Introduction
Sunstone Property Advisor Limited is an online property listing company based in New York City. The company has a website that updates listings quickly and accurately, providing a variety of tools for buyers and sellers to obtain the best information, and streamline the buying and selling process in the international market. Mainly, the company aggregates data on properties available in every region it has an agent, and present the information on its website for potential clients.
The National Association of Realtors Profile of House Buyers and Sellers reports that 51% of purchasers discovered the house they bought online (National Association of Realtors, 2022). According to the National Association of Realtors (2022), only 29% of the buyers found property they bought through their realtor, and 4% from a yard sign.
To put this into perspective, real estate websites are attracting many visitors because they add value for buyers and sellers. For instance, buyers can preview hundreds of properties within a few hours from the convenience of their location. Similarly, property sellers can list their properties for buyers beyond their locality, with access to the unlimited international market. Therefore, the company envisions creating web search services to allow agents, buyers, and property owners access to property listings.
Factors for Selecting the Market
There are plenty of real estate website for home buyers and sellers, but they have limited database that is often outdated. Additionally, few countries have an organized real estate deal overseas due to bad websites, opaque information, ineffective salespeople, and rental agents (Peng et al., 2019). The primary problem for real estate websites and their mobile apps has been and continues to be accuracy (Peng et al., 2019).
Therefore, opportunity exists for a new company to create a good website that aggregates all the data and update frequently, has excellent listings with better photos, and has virtual viewing capability. Sunstone will improve the accuracy by validating information collected by its algorithm using a dedicated research staff. In addition, the website will feature improved information refresh from a few times per week to every 30 minutes, or in real time in some cases.
The second aspect is improving salesmanship, someone who would show clients the properties. The idea is to leverage the website into an agency with a few hired local professionals and train them in salesmanship. Renting property is another challenge since nobody wants to take property unless you are renting super-luxurious properties in high-end areas (Kim, 2021). There are always little properties in the range of $300 to $800 a month in markets worldwide, but no one is willing to take those listings. Instead of focusing mainly on real estate from developers, the business will focus on properties from individual sellers, offering them access to the international market.
Porter’s Five Forces Model
Level of Rivalry in the Industry
Professional photography, information accuracy, and reliability are the best strategies to gain competitive advantage in the online property listing services. Property agencies already exist in the market with websites that display quality photography of their properties. Although these agencies are only local to specific regions, the competition they bring into the property agency industry is immense (Kim, 2021). Examples of real estate agents in the market include Real Estate Maximums (RE/MAX), Century 21, IQI Global, ERA Real Estate, and others spanning over 15 countries and consisting of over a thousand dedicated property and investment experts.
Potential for New Entrants
There are opportunities for new entrants in the industry because most real estate agencies work with developers, marketing their properties and linking with clients. A few businesses in the industry focus on an online real estate or individual property database and portal (Kim, 2021). Most online real estate database companies and portals are limited to one country, with a few embracing the global outreach approach. Therefore, the online property agency will focus on individual sellers and buyers in the small market niche across multiple countries. The aim is to help individuals hoping to get value for their property at a low cost but with access to the international market.
The cost of starting the business is relatively low, meaning there are unlimited possibilities for new entrants. For instance, web development and hosting, licensing, training of agents, and social media advertising are the main significant costs associated with starting the business. It makes it easier for new entrants to venture into the industry, significantly increasing competition and lowering the profit margin for agency firms (Bruijl, 2018). The threat of new entrants to the real estate agency is low to medium because the existing players have built up a large base of experience and network to cut costs, increase service levels, and trust in the global market.
Power of Large Supplies
The internet has allowed customers to become more informed and more empowered. This business offers services online, which gives it access to a large client base spanning several countries. It means the supplier power can be low because the buyers (clients) are price sensitive and educated about property values. Similarly, substitute property agencies are available in the market, meaning the supplier power is low (Diop, 2017). Moreover, there is a low switching cost for agents due to the availability of substitute real estate agencies with an online presence.
Power of Large Customers
The bargaining power of buyers in the real estate industry is high because customers can check other agency companies’ prices quickly. In addition, there is no switching cost in the process (Bruijl, 2018). Typically, the business model treats property owners and buyers or renters as its customers because it acts as the intermediary, aggregating and presenting information to buyers or renters. Property owners have a variety of real estate agencies to market their property, and the buyers have several alternatives to look up properties online and engage agents. Property owners will be willing to market or sell their property with any agency if they lower their commission. Additionally, brand loyalty does not seem high in the industry.
