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5 Competitive Strategies
for the
Small Volume Builder
by Dennis Radice
Being bigger has some advantages and there are lots of phrases that extol those advantages. However, that
doesn't mean that being small doesn't have some advantages as well. Oftentimes there's the perception in
the home building industry that the big firms have significant advantages in costs, expertise and access to
capital that put the small volume builder at a disadvantage. While the larger builders usually have some cost
advantages due to economies of scale and greater borrowing power, there are a number of ways the small
volume builder can compete successfully.
There are three generic competitive strategies firms use to compete in the market place: low cost producer,
differentiated provider and best-cost provider. The low cost producer's focus is on having the lower
production costs in the industry. The differentiated producer looks for niche markets and provides products
that cater to small market segments with specialized needs and tastes. The best-cost provider attempts to
provide a good experience by keeping costs relatively low and offering more than the customer expects.
Most large volume builders target the low-cost producer or the best-cost provider markets because they are
the markets with the volume these builder need to tap to be profitable. The best strategy for a small volume
builder is the differentiated provider strategy because the markets are small enough to make them
unprofitable for a big builder to chase, yet large enough to provide profits a small volume builder needs.
There is a good strategic fit between the agility and adaptability of a small volume builder and the needs of
the differentiated market segment. The key to being successful in exploiting the differentiated market is
having an accurate abiding knowledge of that market segment and industry design trends. Here are five
ways a small builder gain a competitive advantage.
http://www.designbasics.com/Articles/BuilderStrategies/BuilderStrategies_06.asp
7/31/2006
1 Be an information magnet - While everyone has access to much of the same information, the small
volume builder has some unique advantages when it comes to gathering and interpreting the data. A small
volume builder should stay in close contact with local real estate agents, bankers, and past customers and
always be on the lookout for comments or questions that might signal a change in the market. If one is
detected - follow up on it immediately. Spend time asking real estate agents what kind of housing they need
that they can't find. Watch all the housing/building related new cable and TV shows to see new trends your
buyers are learning about.
2 Capitalize on unique expertise - The big builders are slow to move outside their traditional method of
building and doing business. That leaves an opportunity for a small builder to capitalize on quickly evolving
design trends. For example, buyers learn about innovative construction methods as well as interesting and
intriguing design and finish details from the cable TV programs and the internet. The small volume builder is
in a position to learn more quickly about the techniques and even offer them to the local market.
3 Offer something special - It doesn't take much to change a standardized plan into a unique design with
special touches. While large volume builders hunt for plans with mass appeal, the small volume builder can
work with plans that offer specialized designs and personalities that give the homes a one-of-a-kind appeal.
Based on conversations with local real estate agents and past customers, the small-volume builder can
create designs that are more specifically targeted to a select market segment. Consider creating a reputation
for a certain kind of home. One builder I know specializes in tree houses.
4 Cater To Your Customer - Large companies hide behind policies and procedures in an effort to maintain
some manageability through their large organizations. They don't take the time to really understand the
buyer's needs or set the buyer's expectations. That means the customer usually has to conform to the
builder.
Small volume builders should create customer-friendly systems that allow the builder to conform to the
buyer's needs and desires without losing organization and control. The small volume builder has fewer
departments and closer contact with the buyer. This gives the builder a better sense of what the buyer's
expectations are and which expectations need adjusting.
5. Don't chase every deal - Large-volume builders have many mouths to feed and therefore need to take
every contract they can get. As a result, they sometimes wind up with a customer or two that they should
have never worked with. The result is aggravation at best and costly lawsuits at worst. The small volume
builder should have more discretion. A small volume builder can't afford very many bad customers. They
take too high a toll on the organization and the builder's reputation. Since the small builder can spend more
time with a prospect before signing a contract, there's a greater chance the builder will be able to spot
problem clients before it's time to sign. Walk away from these problem clients or refer them to a large volume
builder in your area.
Dennis Radice, MIRM, CRP, provides process evaluations and training for homebuilders in the areas of sales operations,
customer relations, and broker relations. He is a certified instructor for Carol Smith's nationally recognized Home Address
customer service programs and writes Home Building, a weekly nationally distributed newspaper column.
His book "The Home Builder's Sales Management Tool Kit" is available through Home Builder Press (www.builderbooks.com).
He is a licensed real estate broker and an experienced national speaker, trainer, and instructor, with more than a quarter century
experience in new and resale home sales and marketing. He can be contacted at diwrite@aol.com.
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7/31/2006