Challenges Being Faced by the House Building Industry - Case Study Example

ANALYZE A MARKETING CHALLENGE FACED BY YOUR COMPANY Introduction Home building and selling industry is one of the US most important industries for the role that it has been fulfilling in the life of the people. It is the industry that is trusted with building and selling of residential and commercial homes in the country. The industry has been working in closely with other related industries like the financial institutions and insurance companies. There are many players in the industry and the recent developments have seen the rise of home building and home selling companies which originally existed as one. (Dunlop, 2000) Home building and selling industry have been one of the industries in the US that have been hard hit by the current economic crisis. For along time now, the home industry in the US has recorded massive growth due to the rising demands of new home and due to the response of the financial services for provision of funds to purchase homes. In the last two decade the home building industry has been recording massive growth and it had attracted many investors. There has also been massive input by the financial sector as they lent out money for the construction of these homes. Since 1980s, there have been increasing trends towards individual ownership of homes which has been the main reason behind the growth of the industry. (Allan, 2007) My company is one of the major players in this industry and has been in the industry for along time. Established in 1970s the company has been working closely with other major players in the industry and has been able to grow. It has been building and selling homes in all states in the country. With its base in New York, the company has established branches in 15 states where it has been building and selling residential and business premise. However the company has been facing many challenges in the industry although it has still held on. Let us look at some of the challenges that the company has been facing in regard to the changes that have been taking place in the industry. Challenges being faced by the company There have been many challenges that the company has been facing in its operation in the industry. These have been related to the changes that have been taking place in market which are being affected by the fluctuating rate of growth of the economy. In order to understand the challenges that the company has been facing, we need fist to understand the US home industry so that we can deduce how the company has performed relative to the changes that have been taking place the industry. The US home buying industry has been recording changing times since it was formed. This has been driven by the fact that the industry is driven by subprime mortgages which have been changing with time. In the 1980s, there have been increasing changes that have taken place in the financial institution that have been contribution to these changes. Most of the companies that have been involved in building and selling of homes have been relying on financial institution to provide loans of building those homes which they sell and repay later. The home buyers also rely on financial institution for money to buy homes which they pay in terms of mortgages. Therefore as the value of homes rises, home builder flock the financial institution in order borrows and invest more in building homes. This has been the practice that has led to increased homes in the United States. (Casey, 2008) However in the recent past, there have been increased decline of home value and more and more homes are facing foreclosures. This has been contributed by increased inventory on unsold units in the country which has led to decline in the price of homes. This has been contributed by many factors including the practice of financial institutions. Due to the rate of falling home prices, many home builders have been struggling to sell their remaining unsold units in order to avoid losing more value which means more loss on their investments. This has caused increased rate of interest and the home owners have started feeling the pinch of paying the interest rates. As the crisis bites, some homer workers have left their homers to the mercy of foreclosure by the financial institutions. As a result many homes are faced with foreclose as financial institution move to recover the money they had lend the home builders. As homes in the neighborhoods face closure, there has been increased rate of devaluation of the neighborhood homes and therefore they all lose their value. (Mult-House World, 2008) Therefore one of the challenges that the company is currently facing is the subprime mortgage problem. This has affected the operation the company internally and in the external environment. Since 2005, the company has been struggling with the problem for sub prime mortgages as more and more of our homes get devalued from state to state. As a result the company suffered massive losses and by January 2008, the delinquency rate had already reached 21% up form 16% in October 2007. From the research that has done in the company, the main cause of this problem had been the inability of some of the home buyers to pay in time due to financial problems arising from the receding economy. What has been the effect of the problem in the external environment One the way in which this problem has affected the company has been a change in the stock market. This has been contributed by the change of share price in the market. This has affected the performance of shares. Many of the investors in our company have rushed to sell there shares as they fear more decline in share prices in