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How Expansive Can Expensive Be?

The cost of living, in particular the price of new homes, has risen and the trend shows no signs of slowing down. Especially large construction companies are boosting this trend by designing and building residences directed primarily to a wealthy clientele. This may not be a fully deliberate decision, but rather a consequence of a somewhat fragmented progression from lot acquisition through design, building, marketing and sales of the finished residences. Without shared information and objectives, the design phase may produce premium specifications whose construction costs far exceed their value to the end-users. The siloed process ends up with sales struggling to find affluent buyers in a market where they don’t necessarily exist. Is it really the most profitable, sustainable operating model for major construction companies?

The high-income target market can be very profitable, but is also risky and limited in size. The high-end segment may demand massive marketing efforts and extended time-on-the-market unless the demand and supply in each specific situation is well understood. And even so, the high-income segment is present in only a limited share of the national housing market.

Rather than focusing exceedingly on the higher income segment, large construction companies can find growth and profitable business by other means. Informed insight of the surrounding community, population and trends, as well as existing projects already under way in the area can be utilized to define the target groups and create concepts suitable for the specific situation. When potential buyers and their needs are taken into account early on, the whole process from design to sales can be fitted to support it.

There is plenty of internal and market data available to generate educated decisions. What’s needed is the identification of the right questions, data needs and sources to support the decision making, drawing of the right conclusions and crafting of the most functional and desirable recipe in an economically feasible way.

There’s a real win-win opportunity at play here. The needs and desires of individuals and communities are taken into account and fulfilled better. And a great starting point for a growing, profitable business for construction companies is established.

The change is significant, but essentially pretty simple. It requires that the construction companies put more effort into understanding the circumstances they intend to serve and tailor their sales and operations based on that knowledge. The answer is in the combination of strategic thinking, economics, data analytics and integrated operations. The end result is the right home, at the right time, in the right place, for the right price, for the right buyer. And good business for the construction company.

Mikko Pulkkinen Partner

By: Mikko Pulkkinen