Become the Big Fish: How to Seize Tier 2 and 3 Market Opportunities

Builders can use this checklist to dominate Tier 2 and Tier 3 markets that offer potential

By Bob Schultz, Contributing Editor | April 2, 2020
big Tier 1 market fish eating smaller Tier 2 and 3 market fish
Carpe Opportunitas! Tier 2 and 3 markets are far smaller than Tier 1 markets, though they're hardly tiny; usually with fewer than 300,000 people, a good employment base, and steady new-home permit activity, among other characteristics. | Illustration: iconicbestiary / stock.adobe.com

Competition and striving for excellence in product design, marketing, and sales is a constant pursuit for any home builder, but especially in Tier 1 markets. That’s big-time, where national publics roam and it’s far more difficult for a local private builder to make its mark. 

But Tier 2 and 3 markets are different and are ripe for opportunity, especially if a builder is committed to excellence in order to become the big—or best or most profitable—fish in a far smaller pond than the major-league markets. In fact, one criterion I use to define market size is the presence of major professional sports teams. Most Tier 1 markets have at least two, and I currently count eight MSAs with a team in all four major sports leagues (MLB, NFL, NBA, and NHL). 

Other criteria are perhaps a bit more relevant to housing professionals, such as population (at least half a million) and the presence of several national public and private home builders operating, and competing, for buyers.

Tier 2 and 3 markets, by contrast, are far smaller, though hardly tiny: usually fewer than 300,000 people, with a good employment base, steady (ideally increasing) new-home permit activity, and a mix of some regional but mostly local builders, and probably a Double-A baseball team and/or a minor-league hockey club. 

 

A Closer Look at a Tier 3 Market Ripe With Opportunity  

At just over 167,000 people, Springfield is the third-largest city in Missouri. It’s the home of Missouri State University and fields an AA baseball team affiliated with the St. Louis Cardinals. Unemployment is on par with the rest of the country. Local, relatively small builders compete for about 800 new single-family home starts per year. 

By most accounts, it’s a Tier 3 market, a status I consider to be full of opportunity for smart, forward-thinking builders like Ryan Cantrell, president and founder of Trendsetter Homes (originally founded as K.R. Cantrell Homes).

I met Ryan, a third-generation builder, at our 2019 Best Home Building Practices Summit, where he was looking for strategies to increase his market share. 

I learned his grandfather was a home builder who in 2002 gave him a lot on which to build his first home. His mom, also a home builder, became a mentor, and his dad, a preacher, was his role model for integrity. The core fundamentals of a successful home builder were in Ryan’s blood. 

As he tells it, the first few years were a battle, if at a small scale. Ryan would build a couple of homes, sell one, start another, netting take-home pay of about $18,000 a year. But by 2006, K.R. Cantrell Homes was in the thick of the housing bubble, building 15 to 17 houses per year, until the economy tanked and Ryan experienced his first real wake-up call as a home builder. 

Working 80-plus hours a week, he and a skeleton crew did everything possible to survive the downturn, and they ultimately did get through it, thanks mainly to some profitable rental investments.

 

big fish and smaller fish are just like Tier 1 and smaller Tier 2 and 3 markets

 

Checklist for Builders Looking to Dominate a Tier 2 or Tier 3 Market

After attending the International Builders’ Show and our Best Home Building Practices Summit last year, Ryan enlisted us to implement some time-tested pillars to achieve excellence and leadership in his market—a progressive checklist suitable for any builder looking to dominate a Tier 2 or 3 market.

1. Identify strengths, weaknesses, and objectives 

Assess where you started, where you’ve been, your goals, and what you learned. As a mentor taught me, and I passed along to Ryan: Good judgment comes from experience, and experience comes from bad judgment.

2. Identify opportunities 

John Schleimer, founder of new-home research and product consulting firm Market Perspectives, in Roseville, Calif., conducted a study of the Springfield, Mo., market in June 2019 and found: 

• No national or regional builders

• Low unemployment

• Population growth

• 789 single-family permits 

• Duplication of similar floor plans among builders

• Home sales dominated by real estate agents with minimal knowledge of builders and product, and no on-site models, dedicated sales environments, or personnel.

3. Fill the voids

Differentiate by improving product and marketing, and by creating model homes and functional sales arenas with dedicated on-site sales teams, with a goal of increasing market share by at least 25%. 

Though commonplace in Tier 1, these initiatives are almost never implemented diligently or completely in Tiers 2 or 3, which is why any builder that does it well in those tiers will seize the market.

In Springfield, Ryan did the following:

• Rebranded K.R. Cantrell Homes to become Trendsetter Homes. 

• Created an entirely new product line of 11 plans (The Chelsee Collection) launched in early 2020, thanks to a collaboration with well-known local designer Chelsee Sowder of Nest Interiors + Design.

4. Join the digital world

Ryan also set the local market trend when he:

• Created and implemented digital marketing campaigns to engage and influence target markets.

• Developed virtual reality presentations on oversize screens in the sales center to immerse buyers in the locations, style, and design of Chelsee Collection homes.

• Employed an aggressive social media campaign to motivate prospects to take action. 

5. Focus on customer experience

Trend-setter transitioned from real estate to retail and simplified the homebuying process to elevate the customer experience by:

• Consistent branding, including its website, signage, sales center environment, and on-site new-home sales professionals.

• Designing a sales environment that ensures customer awareness of the all-important Trendsetter Advantages, using engaging, stimulating graphics.

 • Designing with hospitality in mind. The sales arena’s warm, modern feel delights and engages prospects. They’re invited to enjoy refreshments while learning about the Trendsetter Advantages.

• Merchandising model homes and demonstrations, leaving nothing to chance. Trendsetter Advantages messaging is strategically placed throughout.

6. Create a new culture

Following my mantra, “New-home sales is a business event in which we must always be sociable,” Ryan accepted my challenge to create a culture in which his entire company is the sales team, namely: 

• The Trendsetter sales team completes the marketing loop. 

• Models and sales arenas are staffed seven days a week. 

• The on-site sales team is carefully selected and trained in our branded Official New Home Sales Development System, so they are confident and conversational with scripts and can identify customer needs and present how Trendsetter Homes can fulfill those needs.

Never having had a dedicated model, Ryan offered a sneak peek of the first of Trendsetter’s three model home and sales arena complexes in December 2019, with the others opening this month. That holiday event enticed 70-plus local real estate agents who oohed and aahed at the beautiful model and a sales office open seven days a week. The real result: an increase in home sales to 16 from 4 in the same time period a year ago.

No doubt competitors will be watching. But in my experience, they’ll only copy bits and pieces and will rarely execute correctly. To wit, within a few weeks of Ryan’s event, another Springfield builder announced it was building a model home that would be open for “a few hours on Sunday.” My advice to Ryan and others who want to truly lead and dominate: Execute flawlessly, excel in your tier, and create faster than others can copy. 

 

Access a PDF of this article in Pro Builder's April 2020 digital edition

 

President and CEO

Bob Schultz is president and CEO of Bob Schultz & The International New Home Sales Specialists. Write him at bob@i-nhss.com.

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