Executive Summary
This paper focuses on the comprehensive analysis of the Redfin case study, with the key purpose of applying the strategic concepts and instruments. The following problems exist the need to increase profitability, the decreasing number of customers and increasing property prices, and poor decision-making regarding investment were identified. The SCEQ method allowed understanding the internal environment of Redfin, which is characterized by proper structure, staff, shared values, skills, and style, yet poor strategy and systems. The implementation of Porter’s 5 Forces model revealed that the rivalry among existing players and the threat of new entrants are moderate, while the bargaining power of buyers is high. The SCEQ method contributed to setting two questions related to the marketing strategy and investment options, which guided the subsequent recommendations for the company. The use of the mentioned tools was beneficial to examine the given case study in an in-depth manner.
The first recommendation that logically flows from the analysis refers to the expansion to new markets, which is assumed to be in a natural way via focusing on customer experience. It was suggested to consider the market of Seattle and similar ones with high demand for property and low broker fees. In addition, it was assumed that the broker’s commission refund could be offered, while the commission can be decreased in a long-term perspective. The second recommendation is related to investing in artificial intelligence (AI) to enhance this platform and personalize the customer experience. In particular, add-on services, access to listings and property owners, as well as individualized offers were proposed as valuable investment options. To increase the customer base and loyalty of clients, Redfin needs to act as a trustworthy, safe, and innovative platform, which can be achieved through working more towards improving customer satisfaction. Ultimately, it was recommended to hire new agents that would help in implementing the mentioned technology adjustments. The report ends with the conclusion section that highlights the key findings and possible solutions.
Introduction
In today’s technology-driven world, great attention is paid to the constant improvement of products and services to meet customer needs. Currently, Redfin is present in more than 80 markets in the US, which gives it many opportunities. However, the company faces problems and needs an in-depth analysis of its contemporary strategies to adjust them and ensure future success. This paper aims to provide the problem identification, critical analysis, and recommendations for Redfin based on the given case study.
Problem Identification
The review of the case study shows that there are several problems, each of which requires a thorough analysis. First, Redfin covers only 0.5% of the US market and 2% of the top markets, which is complicated by the fact that for brokers, it seems to be difficult to ensure high competition (Di Maggio 22). The associated low profitability is another issue, which limits the expansion to other markets and public shareholders’ satisfaction that is a key for the stock price.
Second, the number of people who want to purchase real estate tends to decrease while the prices increase steadily. In this connection, the risk for even fewer revenues appears, which prioritizes the need to reconsider Redfin’s strategic approaches. At the same time, additional sources for increasing profit margins should be identified since natural growth is essential for the firm. The company’s marketing strategy needs to be elaborated to address this problem. Third, by implementing the Initial Public Offering (IPO), the company acquired more capital, but it remains unclear how these resources should be allocated. Without proper investment, the company is likely to meet the threat of becoming less competitive and demanded in the market.
Insights and Recommendations
In terms of the 7S framework, it should be stressed that Redfin has a traditional hierarchal form that includes the executive and various departments. The coordination of mechanisms is conducted through the direct interaction between the departments and the CEO of the company. The strategy employed by Redfin can be defined as one based on brand recognition and presence in many areas. The focus on the systems shows that Redfin lacks clearly determined ways to allocate the resources, and its rewards strategies are also vague. Customer-driven innovation and talent management that are valued in this company represent its staff and skills components. Redfin’s leaders promote shared values and use the mix of transactional and transformation leadership styles.
Based on Porter’s Five Forces Model, the critical case review demonstrates that the strong bargaining power of buyers restricts the profit of Redfin by reducing the process for its services. At the same time, the bargaining power of suppliers can be regarded as high since they set higher prices. As for the threat of new entrants, it is possible to assume that it is moderate for Redfin since new firms can enter the market and become strong competitors due to the relatively unstable position of Redfin. One should also emphasize that the threat of substitute products and services is low since the property market will always be in demand. Ultimately, the rivalry among existing players is moderate, all of them seem to be in the process of adjusting to the newly emerging market conditions when prices tend to increase.
