Market Research

What is Product Segmentation?

Most developers of master planned communities are very sophisticated in how they analyze market conditions and plan for housing products that the market will buy.  If the land developer leaves it up to the homebuilders, there is risk that home offerings may not all get sold and the value of future land within the master plan is impacted.  A strong land developer will get ahead of the issue and provide the homebuilders with a well thought out marketing plan that benefits all of the builders and the land developer.

One of the key aspects in this market analysis is “product segmentation”.  If you have 6 – 10 home projects being built at one time, you would not want all of the homebuilders selling the same product and competing against themselves.  The result could be slower total home sales and price competition, neither of which benefits the master developer who has many more land parcels to sell.  Creating a product segmentation plan, where these 6 – 10 builders can offer a variety of housing products, will help ensure the builders’ success and protect the master developer’s land value.

So instead of having six projects all selling 2,500 square foot (sf) homes on 5,000 sf lots, the segmentation plan might have lower priced attached product, such as 1,500 sf row townhomes.  A second project could be 1,800 sf, small lot detached homes.  And while you still might have the 2,500 sf home as a project, you might offer 2,200 sf homes (4,000 sf lots) and a larger 3,000 sf home (6,000 sf lots).  With this variety of products, you can capture a wider swath of the market and the builders are not competing against themselves.

These sophisticated master developers also utilize highly competent market research consultants to assist with the product segment plan.  The stakes can be very high if a land developer does not consider the market very carefully and get the product offerings correct.

If you have comments or questions, please feel free to share with us below.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

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