The Threat of Substitute Services
The existing online databases and rental property portals have raised the entry barrier by investing more in marketing. Notably, the current players have enhanced their brand awareness through established websites and logistics, which may increase costs for the new agency to create brand awareness (Diop, 2017). The services offer similar needs, like online search for rental properties, and customers will be readily willing to switch from one to the other.
Diversification Strategy
Diversification is a strategy used to expand market share or enter new markets by launching or acquiring new products. Examples of diversification strategies include concentric, horizontal, and conglomerate. Horizontal product diversification refers to adding new, unrelated offerings to a business’ product line (Wu & Ma, 2018). The system is adaptable and can be used to launch complimentary products.
An example would be a clothing company introducing footwear to its product line. The online property agency will take the horizontal diversification approach by venturing into real estate agent training to increase profit. Besides, the company will venture into real estate development consultancy on market prospects for specific regions. The agency will aggregate data on property rental and sales and provide analysis that would be useful to property developers.
Concentric diversification entails expanding market presence by introducing closely correlated services or products. This type of diversification concentrates a business focus to a center point by adding similar products to the product line (Borad, 2021). For instance, an automobile company can add solar-powered cars to its eco-friendly auto line. Although concentric diversification real estate development is a prospect for the firm, the threats to new entry are extreme, with significant capital required for developing properties. Therefore, the online property agency will not consider this option.
Conglomerate diversification entails venturing into a completely different product line. A business can enlarge its scope and shift its focus to a different market through conglomerate diversification to boost profits and spread risks (Nguyen, 2018). For example, providing financing services to clients looking to buy properties is an appealing proposition for the agency. However, focusing on a completely different product line can be extremely risky. Therefore, the firm will apply the horizontal diversification strategy because of the low entry threats and low investment capital required.
Modes of Entry
Equity and non-equity are the two market entry modes for international businesses. The equity mode involves joint ventures or direct investment, while the non-equity method entails licensing and exporting. Two examples of equity-based entry strategies into foreign markets are direct investments in foreign facilities and joint ventures with firms in the same industry with a presence in the target market (Surdu et al., 2018). A company venturing into a foreign market through a joint venture quickly benefits from the resident partner’s knowledge of local government regulation, consumer culture, and corporate culture. Similarly, a direct investment gives the investing firm more control over its operations.
The nature of the overseas market and corporate structure, including restrictions in the target nation, all influence the modes of operation. For instance, starting capital in equity can rise significantly, making the method extremely expensive (Surdu et al., 2018). Besides monetary resources, direct investment or joint venture require the investing company to establish partners in the target market. Target market instability can increase risks for direct investors, while joint ventures may have to transfer control to local partners.
The non-equity entry mode is flexible and cheap because it involves minimal investment and risks to investors. For example, exporting and licensing are faster in equity than non-equity, making it easier for a business to penetrate international markets. (Zhang, 2019). Moreover, licensing lowers trading hurdles and restrictions while providing investing firms with high rates of return. However, the target market’s view of foreign investing companies as outsiders may make them hesitant to make deals. Mainly, dealing with companies unwilling to invest money, time, and effort into physical presence in that market is a significant challenge in non-equity entry mode.
The online agency business structure is more suited to the non-equity entry mode. Notably, the business is structured to operate online without a physical presence in the target market. However, it intends to utilize the local experts and the knowledge of the target market to link clients with property owners (Zhang, 2019). Similarly, the non-entry mode suits the company due to minimal investment and reduced risks, including an easy exit barrier because the business operates online.
Pricing Strategy
Even while a high price could indicate value, it will not matter if a potential consumer is unwilling to spend that amount. Two pricing strategies that may apply to the online agency are valued-based and penetration pricing. Value-based pricing entails setting prices according to what consumers think the product or service is worth (Augustovski & McClellan, 2019). Penetration pricing strategy entails offering lower pricing than the competition to get customers and decent sales. Penetration pricing is based on the notion that everyone loves a good deal, enabling businesses to enter a new market by competing on price (Prasad, 2019). The firm will apply penetration pricing suited for entering the highly competitive property agency market. It can be challenging for new companies to get a foothold on the market, mainly due to the presence of established brands with recognition and a customer base.
Conclusion
Property listing agencies already exist in the market but must operate through the traditional office. Online property agency seeks to bridge the gap between local property owners and international clients looking for rentals or properties to buy in the low pricing range. Instead of listing for property developers, the website aggregates a database for individual property owners and presents the information to international customers.
The main goal is to organize property deals overseas through professional agents using an intuitive website with virtual inspection capabilities. The market has low investment and unlimited barriers to entry in addition to established existing brands, which makes the market highly competitive. Overcoming the competition will require the company to adopt the penetration pricing strategy. Additionally, the company will diversify to offer agency training and consultancy to property developers using its data to generate more profit.
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