In terms of the Situation, Complication, Enablers, and Question (SCEQ) method, the situation with Redfin is presented in the first section of this paper, while the complicating issues include the failure to achieve profitability, human capital underuse, and deteriorating market conditions (Exhibit 1). Among the enablers of the problems, it is possible to enumerate staff, stakeholders, and customers, as well as resource allocation challenges. In this connection, two questions should be addressed: Should Redfin focus on investment in big cities and AI? Should the company apply a new marketing strategy?
In the view of the conducted analysis, it is evident that there are several recommendations that can assist Redfin in overcoming the existing challenges and succeeding in the US property market. The first insight refers to the idea of expanding the business in a non-aggressive way based on the strategy of acquiring brokerage companies (there are 86,000 of them in the US) to extend the customer base, which reduced from 18,832 in 2014 to 13 628 in 2017. It is suggested to focus on the big cities with a variety of housing options and residents who want to purchase.
It is advantageous to target markets with high brokerage fees and real estate prices. For example, Seattle, MA can choose as the target market, in which Redfin has the opportunity to differentiate its services from those of competitors. In 2007, the company’s revenue from metropolitan areas constituted $ 5 million and 1,500 transactions. In 2016, 72% of the total profit volume was made by ten top markets that are located in large cities, which points to the potential benefits of expanding to similar regions. In addition, the broker’s commission refund can be offered, thus attracting a bigger client base. Today, the sellers receive approximately 5-6% of the property price. In the long term, Redfin can consider reducing its refund broker’s commission to enhance profit margins.
In order to attract customer attention and improve customer satisfaction, Redfin should position itself as an efficient, safe, and personalized platform. Currently, the company already follows the approach of individualization since it offers additional property services for $ 2,000. Eater personalization can be achieved by developing more add-on services for a charge, which is likely to increase customer satisfaction. In addition, the expansion should be accompanied by the current strengths of the company, including free photoshoots, MLS listings, and refunds on breakage commission. The access to all listings possible, ease to access to the property owner, and 0% scams are the solutions that are likely to significantly improve customer satisfaction. On the contrary to competitors, Redfin is recommended to have a broker license and make it clear for the customers. The latter should understand that it is not a third-party data aggregator yet a trustworthy company with great emphasis on customer experience.
The proposed individualized approach would also be beneficial for increasing the volume of property sales. The investment in artificial intelligence (AI) would provide personalization of the assortment of the platform products for every customer by collecting and analyzing data of buyers, identifying their clicks, and tracking the time they spend looking for the particular products. All information received about customer behavior in the form of anonymized statistics as well as recommendations for improving the service and staff can be transmitted to the company. More to the point, the technology should be used to determine property values based on the selling volume and consider buying property for a profit. As a result, Redfin will be able to optimize its platform based on this information and personalize the assortment to the needs of customers, and this will positively impact profitability.
Another recommendation is associated with hiring new agents, which can be a cost-effective solution in case the company would invest in technology. Currently, Redfin has a fee of $5,000, which is lower than the market’s average, and more agents would provide more profit. The increases in the number of employees from 753 to 2,193 as well as the total revenue from $125,363 to $274.3 million in 2013-2017 are indicative of the fact that the suggested recommendation is appropriate. It is important to train the current agents to improve their communication and technology skills. In other words, the costs related to hiring more staff would be justified if the recommendation regarding the AI development is followed, while the combined implementation of all the mentioned solutions can bring the best outcomes possible.
Conclusion
To conclude, it should be stated that this paper explored the case of Redfin that works in the US property markets that are marked by increasing prices and decreasing demand. The company needs new solutions to overcome such problems as a lack of profits, low customer satisfaction, and the need for technological improvements. Based on the thorough analysis, it is recommended to allocate the resources to AI investment, natural expansion, and hiring new, qualified agents.
Appendix
Exhibit 1. Redfin’s SCEQ analysis.
Work Cited
Di Maggio, Marcolo. “Redfin.” Harvard Business School, 2018, pp.1-28. [PDF file].