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The Source of Confusion

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I love this new post by Brian Boero over at 1000watt blog.  Go read it in its entirety, right now.  I’ll still be here.

Back?  Okay, I don’t have a lot of time today to do one of my traditional 9,000 word essay, but this post raises such a set of good points that I had to address them briefly.

Brian writes:

First, technology is – in the real estate broker’s world – thoroughly paradoxical. That which offers brokers a promise of liberation (from legacy systems, from antique business practices, from burdensome costs) often ensnares them in a Web of confusion, dependency and waste.

That’s too often true.  But then Brian continues:

These words are relevant for any broker trying to reclaim brand equity with consumers and deliver long-term value to agents.

If you can pull it off, though, and once you determine who your target customer is and what it is you know that is most likely to engage them, then – and only then – think about the technology you’ll need to make that happen. (Emphasis mine)

This is where Brian — and the brokers who are trying to get un-confused — need to take it one step further.  The primary source of strategic confusion in real estate comes from not knowing who your customer is.

Who Is The Customer?

It is clear that Brian (and the good folks at 1000watt generally speaking) thinks that the customer is the consumer.  His prescription is for brokerages to tap into organizational knowledge, dress it up in the brand, then get that out to consumers.

I believe Brian’s idea is to segment the customer into addressable markets by demographic and/or psychographic factors, identifying the distinct needs of the luxury seller vs. the first-time home buyer and so on, and ensuring that one’s brand is effective and enforced throughout the organization.

This works.  Let there be no doubt about that.  The brand-centric strategy does work.

But it only works for brokerages that are prepared to treat the consumer truly as the customer.  In my judgment, there’s only one brokerage in the industry that does this: Redfin.  There are several that are trying to do this, but as long as the agents are independent contractors compensated through commission splits, the structure simply doesn’t support the business objectives.

To use Brian’s foodie analogy, this is akin to using the oven to make fried chicken.  It can be done, sort of, but the result isn’t exactly world-beating.

Not good for making fried chicken...

What has become clearer to me over the past couple of years in this industry is that the customer of almost every single brokerage in existence today is the agent, not the consumer.

We can decry this state of affairs, agitate for change, bemoan the fact that brokers are far more interested in recruiting agents than they are in providing customer service to consumers, and so on, but none of that changes the reality of the situation.

This is the source of confusion in the industry when it comes to technology.  Brokers believe that they have to build million dollar websites, embrace social media marketing, and dozens of other technology tools besides in order to serve consumers better.  That is incorrect (except in the rare situations cited above).  They need to pursue technology in order to fill their customer’s needs — i.e., the agent’s needs.

Brokerages today are essentially B2B companies whose value chain is intimately connected to the value chain of their agent-buyers, who in turn provide services to the consumer-buyer.  They’re less like Amazon.com, and more like Oracle (that powers Amazon.com).  The sooner brokers understand this, and the more they can drive discipline throughout the organization about who the customer actually is, and the more they can strategize around competitive models, the quicker they will escape confusion and identify where it is that they need to make investments and where they need to stop.

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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