Product mix changes in response to market needs work

I have been closely watching the tumult in the economy, particularly the impact it has had on the Millennial generation.  Their uncertain future and low incomes (I expect this trend to continue and eventually with the aid of technology and seamless flow of labor across border, wages will become uniform globally) have forced companies to completely rethink their business strategies.

Product Portfolio Redesign

An excellent example to study is the housing market.  As property prices have risen sharply while first time home-buyers have not found steady employment that pays more than the minimum wage in service jobs, they have stayed away from buying homes.  While it is less profitable to operate in the starter home segment, D R Horton took the plunge.  While it continued to exploit the trend of rapidly rising income inequality by serving the affluent through its Emerald line of homes (from the fourth quarter of 2013 to the second quarter of 2015, it increased the share of its revenue from these homes from 2% to 6%), it also introduced Express Homes by D.R. Horton.  In less than two years, it redesigned its product portfolio as shown in the following chart.  In the fourth quarter of 2013, only 2% of its homes were designed for the first time home-buyer with a tight budget.  In the latest quarter, that share is 10%. 

While it will be interesting to watch how this plays out if real estate prices fall, but for the period studied, it is clear that D R Horton has also been able to raise the average selling price of these homes.  This has allowed it to grow while serving the less profitable segment.  As business leaders struggle with such decisions, it is important to remember that they must respond to changing market needs and if they conduct thorough analysis before coming up with the optimum product portfolio, they can do so without compromising revenue and profits.

Chart showing the home values for DR Horton

About the author: Jay Dwivedi is a market strategy consultant who helps companies grow their business.  More on him in the about section.