Scenario: Pete Smith sat back, contemplating the impact of his latest monthly financial report. Sales were off by 30 percent from a year ago, and there didn’t seem to be any prospects for a quick turnaround. In addition, the past four years had seen some major national builders moving into his market, and while they were hurting as well, he felt that the presence of the big competitors limited his options in terms of pricing, product offering, and level of workmanship. Even though most of Pete’s work was custom building, he still built spec homes from a portfolio of plans that were similar in size and price ($550,000) to the higher-end offerings of the national builders.
Obviously something would have to be done. Pete didn’t want to take a purely passive approach by cutting costs, overhead, and personnel until his expenditures were again in line with sales. He had recently read an article about increasing perceived value as a means of improving competitive position, and felt this was the way he wanted to go. If he could somehow increase perceived value, he could gain market share (even in a declining market) and maintain profit margins in relation to his competitors. So how was he going to increase perceived value?
“Let’s start with the houses,” he reasoned. After all, that’s what people were paying for. Let’s review the spec home portfolio and redesign the plans to make them more efficient, functional, and exciting. Removing wasted space and re-engineering to eliminate excessive spans or unnecessary foundation and roof complexity would make the homes easier to build and more price competitive. He also needed to update the plans in terms of serving specific market niches, such as luxurious empty nester homes.
He also felt his homes would show better with more “flash” and “hot buttons” incorporated such as TV built-ins, more elaborate stairways, and more luxurious finishes in the bath and kitchen.
In order to add the hot buttons without increasing costs, Pete figured he could simply renegotiate prices with his subcontractors. After all, they were hurting for work as well, and were unlikely to jump ship for his competitors. They were certainly eager to raise prices when work was plentiful, so now they could cut back when times were tough.
Is Pete headed in the right direction?
