The Homebuilding Industry
As a student of business and as a consumer, I have always enjoyed analyzing and learning about other industries. Recently, as I took a hard look at our industry, homebuilding, I realized that many homebuilders in our industry have adopted a business model that is well known in other industries such as the cruise ship industry and the newly reformed airline industry (Think baggage fees and fees for extra leg room).
Homebuilding vs. Cruise Line Industry
In homebuilding, this practice tends to be executed with the use of a ‘Design Center’ of some sort, where, usually after the initial contract, a salesperson or ‘decorating professional’ will attempt to upsell a customer on expensive upgrades. This is often a crucial part of profitability for these builders, so these ‘decorating professionals’ tend to be well trained. This process can be taken to an extreme depending on how much the builder ‘strips down’ their base product offering; the more they strip it down, the more opportunity to ‘up-sell’ on upgrades.
So how does this make some homebuilders similar to cruise lines? Well, this is almost the exact strategy utilized by some cruise lines, where the ship often leaves the port with a negative profit (we have all seen those $299 three day cruise tickets!).
However, many cruise lines are profitable, and they make profits by ‘upselling’ us on excursions, alcohol, and gambling (see CNBC’s Special Cruise Inc). The cruise line knows, once they have you on the ship, they have a captive audience. They get you on the ship with a low base price; just as some homebuilders get your attention with a low base price.
So, the moral of the story for consumers:
*This Post is intended for editorial purposes only.
Written by Bryan Adams
Bryan Adams graduated from the University of Florida with a masters degree in Finance. He started in the family business in Florida after graduation and has moved around the company working first as a superintendent in Poinciana, a construction manager in Huntsville, Alabama and a Regional Manager of the West Coast of Florida before moving to corporate headquarters in Gulf Breeze, Florida as the company’s President.