the stock market. The company also faced constrained relationship with the financial institution which has been lending us money. This was because the company found it difficult to balance the returns from the inventory and the amount of loans that had been borrowed. Many of the homes that were pending sales had to be sold below the market price in order to repay the loans that had been borrowed. This had an effect of reducing the credit worth of the company. In relation to the number of customer the company lost a lot of customer. Many of the customers were unable to reserve their mortgages and hence they lost their homes. As a result of declining economic and loss of jobs, the company had to cancel most of the contracts that it had made with several customers. This was a huge loss to the company as most of this customer had already been allocated housing units. The company was also faced by various legal battles with other companies which it had collaborated with in its work especially the insurance companies. This was contributed by the fact that these companies did not want to bear the loss of a receding economy and devaluation of homes same as our company which did not either want to bear that loss. Hence as a result the company used a lot of resources in legal battles. These had alto of effects on the financial performance of the company and also on the reputation of the company. This has been a great challenge to the company due to the damaging effect it has had on performance. Internal effect of the problem Mortgage crisis in the US has also brought about internal problems in the company. There have been many changes the company has been facing in line with tailoring its operation cost of the loss that is being made. As a result, there have been calls to change many of the internal organizations the company as regard the hiring or labor. The greatest internal effect that the crisis has had on the company has the massive layoff that has been carried out. Since 20006 when the Company started marking losses as the crisis bite deeper, the company has laid about a quarter of its staff. This has been in line with the need to tailor the cost of operation of the company with the revenue that the company is making and to minimize the eventualities of making losses. Also there has been effective restructuring of the departments with in the organization. This has been aimed at making it more effective and at the same time reducing the cost of operation of the company. In one of the greatest internal reorganizing since the company was started, the company reduced its department from 12 to 6 in a bid to cut the cost of operation of the company. This was also meant to streamline the operation of the company in order to enhance efficient delivery of services and to make the department more responsive. However the greatest causes of this departmental realignment has been the need to have a lean operation cost to respond to the changing economic climate. Decision by the company In order to respond to the changing environment in the industry the company has made several decisions. One of the decisions as highlighted above has been reducing the cost of operation in order to suit the receding revenues for the company. Therefore the company had to carry out a massive layoff of its staff. This resulted in a lean cost of operation to mitigate that situation. In order to deal with the floating inventory, the company has also decided to halt further home building plans until all the current remaining units are all sold. This is in line with the demand of the financial institutions which have stopped funding further home building in order to deal with the current problem receding economy. In this regard, the company has stopped issuing further contracts for construction companies until all the remaining homes are sold. These decisions have been aimed at streamlining the operation of the company and also at ensuing that the company adapts to the changing environment. The company has also decided to take a new approach to the marketing plan in order to sell all the remaining homes. Is the company in a position to follow the decision The company is still in a position to meet some of the things that have been laid down in the new decisions. This is based on the some of the strength for the company and its position in the industry. The company has a lot of experience in the industry as it has been there for along time. In this regard, the company has been able to make a good reputation therefore it still has some customers. Owing to its financial position the company still have enough reserves that can help it operate for more years before it becomes bankrupt. It will just need to tailor its operation cost to the minimum revenue it is getting. However, the company has some weaknesses as far as meaning the requirements as per its decision. The company has already laid-off most of the experienced staffs that have been a loss and it may prove difficult to get them back. This means that the company has lost some of its human capital when it is needed then most. The company is also weakened by its position to the financial institution since it cannot enquire emergency fund to financial emerge operation. The company has some opportunity in the industry in that when most of the home builders are closing down the company has chosen to remain which means it will be in a position to serve some of the customers who are still willing to purchase homes. In this regard the company is still in a position to serve the reaming customers in the market. The company can also buy some of the units which are being sold below market price and resell them later when the