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A thought-provoking scenario … How you'll list and sell
in the consumer-driven bricks and clicks future? "Managing the channel conflict was the most difficult
part," the broker said after he'd considered my question for a moment.
I'd asked him how he'd steered his firm away from the real estate model
of the 1990's to become a "bricks and clicks" brokerage company
survivor in 2005. "It was tough to test a new way of doing things while
keeping our existing operation running smoothly, especially early in the
process. "I knew the old way of doing business was threatened
when I walked through the trade show at NAR in 1999. It was obvious that the dot-com players were making a major
move into the business, that they had plenty of venture capital, and that they
weren't constrained by the same challenges facing traditional firms. "What challenges did the old guys face?" asked
the young reporter who'd accompanied me on the interview. "Uh, I didn't mean old literally," he stammered.
"I guess I meant the traditional guys," The broker smiled good-naturedly. "Well, you may have hit on part of the challenge, a lot
of brokers were old in their thinking. Many
of them had the attitude that technology was simply offering new marketing tools
that could be rolled in to the old model. Fortunately my management team and I
had a different view." "What was your view?" I asked. "We figured the existing model was broken.
Consider the situation at the end of the 1990s.
Back then, brokers were lucky to keep 28 to 30 percent of the commission
income in a company dollar -- before paying employee staff.
So costs were horrendous and profitability was terrible. "What's more, we brokers were at the mercy of our
agents. We had no real control over
our businesses. The consumer was clamoring for better service, but we had no way
to ensure consistent service or even clearly define what it was a consumer could
expect from us. That made it difficult to differentiate our service or to build
a brand. Agent farming wasn't
always very effective, we couldn't really track repeat business, and cross
selling wasn't a concept agents liked very much. "But that's not all.
Consumers were questioning what they received for their money and
pressing for lower commissions and the 100 percent firms were chasing our
agents. We were caught in the
middle. Not a comfortable place to be. "It was also obvious that consumers wanted more access
to information and greater control over the real estate process.
The Internet offered both those things. But for us, finding sufficient
dollars to invest in technology was difficult and agents weren't always
supportive of our efforts to incorporate technology into our business." “Add the growth of affinity groups and the need to cross
sell a whole package of homeownership services directly to consumers…" he
paused to catch his breath, "…then factor in the entrance of new players,
many of whom were dot.com players, with no allegiance to the old way of doing
things, and we concluded that business as usual was a sure road to
trouble." "So what did you do?" The young reporter was hanging on every word. "We knew we couldn't just junk the old model and start
over. So, we began to test a new
approach in parallel to our existing business. It was time to move to a bricks
and clicks way of doing business. First,
we began to educate our agents about the changes in the industry. We wanted them
to recognize that the business environment was hanging and if we were going to
survive, we had to test some new concepts. Then we created a new name that incorporated our existing
brand name but also indicated that this particular office was something
different. The new office was based
on a totally different model than we'd tried before." He went on, "To avoid conflict with the existing
offices, we put the new office in an area where we didn't have a branch, but
felt there was more than enough activity to justify one. It was also in an area with lots of corporate employment. We
created a business plan that had the company generating the business through our
Web page and through sophisticated database marketing, and put our 'orphan'
clients and customers into a database to whom the company marketed.
We also set up affinity relationships that we serviced through this
office. After a while, we added a
call center for outgoing marketing as well as for incoming call management. "We also serviced our national franchise company leads
through this office. We started with one staff person who contacted and nurtured
these company-generated prospects until they were ready to be assigned to one of
our agents. This salaried person
generated $50 million in Internet closings alone the first year. "To deal with the profitability and service quality
issues, we staffed the new office with salaried employee agents who worked as
exclusive buyer brokers. We did
eventually add a couple of employee agents to handle company-generated affinity
group and corporate listings only. Agents
earned a bonus when they closed a transaction and received company benefits. "A closing coordinator handled the contract-to-closing
details. We partnered with a
lender to pre-qualify prospects for loans before our agents showed properties
and we spent a great deal of time determining consumers' needs and previewing
homes using technology before we took prospects out.
A quality service-monitoring program helped us evaluate how consumers
liked this approach. "If a buyer prospect had a home to sell, we referred
it out to one of our traditional agents. They
loved that." He smiled.
"Of course, we also had a one-stop-shopping program for
homeownership products and services that became a profit center of its
own." "Did it work?"
I asked. "Pretty much. Of
course, we did a lot of fine-tuning but it was profitable fairly quickly. As
more of the business came to us through the Internet, through affinity and other
institutional sources, and from our franchisor, our volume grew. It wasn't too
long before we moved into a new area and opened a listing only office using
similar concepts. "When the market slowed in 2002 and the IRS declared
our agents to be employees in 2003, we were nicely positioned to make changes
without the kind of turmoil most other companies faced.
We shifted all our offices to the new model. Even if those things hadn't
happened, our 70 percent company dollar, the profits from our other profit
centers -- like our mortgage company partnership -- and our ability to capture
business at the company level gave us an edge on the competition. We also had a
new model that adapted to the pricing structure that consumers forced on
brokers. By 2004, we were charging consulting fees for our services
rather than the old percentage commission.
Since we paid a salary, the new pricing wasn't a problem for us.
It was a killer issue for many competitors. "While not every agent wanted to work in our new
model, enough did that recruiting was easy.
We delivered the qualified prospects, and the agents sold them and turned
the contract-to-closing process over to staff.
Agents could juggle many more prospects, closing rates were high, and yet
agents worked a five-day week. A lot of agents preferred the security of an
employee relationship. We hired bright young people, too and trained them in the
new service-oriented model. Some of
the old super stars left the business for other sales careers. "Today we are two online companies. Since the consumer
advocacy groups forced an agency split, we had to shift to separate buyer and
seller brokerage operations. In
either case, consumers can handle all aspects of the transaction though our
Internet site and through our partners' sites.
Of course the consumer enjoys a seamless buying or selling process. "Competition is still stiff but the names on the firms
are mostly different. The number of
firms is much, much smaller and three fourths of the agents have left the
business. The dot.com firms created
a new playing field with new rules. But
the business is fun again. I'm
thankful to be a survivor. I've also learned that you can't sit on your laurels.
Things are moving fast and you have to be ready to turn on a dime. The
consumer is king and if you don't respond to changing needs, you might as well
shut down your Windows 2005 and go home to your virtual reality Web-TV
games." "Cool!" said my young friend. 'I didn't know the business used to be so different." |
