Toll brothers inc. – case study essay

VisionThe vision of Toll Brothers is to become America’s No 1 Luxury Home Builder.

MissionThe current mission statement for Toll Brothers Inc is; “ We design, build, market and arrange financing for single-family detached and attached homes in luxury residential communities. We are also involved, directly and through joint ventures, in projects where we are building, or converting existing rental apartment buildings into high, mid, and low-rise luxury homes. We cater to move-up, empty nesters, active-adult, age-qualified and second home buyers in 21 states of the United States.” (David) StrategiesThe current strategy that is being pursued by the company is expansion and related diversification. Expansion because they are moving into new markets within the United States and acquiring new property or small private homebuilders who can help them move into new markets.

Toll brothers is also not just making single family or multi family homes, they are also into the construction of communities and high rise building. OpportunitiesThe Toll Brothers Inc caters to the following markets; active adult, empty nester, move up buyer, and the second home market. One of the growing markets that crosses over all the above four markets is the urban luxury market. This poses an opportunity because Toll Brothers can start servicing this market through communities designed for them.

From the years 1986 to 2006 Toll Brothers Inc has had the highest profit margins among the home builders and the company has received an investment grade corporate credit rating from all three credit rating agencies, i. e. Standard & Poor’s, Moody’s and Fitch.

Although development of homes and sales have been falling but New York City along with New Jersey has been an exception to this trend, the drop in sales in this area has not been so drastic and people are still looking for homes in these areas. The homebuilder industry is moving towards hiring independent real estate brokers to make sales for the company, this is opportunity for Toll Brothers Inc as they can use this opportunity to increase sales. There are very few large homebuilder companies which operate on a national level, and this proves to be an opportunity for the company because they have more space to move.

Also, the large homebuilder companies which do exist on a national level have experienced very rapid growth showing that there is still a lot of potential in the market and the market is still growing. The Internet has played a major role in this industry. Companies can develop websites which allow the customers to choose features that they want in their Soehomes; this allows the customer to customize the product. ThreatsToll Brothers Inc is facing threats from the external environment and these threats can harm the business if they are not dealt with properly. There is a lot of speculation in the housing market and the market has experienced a setback from earlier periods. The demand for housing is very weak, and there have been many contact cancellations resulting in low sales in almost all areas.

Also, there are quite a few small private builders which are in direct competition with Toll Brothers because there are not many big homebuilder companies. The stock price for Toll Brothers has fallen since 2005, which is the time when it peaked at $58. 67, and in July 2006 it went down to $22. 22. The homebuilder’s industry is highly fragmented which proves to be a threat for the major companies in the business. EFEOpportunitiesWeightRatingWeighted ScoreUrban Luxury market is growingNo weakness in sales in the New York and New Jersey areaInvestment grade corporate credit rating from all three credit rating agencies, i. e.

Standard & Poor’s, Moody’s and Fitch. Low competition from big companies on a national levelLarge homebuilder companies are experiencing rapid growthReal estate brokers can be used for salesInternet can be used to help customers customize their products online0. 120. 06 0. 04  0.

07 0. 08 0. 070. 0833 4  2 2 240. 360. 18 0. 16  0. 14 0.

16 0. 140. 32ThreatsSpeculation in the housing marketWeak demand especially in Florida, Mid-Atlantic region and the North regionSmall Private builders have 63.

5 percent of the market in 2005The stock price for Toll Brothers has fallen to $22. 22. Highly fragmented industryCompetition is intense and homebuilders use new methods to make sales. 0. 120. 1 0. 05 0.

05 0. 070. 09 1. 0033 3 3 22 0. 360. 3 0. 15 0.

15 0. 140. 18 2.

74  CPMToll Brothers IncLennar CorpSmall Private BuildersCritical Success FactorsWeightRatingScoreRatingScoreRatingScore1. EPS0. 1320. 2640. 52002. ROE0.

1530. 4530. 45003. Price Competitiveness0. 220.

420. 440. 84. Market Share0. 2220. 4430.

