This is part three of a series of posts based on the book The Ten Day MBA by Steven Silbiger.
In the last post, we talked about looking at consumers through the lens of segmentation and demographics. Market analysis, however, looks more broadly at market trends and sizes, according to Silbiger, as well as governmental, regulatory, and competitive environments. He suggests three questions to ask when evaluating a market:
1. What is the relevant market?
2. Where is the product (or service) in its life cycle?
3. What are the key competitive factors in the industry?
We'll look at each of these questions in this post.
1. What is the relevant market?
One of the things that Silbiger notes out of the gate is that "The easiest mistake to make is to believe that your relevant market includes the total sales of your product's category." This is especially easy to do with a service like real estate, where statistics are readily available for your local market.
For example, you may see that 2,000 homes were sold in your metro area last year. From that, you might think that 4,000 clients per year make up your relevant market (one buyer and one seller for each transaction). However, consider the following:
Five percent of those homes were sold from a homeowner to his or her family or friends, requiring only the services of a real estate attorney to do the paperwork.
Twenty-five percent were transactions involving investors, many of whom may have made direct appeals to the homeowners and handled the transaction in-house without the use of a real estate agent or broker.
Ten percent may have been sales or purchases involving an agent or broker as one of the principals and requiring no outside representation.
Ten percent may have been sales or purchases involving luxury properties wherein the buyers and sellers use real estate attorneys and financial professionals rather than working through real estate agents and brokers.
Five percent may have been sales or purchases involving luxury properties wherein the home was a pocket listing and the agent or broker facilitated the transaction in a sort of match-making role.
Ten percent may have been handled by one or two mega-agents in the local market.
Ten percent were handled by agents or brokers who were close family or friends with the principals.
That totals a possible 75% of transactions handled either privately, outside of the broker/agent representation model, or in other ways that preclude you having the ability to compete for those listings or buyers. While these numbers are estimates for illustration purposes, you can see that relevant market is different from total market.
One example of this that is on the minds of many agents is the conundrum of the Millennial market. Millennials make up one of the largest market segments in US history, outstripping the Baby Boomers in sheer numbers. That led to speculation that they would create a massive housing boom as they graduated from college and entered the job market, married, and had babies.
However, the reality has been far less exciting for most real estate agents, since Millennials entered the job market during a time of financial downturn, low-wage or unpaid internships, and under-employment. In addition, because they are putting off or foregoing marriage and delaying child-rearing, the projected Millennial housing demand has not materialized. Thus potential market and relevant market has been very different.
2. Where is the product (or service) in its product life cycle?
Silbiger is talking about products which are introduced, experience a phase of early adoption and growth, then mature, and eventually die off as they are replaced with new technologies or market preferences. Since we are talking about real estate representation, a service, we need to look at these stages somewhat differently.
Real estate representation through agents and brokers has been around in some form for millennia, but in the US what we think of as the brokerage model probably dates from the formation of Baird Warner in 1855, the oldest brokerage in the nation. Over time, the brokerage model grew to dominate the majority of real estate transactions in the US.
However, we are in a time of upheaval and it seems that every new technology or website sells itself based on its ability to disrupt this mature industry. Indeed, the death of the real estate brokerage model is a common theme, causing both delight and despair, depending on your perspective.
In order to ride the waves of change in the real estate industry, the key word is differentiation.
Here are some of the ways that agents and brokers are riding the waves of change brought about by the undeniable paradigm shifts in the real estate industry:
Education
One of the ways that many Realtors are keeping themselves relevant and making use of the potential -- and low cost -- of online and social media is by educating local buyers, sellers, and other stakeholders. This may be done through a content marketing plan that includes blogging, podcasting, video content, and distribution through email blasts or social media sharing.
In addition, some agents and brokers have made a name for themselves in their local market through workshops and classes for potential homeowners. These can be co-sponsored by mortgage lenders or title companies, lowering costs and increasing relevance.
Creation of New Markets
Reaching out to niches beyond the traditional single-family homeowner is a great way to increase your competitive advantage in a shrinking market. Facilitating home ownership for those who need help (a) envisioning themselves as homeowners and (b) getting practical information on increasing credit-worthiness and understanding the buying process is one way that many agents create new clients and increase their market share.
Other agents and brokers are taking advantage of the opportunities presented by the large cohort of aging Baby Boomers by helping retirees downsize, explore warm-weather markets, and otherwise facilitate the many changes that come with late-in-life real estate decision-making and logistics.
Real Estate Investment
Many real estate agents are using the growing real estate investment market as a way to build wealth and add differentiation to their business model. By starting out wholesaling and moving into flipping, agents can build up a nest egg that allows them to build or purchase a portfolio of long-term investment properties.
