future of the residential real estate brokerage industry, The

Real Estate Issues, Summer 2001 by Jud, G Donald, Roulac, Stephen

Alternate Delivery Model

In the alternate delivery model, the full-service broker model continues to co-exist with the unbundled service model. Kim and Mauborgne (1999) remind us that competition in some industries centers around price and function, while other industries compete on feelings, using an emotional appeal. In the brokerage industry, the traditional appeal has been emotional. Consumers have been encouraged to trust their agent (broker). This appeal has been very effective for many people for whom the purchase or sale of a home is one of the largest financial transactions that they will ever undertake. Because real estate transactions involve extraordinary stress, the broker role appeals to the emotional need for a trusted adviser. Many consumers will still want advice and guidance from someone they can trust. Here the traditional, established brokerage firm with a reputation for competence and trust will be able to offer consumers help and advice as part of a total, full-service package.

For other, more independent consumers, the brokerage industry traditionally has offered many extra services that add cost without enhancing functionality. By stripping these extras away, some firms may begin to offer a fundamentally simpler, lowercost model of service. In this kind of model, the discount brokerage firm would offer a fee-for-service price structure for services like pricing and listing the property, showing the home, negotiating the contract, etc. In this model, agents would be specialists providing services that the consumer would be free to select and add to their shopping carts as they moved through a transaction. And by moving from an emotional appeal to a more functional orientation, brokerage firms adopting this model may find a competitive advantage that may now be lacking.

The Product Extension Model

Creating new market space often can be the key to prosperity for brokerage firms caught in a very competitive environment. Kim and Mauborgne (1999) assert that creating new market space "requires a different pattern of strategic thinking" and they point out that a common way to create new market space is by finding product and service offerings that are complementary to the firms' basic product or service. In the product extension model, brokerage firms create new market space by offering consumers such complementary products or services.

Most products and services are not used in a vacuum. Usually, the availability of other products and services affects their value. Kim and Mauborgne emphasize that untapped value is often hidden in complementary products and services, but the key to unleashing this value is to define the total solution buyers seek when choosing a product or service.

When selling a home, for example, households often need a variety of services besides traditional real estate brokerage. Many may need help finding a new home, help with financial planning, assistance with moving, tax advice, help with managing utility service cut-offs, etc. Similarly, when buying a new home, consumers may need assistance with such things as moving, utility connections, and the entire range of needs and wants related to becoming settled in a new residence and a new community, such as home improvements and interior decoration. Brokerage firms that make it easy for their customers to obtain these additional services may be able to substantially enhance the value of their overall service package. Smaller brokerage firms may lack the human and financial capital to effectively extend their service offerings. In such cases, strategic partnerships and alliances with larger service firms may allow them to offer the extra services some consumers demand.