CSI: Products: Packaged Deal

HERE'S A NEWS FLASH: HOME BUILDERS ARE creatures of habit. This, of course, is not necessarily a bad thing. The method you use to build your houses is an accepted prescriptive process that, when done properly, yields an exceptionally well-built home. Until some genius comes up with an idea that is more cost-effective and more efficient, this method will be slow to change.

Other accepted practices in the building industry, however, are ripe for reconsideration. One of these is the options and upgrades process that builders use. Typically, buyers select a floor plan and then, from a laundry list of choices, select, mix, and match products and options as they wish. This seems like a good idea—if you're a custom builder who wants to offer anything and everything to your buyers. It may not be so good for a production builder.

“This type of system is usually complex, and builders don't like complexity,” says Guy Minnix, director of contract marketing and strategy at Whirlpool Corp. in Benton Harbor, Mich. That complexity often leads to mistakes in the field, he says. It also requires a fair amount of effort, employees, and time to maintain.

Smart builders these days are moving in a different direction, paring down the process and offering prepackaged options that are easier for buyers to select and easier for staff to manage.

“We definitely see more builders [streamlining the options process],” says Shawn Oldenhoff, manager of builder channel marketing at Kohler, Wis.–based Kohler. “We see it with more large builders and even regional ones who are looking for efficiencies in the merchandising packages.”

Kohler has set up powder-room programs with builders that allow buyers to select a pedestal sink and a toilet from one of four product lines; the options start with the company's value line, Sterling, and progressively move up to Wellworth, Devonshire, and then Memoirs.

“This started about two years ago when builders started looking at retailers like The Home Depot,” Oldenhoff says. “They realized they can't offer everything and be efficient.”

Cambridge Homes, a D.R. Horton company in the Chicago area, used the conventional options process once upon a time. In recent years, the builder, which does about 1,800 condos, duplexes, and single-family homes per year, has examined the system's value to the company and its drawbacks for home buyers.

“We felt that the process was too complicated,” says Kelly Frank, director of national accounts at World of Cambridge Design Center. “We found that our buyers felt overwhelmed by the amount of options, and we wanted to make it easier for them.”

After a pilot program with Whirlpool appliances yielded positive results, Cambridge Homes prepared to institute more packaged options. Under the test case, buyers were offered four levels of Whirlpool products, from basic products up to KitchenAid on the high end.

“The program was very successful,” says Frank. “People loved it.”

Lennar Homes is taking a similar approach. Brian Hutt, Lennar's director of design studios, says the company is offering more packages as a way to speed up the home buying process.

“The manufacturers are the same, but we are reducing the number of SKUs,” he says. “Streamlining the process has helped expedite the process, made it less complicated and eliminated mistakes in the field.”

“We used to offer a lot of options to our buyers because we felt it was important,” says Brad Olsen, vice president of operations at Shea Homes in Phoenix. “This got to be too challenging in a production-home environment.”

Shea's strategy now is to bundle the options into one plan. For example, instead of buyers selecting where they want a recessed light or the type of finishes for fixtures and door hardware, they now select a package that has the lights predetermined. The same goes for finishes and handle styles. Buyers also can select kitchen packages that include cabinets, hardware, accessories, and appliances.

“We still offer some options,” Olsen says, “but we are moving toward bundling more and more.”

Though Atlanta-based Beazer Homes continues to offer its buyers personalization options, it does have some prepackaged programs as well.

“There are some communities where we create packages, and the choices are sold by our sales counselor,” says Pat McCleve, head of design centers for Beazer. “The typical profile would be an economy buyer who has very limited opportunity to upgrade based on finances. We still feel we want to provide these home buyers the same experience to personalize their homes.”

Typical packages include carpet, hard surfaces, and appliances at a variety of price points; 99 percent of these economy buyers purchase from the packages, says McCleve.

Simplified packages, as it turns out, do not save money or increase revenue—at least not directly—but the indirect benefits associated with a simpler process can be huge. A builder will need less staff to maintain the system, buyers will need less time to select options, and the units can be delivered faster.

“I don't think that we save any money [under the new programs], but we save time and increase our revenues,” says Olsen.

“Reducing complexity is saving money,” says Minnix. “Simplifying the process makes it easier to sell upgrades.”

And this leads to more revenue, as Cambridge Homes found out. As a result of the prepackaged appliance program it set up, sales of appliances jumped. Because the appliances are discretionary and not part of the house, buyers typically opted to buy them elsewhere. Instead of allowing potential revenue to waltz out the door, Cambridge's streamlined options program captured sales that likely would have been lost to a retail outlet.

Oldenhoff also says simplified selections can help builders manage their design spaces and even reduce the size and increase the efficiency of the overall home building process. “Standardization allows the selection process to flow smoother, so getting the products will be easier, and builders will reduce their lead times,” he says.

In addition to all the other benefits, prepacked programs cut down on mistakes in the field, and this is perhaps the most crucial benefit and the one thing builders can identify with, says Olsen.

“The trades [in the field] understand things better, and that increases the efficiency of building a house,” he explains.

Prepackaging options might seem like a surefire way to improve your efficiency and your bottom line, but you still have to put together a good presentation.

“You can't just package your options and leave it at that,” says Frank at Cambridge Homes. “You need to show the pieces in the models and the showroom.”

You also need to offer more than just the packages, she cautions.

“You need to expand on the packages and include other things like faucets and flooring.”

The Case: Inefficient options and upgrades systems that are complicated, hard to manage, and leave room for mistakes in the field.
The Investigation: Find out how to simplify the process for the builder and the buyer.
The Evidence: Prepackaged options in a tiered good, better, best configuration.
The Verdict: Bundling options increased revenue, reduced complexity, sped up the selection process, and eliminated mistakes in the field. It also allowed for smaller design centers, easier-to-sell upgrades, and smaller sales centers that require less staff and are easier to manage.