DECIPHER™ Case Study 23:
Product Segmentation Leads to Higher Demand & Sales Rates
Synopsis
NOI and sales rates increased over 30% versus pro forma expectations.
Background
Now defunct, John Laing Homes was headed by Larry Webb between 1995 and 2008, where he was instrumental in growing it from a small, two-market company to the second-largest private homebuilder in the United States. In June 2006, he sold John Laing Homes in the largest private residential transaction in U.S. history.
Challenge
A national homebuilder previously completed an in-house study to determine the product types to develop within an in-fill location in Southern California. The in-house study was unscientific and relied on the opinions and subjectivity of real estate brokers, architects, and engineers. Executives had insight that the sub-market in question may change in the next 24 to 36 months (when the project was due to come on line) yet felt that the recommended product types were not reflecting these probable and possible market changes. After several deep discussions, the project team engaged CA.
Solution
CA was engaged to conduct a comprehensive product segmentation study for over 800 single-family detached and attached development units in a master planned community in Southern California. CA delivered recommended product types based on a proprietary product segmentation model based on analyzing and forecasting over 250 demand and supply drivers, running over 30 econometric demand models, conducting over 100 comprehensive prospective homebuyer interviews, and developing a proprietary ranking and scoring system that provided executive decision makers with clear and confident quantitative support synthesizing “which product type” would drive “what level of demand.” CA also provided a dynamic ranking and scenario model that allowed homebuilding executives to change product segmentation strategy by altering future market conditions via “what-if analysis.” Our client was able to change specific economic drivers that would change in the subsequent days, weeks, months, or years from opening and see what product types would be optimum based on homebuyer demand and NOI. For example: if local employment growth for jobs earning >$100,000 increased by 11.5% due to a large employer moving into the CMA, the client had the flexibility to adjust product design without commissioning another addendum study.
Results
After integrating CA’s recommendations via price optimization modeling, NOI enhanced over 30% higher than pro forma expectations. CA has been engaged in numerous product segmentation assignments since 2000 and delivered clients with the confidence and knowledge to build and develop a product that will be readily accepted into the market place based on hard facts, analytics, and deductive reasoning.
Return on Analytics
>800%
“There are many firms that provide economic analysis and pricing recommendations. Competitive Analytics is unique among them for several reasons. One, their objective, comprehensive and objective modeling is absolutely unparalleled in the industry. Their pricing and absorption answers have more support, more detail and more data than anyone else comes close to providing. This allows John Laing homes to feel completely confident that our acquisition and pricing decisions are properly based on all the available information. Even more importantly, Competitive Analytics provides more than just information. With the help of their vast experience and proprietary methods, they make significant value added contributions in many areas, including but not limited to: site planning, focus group and buyer profiles and mix and premium optimization. The bottom line is they help increase the bottom line!”
– Daniel P. Flynn, Vice President, Land Acquisition
If you are interested in speaking with a client contact from this company about the work we have done with them, please contact us to submit your request and we will be happy to contact the client for you.
John Laing Homes No Longer Exists; Key Executives formed The New Home Company: http://thenewhomecompany.com/