crisis ends. However this decision is also compounded by some threats. There is a threat of the company stinking on the industry and running out of cash reserves and hence being declared bankrupt. There is also a threat of the crisis deepening further hence pushing the company beyond its limits. In order for the company to market its remaining units, it must come up with a strong marketing plan that will enable it to meet its operation cost and at the same time sell all the reaming units at an affordable rate. In this regard it will have to adopt a marketing plan that will not be aimed at making more profits on the inventory but to sell them at their cost of building with a little profit margin. Therefore the marketing plan will have tally with the cost of building and in order to avoid repayment problem the company must come up with a method of payment that will leave not attachment between the company and the buyers. The following will be the marketing plan for the company Marketing plan The company Universal home sellers are a company that has been building and selling homes to US citizen since it was formed in 1972. Though the years it has been selling quality homes in conjunction with several financial institution which have been providing its customer with money to purchase these homes. Mission The mission of this marketing plan is to help the company sell its home units that are pending sales waiting period for one year. Objectives To sell the remaining 201 home units within the next one year To generation money for the company to repay it outstanding loans to strengthen its financial base To help the company target customer who can pay cash for the home units. Industrial analysis The home-building industry in the US has been one of the industries that have been recording growth since the end of economic recession. This has been due to rising demand in the industry and the availability of the financial institution wiling to finance customers to buy homes. However in the recent past the industry has been hit hard by mortgage crisis which has been caused by receding economy in the US. As there has been increasing interest rates on loans which have made many home buyers unable to pay for their mortgages. Many people are likely to be left homeless as their homes face foreclosure. Many of home builders and sellers have likewise opted out of business and many have been declared bankrupt due to losses they have made. (Overly, 2007) Customer analysis Due to housing boom, many people in the US have owned homes through credit from financial institutions. However there are those how buy their homes on cash bases. Many of the customers however are those who borrow money from banks to buy their homers and pay mortgages. SWOT analysis of Universal home sellers Strengths Good financial base Good market reputation Weakness Loss of valued human capital Bad relationship with financial institution may make it hard to acquire loans for emergency projects Opportunities The company has a chance to serve remaining home owners as most of other companies have opted out of business The companies can buy off some of the homes from these company below market price and sell them at market price later Threats The crisis may worsen and push the company out of business The company may run of finance and hence declared bankrupt Marketing strategy In terms of product the company will renovate the remaining house so as to make them more attractive and tailored to the demand of customers. This will involve refurbishing them so that they can meet the standard of those who can pay cash for them The company will not be looking at making a large profit margin on these house but rather it will be look at meeting the cost of building the house and in addition the cost of refurbish the house. This means that the house will be sold below their original prices so as to attract more customers. However one condition of selling these homes at this price will be that the buyer will be able to buy them on cash. The company will be targeting those customers who are able to purchase them in cash. In this regard it will not be looking at those who are credit worth but rather at those who are able to pay for the product. It will target the middle and the upper class customers. In order to attract the attention of the buyers, the company will use a variety of means of advertisement. In this regard it will be carrying out promotions in order to encourage more people to buy. For those who buy tow homes and pay cash, they will be given a 10% discount on all sales. References Allan, S. (2007). Junk mortgages under the microscope. The Deal, October 2007. Retrieved from, http://money.cnn.com/2007/10/15/markets/junk_mortgages.fortune/index.htmon 26th April 2008 Casey, J. (2008). Homebuilding Industry: Gerhson Lehrman Group. Retrieved from, http://www.glgroup.com/Study-Group-Members/Production-Homebuilding-Experts-7901-1.html on 26th April 2008 Dunlop, J. (2000). The US homebuilding industry: Building the American dream. Harvard University Press; Retrieved from http://209.85.129.104/searchq=cache:hRpCCVrOZE4J:www.jchs.harvard.edu/publications/markets/balexander_M00-1.pdf+Dunlop,+J.+(2000).+The+US+homebuilding+industry:+Building+the+American+dream&hl=en&ct=clnk&cd=1 on 26th April 2008 Mult-House World, (2008): US new home selling price fell in January. The New York Times, February 2008. Retrieved from http://www.mhw.com/mhw/content_display/1312/industry/e3id13cf7c770b633b60a904dcdcec27000 on 26th April 2008 Overly, N. (2007): Home Selling Solutions; Epcon Sales and Marketing Review, May 2007. Retrieved from http://www.55-alive.com/BooksandGames.phpartID=7108 on 26th April 2007 Read More