issues such as sustainability, energy awareness or freedom of action (Simoes&Dibb 2001 in M. Kavaratzis, G.J. Ashworth, 2005). An example of soft core-quality is the city of Amsterdam, which advertises itself as a city of creativity, innovation and entrepreneurship (www.Amsterdam.nl, 2008). Rotterdam aims to modern architecture, water and presents itself as a dynamic, multicultural working city (G. Richards, J. Wilson 2004). What is the core-quality of Flushing actually? And how should the city then promote itself?” 3

3 Krakers in gebiedsontwikkeling, ‘Met een Kraker

lukt het Vaker!’, Augustus 2008, P.M.J. Sijstermans.

Eindscriptie MCD 4

See appendix D; Mental Map, The world according to America 2002.

The 5 key-elements for a good Slogan In the lesson we talked about the slogans of:

• Hong Kong: “Hong Kong, Asia’s World City”,

• Singapore: “YourSingapore”,

• Oresund: “Oresund - The Human Capital of Scandinavia”,

• Liverpool: “The World Capital of Pop Music” and

• Amsterdam: “I Amsterdam”.

“Everyone has their own mental map; any mental map is unique. A mental map is an individual, selective representation of reality. All existing mental images of the urban environment are different from each other, but do find their origin in the same reality. Mental mapping is the name of methods by which a person his or her "mental map" of the environment can visualize. The concept of 'mental mapping' is derived from cognitive psychology. In many areas, the mental imagery of the reality by human mankind, is of interest. In daily life, the mental map, we have our spatial environment, an important tool. There is an essential difference between conventional, uniform city map and a reflection of the personal mental map. The conventional mapping makes use of standard norms and agreements on the method of imagination to make the cards. Understandable for everyone. However, a mental map is very personal; ie each mental map is unique. A mental map is an individual, selective representation of reality. All existing mental images of the urban environment are different from each other, but do find their origin in the same reality. Every day our mental picture of the area is used for orientation and movement through an area. The mental map of a specific individual is the result of an individual's experience of an area in which the personal use (routes), perception,

appreciation and associations are 'saved'. This mental image is also active in a more associative review about (new) impressions and determines our actions. New information is here related to the existing image, this 'comparison' can or will not be permanently "stored". The process of 'building' of the mental map is dependent on the current form of it; what we want to see or think we see determines what we see and experience. In the absence of personal experiences with the actual characteristics of areas is the mental impression fed by the existing general image of an area and impressions gained through the media. Thus it happens that we frequently have an image and appreciation of areas where we have never been (WSA, Procesarchitectuur en Management Stedelijke Ontwikkeling,

september 2005)”.



The 5 key-elements of a good slogan are:

1. Communicates the brand promise or unique selling point

2. Mentions the name of the brand or implicitly linked to the brand

3. Is short 4. Is memorable 5. Encourages the reader to want to

know more about the brand

DOWNLOADS The PPTX’s of lesson 9: Place Branding is downloadable on the VLD-system. MUST READ literature is:

1. hfds 3.5. "Management of Urban

Development Processes in the

Netherlands", Agnes Franzen et al;

2011

2. Newspaper article “De Stad als

Merk”

NICE TO KNOW information:

• “Urban Economies and Fading

Distances” Saskia Sassen

See appendices E and F for the articles.

Lesson 11, Housing Market and Lifestyles 15


5. Lesson 11, Housing Market

and Lifestyles

A guest Lecture by Mr. Richard

Winkels, Branding and Marketing at

social housing company Ymere.

The Brand Strategy Research model, or BSR-model, segments people based on their psychological and sociologic character: is one very extravert or introvert or is one very egocentric or group oriented? Based on these basic questions and a lot of more related descriptions, people can have more or less correlation with the four core group profiles: The red world: all about freedom, personality and expression; egocentric and extravert. The blue world: all about control, luxury and performance; egocentric and introvert. The green world: all about security, safety and conservatism; group oriented and introvert. The yellow world: all about harmony, ‘joie de vivre’ and sharing; group oriented and extravert.

see appendix J for the bigger picture. The BSR-model is based on segmentation theories by C.C. Jung. A similar model is often used in human resource management. In The Netherlands, the Smartagent Company is well known for its research on housing markets in which they

redeveloped the BSR-model for research on trends in housing- and leisure markets. Another well-known firm is Motivaction who uses a slightly different segmentation model which is called Mentality. From the Motivaction website: http://www.motivaction.nl/en/mentality

Mentality™ Mentality™ is Motivaction’s unique values-and-lifestyle research tool that provides an effective look at target group classification and approach. By conducting research into the perception of Dutch citizens, our clients gain more insight into what motivates their target groups, how trends come about, and the broader context in which they operate. Mentality has proven itself to be a richer tool for explaining the behavior of citizens and consumers than the traditional categories based on age, gender, education and income. The research method generates an extremely effective input for your policy, marketing and communications strategy. Read more about the applications and backgrounds of the tried and tested segmentation model, or, even better, do the Mentality test.

DOWNLOADS The PPTX’s of lesson 11: Housing Markets and Lifestyles is downloadable on the VLD-system. NICE TO KNOW information: Learn more on Carl Jung’s segmentation models at http://youtu.be/sP6QbVND04g

16


APPENDIX A: AN INTRODUCTION TO CUSTOMER DEVELOPMENT

17


APPENDIX B: THE CUSTOMER DEVELOPMENT MANIFESTO

18


APPENDIX C: BUSINESS MODEL CANVAS

19


APPENDIX D: THE WORLD ACCORDING TO AMERICA 2003

20


APPENDIX E: Article “URBAN ECONOMICS AND FADING DISTANCES” Saskia Sassen

21


APPENDIX F: Newspaper article “DE STAD ALS MERK”

20150520 Reader MM2 PART 2

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