6640. 885. Service0. 330. 930. 930. 91. 002.

452. 932. 58SWOTSO StrategiesToll Brothers provide their customers with optional features, this service will become easier when the customer can view the pictures on the Website and customize their product online. It makes the customization process more cost efficient. WO StrategiesToll Brothers can focus on catering to the urban luxury market, as their prices are higher than small private homebuilders. This market can afford to pay extra when buying a home. Also, the company can make use of other methods to make up for the drop in sales, such as hiring real estate brokers to help with sales. ST StrategiesSince the industry is highly fragmented, more marketing efforts need to be made; Toll Brothers Inc can make use of the experts that they have hired in all the relative fields.

WT StrategiesThere is a weak demand for homebuilders in the economy and this has resulted in a drop of sales, throughout the country with a few exceptions. Grand Strategy MatrixRapid Market Growth   Quadrant II                                                            Quadrant I                              StrongWeak Competitive                                                                                                                                    CompetitivePosition                       Quadrant III                                                           Quadrant IV                       PositionExpanded operations to include the Suburb Areas of NY, Connecticut and Washington DCExpanded into high rise construction marketLaunched a major Urban Initiative in 2004  Slow Market GrowthQSPMThe Toll Brothers can follow either one of the three strategies which are:·         Expanding through acquisitions; although this seems like an appealing strategy but in the current situation of the market, this will not work. It will only add to the costs of the business and while the profits are decreasing, the company will not be able to recover the costs of acquisitions.·         Aggressive price discounting, sales incentives and market promotions strategy; this strategy is useful when the market is booming and when people are looking for homes. Houses do not come cheap and at a time when the whole economy is doing poorly, consumers are not looking to purchase houses in the suburbs.·         Aggressively reducing costs and overheads throughout the corporate operations; we can see that the expenses of the company have been increasing and this is one of the major reasons for the decrease in Net Income in 2006.

By curtailing these expenses the company can increase its net income. Land acquisitions can be put off to a later time because the backlog of houses still exists. The company can wait for these to sell out before acquiring new land. ExpansionDiscounting & MarketingCost-cuttingOpportunitiesWeightRatingScoreRatingScoreRatingScoreUrban Luxury market is growing0. 1240. 4830. 3620.

24No weakness in sales in the New York and New Jersey area0. 0630. 1840. 2420. 12Investment grade corporate credit rating from all three credit rating agencies, i. e.

Standard & Poor’s, Moody’s and Fitch. 0. 0430. 1220. 0820. 08Low competition from big companies on a national level0.

0730. 2130. 2130. 21Large homebuilder companies are experiencing rapid growth0. 0830.

2430. 2430. 24Real estate brokers can be used for sales0. 0730. 2140.

2820. 14Internet can be used to help customers customize their products online0. 0840. 3240. 3230.

24ThreatsSpeculation in the housing market0. 1240. 4830. 3630.

36Weak demand especially in Florida, Mid-Atlantic region and the North region0. 130. 330.

330. 3Small Private builders have 63. 5 percent of the market in 20050. 0530. 1520.

120. 1The stock price for Toll Brothers has fallen to $22. 22. 0. 0520.

110. 0520. 1Highly fragmented industry0. 0720.

1420. 1430. 21Competition is intense and homebuilders use new methods to make sales. 0. 0930. 2740. 3630.

27StrengthsOptional customization features are provided to the customer0. 220. 440. 840. 8Experts are hired in their relative fields0.

130. 330. 340. 4Increase in the Urban Luxury Market0. 130.

330. 330. 3ROE has increased0. 120.

220. 230. 3WeaknessesThere is a drop in sales0. 230. 630. 630. 6Higher Price than small private homebuilders0. 230. 620. 430. 6The NI has decreased in 20060. 110. 120. 230. 3Total Attractiveness Score5. 75. 845. 91 Works CitedDavid, F. “ Strategic Management: Concepts and Cases” Toll Brothers Inc, “ About the Company” Date Accessed May 10, 2010, http://www. tollbrothers. com/homesearch/servlet/HomeSearch? app= about