Business concepts and applications

Business

Identify and define the key industry success factors (KSFs).

Key industry players within the housing market like Hovnanian Enterprise, D.R. Horton, and K.B. Homes must: 1. establish a basis of trust with the customer, given the confidence fall-out after the subprime mortgage scandal and ensuing credit crunch; 2. find a market segment where demand is still strong for home sales, despite the market glut of homes; and 3. offer something unique to the customer, such as a low price point for its product.

Create a ranking based on the key industry success factors.

Establishing consumer trust is the key to making new sales. After scandal has erupted from the housing crisis fall-out, public trust of mortgage lenders, builders, and the industry is at an all-time low. Additionally, economic anxiety is high, given that the recession does not seem to be abating. But if builders can overcome this understandable wariness, low prices can draw bargain-seeking consumers to homes that offer special features that suit their unique needs.

After developing your competitive ranking, critique the competitive dynamics of the three companies.

K.B. Homes was one of the most notable companies to construct prefabricated homes that tapped into the rage for 'customized' products, exemplified in the 'do-it-yourself' movement personified by Martha Stewart. Stewart was a prominent spokesperson for the company. Thus K.B. satisfies the idea of offering something 'unique' in terms of industry critical success factors. However, in terms of establishing a basis of trust with the customer, K.B. is sorely lacking. Its CEO Bruce Karatz, once one of the highest-paid executives in the country, "was indicted by a federal grand jury Thursday on charges of manipulating stock options" (Reckard & Wilson 2009). The company's stock plummeted, raising serious issues about its solvency K.B. Homes ranks the lowest of all of the home-building companies in KSF, simply because its excesses have come to exemplify the housing bust: "From 1995 to 2005 the company's revenues rose 576%....The company's stock, which topped $80 a share three years ago, closed Thursday at $8.14, down 19 cents" Reckard & Wilson 2009).

True, in comparison, Hovnanian Enterprises' stock is even lower. Hovnanian's stock recently "rose 5 cents, to 67 cents. Earlier, shares touched 79 cents" (Hovnanian sales hit 6-month high, 2009, Asbury Park Press). But Hovnanian has bent over backwards to offer low-cost housing to consumers, and this has paid off. Its free-fall seems to have bottomed out. The cancellation rate for current projects was 31% compared with 38% in the first fiscal quarter of 2008 and 42% in the fourth quarter of fiscal 2008. New sales rose 8.1% in February Hovnanian sales hit 6-month high, 2009, the Asbury Park Press). Sales are coming at the expense of profit margins, however -- the company is selling homes as low as possible, simply to generate demand and spread the name of the company. It hopes sales will disseminate positive buzz for the company that will pay off when the economy improves. Regardless, Hovnanian has at least mastered one KSF for the new market place. While K.B. Homes still only stress their unique prefabricated nature, now Hovnanian is simply focusing on its low, low prices and has humbled itself as a company, admitting its past mistakes publically.