Platinum through Lead in the Retail Real Estate Industry

Platinum through Lead in the Retail Real Estate Industry

A top-twenty real estate and relocation franchiser has identified the variables that account for profitability in the retail housing market. In addition to the cost of the home (for which the franchiser and the broker share a 6% commission), other variables include:

• the amount of time it takes to buy/sell a home (which represents the opportunity cost of time and other commissions to the realtor);

• marketing costs (brochures, open houses, advertisements);

• customer motivation to purchase/sell (especially high with relocations);

• price sensitivity of buyers, which may lead them to negotiate a lower rate with the realtor;

• likelihood of repurchase; and

• referral potential. 

Based on these factors, the company defined its Platinum customers as those who: pay full commission on a home costing $500,000 or more; are motivated to purchase within the next six months; have purchased more than two homes in the past; and are members of social or professional networks that make them candidates to refer other high-end buyers. Gold customers purchase homes in the $250,000-$600,000 range but are more price sensitive than the top tier. For example, some Gold customers want to negotiate on the commission or have the realtors pay points at closing. Notice that some of these customers buy homes that are in the same price range as Platinum customers but their price sensitivity reduces their profitability. Gold customers are likely to refer others, but the types of customers to be referred will are not as valuable to the firm as those the Platinum customers refer. 

Iron customers buy homes in the $100,000-$250,000 range, and include retirees, young professionals, and families. The company knows that the young professionals have higher lifetime value potential and therefore market to them differently than they market to others in this group, who are likely to stay in the homes they buy. In fact, young professionals who purchase homes at the upper end are tagged as potential Gold customers and moved to that category approximately five years after the purchase of a home (U.S. consumers move, on average, every five years). Many Iron customers are relocations from other areas and are pressed to buy homes quickly, making them good prospects for the company despite home prices that are lower than the top two tiers. Lead customers are high maintenance customers who are shoppers rather than buyers. Some Lead customers spend as long as two years looking at homes, calling upon realtors to show them homes when they have free time (many realtors complain about the "my-husband-is-watching-football" Saturday shopper, who is merely looking to be entertained rather than to buy). While they might be looking at homes in all price ranges, the homes they buy are likely to be under $100,000. These clients are often dissatisfied with what they see, making them less likely than other tiers to send qualified referrals to the company. 

While the real estate company is still refining the criteria for the tiers. They view the sorting into levels as invaluable in qualifying current and potential clients, and are developing different programs for reaching and serving them differentially. They have recently developed an "expectations assessment tool" that attempts to decide the appropriate customer tier upon making the contract with the buyer or seller.