Those agents who do not wish to buy and maintain their own portfolio may instead facilitate the needs of investors in their market by putting their prospecting experience and network of contacts to work finding properties for others. They may also play a pivotal role in finding funding for investors, identifying up and coming markets, and providing property management services. Any of these can be done on a fee-based or commission-based model, or for a share of equity in the project.
3. What are the key competitive factors within the industry?
According to Silbiger, the key competitive factors in most industries come down to one of the following:
Quality
Price
Advertising
Research and Development
Service
Let's look at the ways that real estate agents and brokers can differentiate themselves from the competition using these factors.
Quality
In the minds of many potential clients, this is one of the most difficult ways to differentiate. For most people outside of the industry, one Realtor appears to be very much like another, and anyone can get you to the closing table. We within the industry know how untrue this is, since we've all had the experience of working with a truly incompetent or ill-informed colleague.
Branding and messaging is important in conveying quality, and many agents and brokers highlight their years of experience, negotiation skills, or specific areas of expertise. This is also what is at work when agents highlight a variety of designations and specializations in their marketing.
Another way to highlight the quality of your work is through statistics. Lower days on market, higher sale prices, and other factors may help to differentiate you from the competition.
A somewhat more expensive way to highlight your quality as a listing agent is through the quality of the signage, marketing, and other materials you use. For example, Oxnard CA broker Troy Palmquist features custom signage for each listing, along with a proprietary signpost design. The signs feature the listing itself and serve as a way of more effectively marketing the property's features. At the same time, the upscale custom nature of the signage more effectively markets Palmquist's services to potential sellers in the area than a standard logo or headshot sign would.
Price
For most agents, competing on price is a big No-No. Reduced commissions, according to many agents, undermines the profession and the work of agents, putting them in competition based on who will undercut the market most effectively.
One way to compete on price without discounting services is by controlling costs and increasing income at the team or brokerage level. Creating a compensation model that works for both agents and brokers is an important part of balancing the financial needs of the brokerage with the need to on-board established and effective agents.
Many brokerage owners attempt to increase profits by charging agents ever-increasing fees and commission splits. This can result in frustrated agents who end up moving to another brokerage in order to get a fair deal. A better way to increase profits is by ensuring that training, marketing, and lead gen at the brokerage level is effective and results in positive ROI for agents. The better they do, the more money the brokerage earns without overburdening the agents themselves.
Advertising
We all know the classic advertising model of real estate -- billboards, bus benches, and buyer leads from open houses. Add to this cold calling and door knocking and you have pretty much run the gamut of lead gen advice in the real estate industry.
Some brokerages and agents go as far as buying internet leads. These are expensive and often ice-cold, populated primarily by looky-loos and fake contact information.
A more effective (and cost-effective) method of bringing in leads directly to the brokerage, agent, or team is a content marketing plan that leverages a well-designed website -- SEO optimized and geared toward information capture -- as well as a content marketing plan utilizing consistent blog content, podcasts, or video; an email marketing plan for reaching out to the sphere of influence and captured leads; and a social media plan for bringing fans and followers to the website for lead capture and conversion.
Beyond this there are a variety of options like predictive marketing, re-targeting, and online paid advertising. These can come at a variety of price points and levels of effectiveness.
Whatever marketing strategy you decide on, you must look at its effectiveness over time. Analytics can help to ensure that only the promotional efforts that truly pay dividends are maintained. A quarterly and annual checkup will help you decide which strategies are working and which are not.
Research and Development
While we are familiar with the idea of R&D for product development, in the context of real estate you will primarily think of this in regard to continuous improvement, education, and available certifications and designations. These improve your mastery, quality, and reputation.
In addition, you may look at a higher level of professional development through serving on boards at the local, state, or national level; participating in professional organizations; or leveraging your content creation into high-profile media opportunities. Imagine the impact of a column in your local newspaper or a regular market watch segment on the local radio or television news. These can increase your reputation in your local market, bringing you to the attention of potential clients at little or no cost to you.
Service
Service is where most agents and brokers attempt to differentiate themselves, promising potential clients a higher level of professionalism, communication, and availability. This is a great goal, of course, but will probably require a team approach to put into practice. The Realtor who is truly available 24/7 may face burnout or lose track of details if they are not adequately supported by an administrative assistant or transaction coordinator.
In addition, you will want to explore ways that technology can help facilitate and automate lead follow-up and client communications. This can help to free you up to do what you do best -- one on one communication, negotiation, and advice.
Remember, growth is not an end in itself. It needs to be managed with a plan for providing the same great service whether you have one new client a day, a week, or a month. Part of strategic planning should be based on how to provide service to increasing numbers of clients throughout the process from lead gen to conversion to transaction to follow-up.