The Homebuilding industry is always shifting, both its products and processes from a traditional value-oriented system to a commoditized, price-sensitive business model. “If this process continues unattended, then Homebuilding companies will be reduced to nothing more than an appendage of the overall services industry.
A commodity is a product for which there is a demand, but one that is sought without qualitative distinction as to either the product provider or the benefits to the consumer. When that happens, price and convenience drive sales—not value of the product. And that is what is happening in the homebuilding industry.
Leaders of the Homebuilding industry are frustrated by stagnant growth and competitive intrusions. Now, in a desperate search for short-term gains, these companies seem willing to surrender the very strength of the industry to the easy-fix simplicities of product commoditization. This is a race to the bottom that can only be won by losing.
If commoditization continues unabated, then Homebuilding companies will be reduced to nothing more than an appendage of the overall services industry
The building company that operates in a commodity business environment is pushed into a relentless reduction in costs, benefits and service, combined with the need for increased efficiency in accessing the commodity product. “This is all designed to win the race to the lowest price, even at the expense of profits and long-term viability.
Commoditization triggers industry consolidation that puts more and more market control in the hands of fewer and fewer providers. The result is a loss of innovation, competition and a further degradation of customer service. Worse, consumers ultimately suffer a double-whammy in the form of declining product value coupled with increasing prices.
The airline industry is a great example of an industry that has moved from a value-oriented approach to one based on price, and has suffered the consequences of its shortsightedness. The airlines have been buffeted by the turbulence of consolidation, bankruptcy and illusive profits, along with loss of customer respect and loyalty. The only reason the airline industry survives is because they offer a product the consumer needs and demands.
The Homebuilding industry is on that same flight path as the airlines, but without the benefit of offering a “demand” product. By commoditizing its business model, the homebuilders are switching to a “spread-sheet” mentality that emphasizes price at the expense of value. Product and process individuality becomes as irrelevant as buying a quart of milk at the 7-Eleven.
When that mentality invades our industry, the results are widespread and often devastating. Industry competition is stifled, cost margins shrink, companies consolidate, investment in agent recruiting and training declines, and commissions paid to those agents becomes thinner and thinner. And it’s all happening right now.
“If any homebuilder is going to take control of their market, it is essential to create new products and processes that offer differentiation and therefore perceived value. History in the Homebuilding industry is a clear demonstration that ‘value sells’ and commands higher pricing. If a builder can remain true to the value oriented, long-term essence of its products and processes, it will once again lead the parade to the top, rather than be mired with everyone else in a race to the bottom.”