Toll Brothers Inc. – Case Study - Business Essay Example

 

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

 

Mission

The 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)

 

Strategies

The 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.

 

Opportunities

The 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.

 

Threats

Toll 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.

 

EFE

Opportunities
Weight
Rating
Weighted Score
Urban Luxury market is growing
No weakness in sales in the New York and New Jersey area
Investment 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 level
Large homebuilder companies are experiencing rapid growth
Real estate brokers can be used for sales
Internet can be used to help customers customize their products online
0.12

0.06

 

0.04

 

 

0.07

 

0.08

 

0.07

0.08
3

3

 

4

 

 

2

 

2

 

2

4
0.36

0.18

 

0.16

 

 

0.14

 

0.16

 

0.14

0.32
Threats

Speculation in the housing market
Weak demand especially in Florida, Mid-Atlantic region and the North region
Small Private builders have 63.5 percent of the market in 2005
The stock price for Toll Brothers has fallen to $22.22.
Highly fragmented industry
Competition is intense and homebuilders use new methods to make sales.

0.12

0.1

 

0.05

 

0.05

 

0.07

0.09

 

1.00
3

3

 

3

 

3

 

2

2

 
0.36

0.3

 

0.15

 

0.15

 

0.14

0.18

 

2.74
 

 

CPM

Toll Brothers Inc
Lennar Corp
Small Private Builders
Critical Success Factors
Weight
Rating
Score
Rating
Score
Rating
Score
1.EPS
0.13
2
0.26
4
0.52
0
0
2.ROE
0.15
3
0.45
3
0.45
0
0
3.Price Competitiveness
0.2
2
0.4
2
0.4
4
0.8
4.Market Share
0.22
2
0.44
3
0.66
4
0.88
5.Service
0.3
3
0.9
3
0.9
3
0.9

1.00

2.45

2.93

2.58
SWOT

SO Strategies

Toll 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 Strategies

Toll 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 Strategies

Since 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 Strategies

There 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 Matrix

Rapid Market Growth

 

 

 

Quadrant II                                                            Quadrant I                              Strong

Weak Competitive                                                                                                                                    Competitive

Position                       Quadrant III                                                           Quadrant IV                       Position

Expanded operations to include the Suburb Areas of NY,

Connecticut and Washington DC

Expanded into high rise construction market

Launched a major Urban Initiative in 2004

 

 

Slow Market Growth

QSPM

The 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.

 

Expansion
Discounting & Marketing
Cost-cutting
Opportunities
Weight
Rating
Score
Rating
Score
Rating
Score
Urban Luxury market is growing
0.12
4
0.48
3
0.36
2
0.24
No weakness in sales in the New York and New Jersey area
0.06
3
0.18
4
0.24
2
0.12
Investment grade corporate credit rating from all three credit rating agencies, i.e. Standard & Poor’s, Moody’s and Fitch.
0.04
3
0.12
2
0.08
2
0.08
Low competition from big companies on a national level
0.07
3
0.21
3
0.21
3
0.21
Large homebuilder companies are experiencing rapid growth
0.08
3
0.24
3
0.24
3
0.24
Real estate brokers can be used for sales
0.07
3
0.21
4
0.28
2
0.14
Internet can be used to help customers customize their products online
0.08
4
0.32
4
0.32
3
0.24
Threats

Speculation in the housing market
0.12
4
0.48
3
0.36
3
0.36
Weak demand especially in Florida, Mid-Atlantic region and the North region
0.1
3
0.3
3
0.3
3
0.3
Small Private builders have 63.5 percent of the market in 2005
0.05
3
0.15
2
0.1
2
0.1
The stock price for Toll Brothers has fallen to $22.22.
0.05
2
0.1
1
0.05
2
0.1
Highly fragmented industry
0.07
2
0.14
2
0.14
3
0.21
Competition is intense and homebuilders use new methods to make sales.
0.09
3
0.27
4
0.36
3
0.27
Strengths

Optional customization features are provided to the customer
0.2
2
0.4
4
0.8
4
0.8
Experts are hired in their relative fields
0.1
3
0.3
3
0.3
4
0.4
Increase in the Urban Luxury Market
0.1
3
0.3
3
0.3
3
0.3
ROE has increased
0.1
2
0.2
2
0.2
3
0.3
Weaknesses

There is a drop in sales
0.2
3
0.6
3
0.6
3
0.6
Higher Price than small private homebuilders
0.2
3
0.6
2
0.4
3
0.6
The NI has decreased in 2006
0.1
1
0.1
2
0.2
3
0.3
Total Attractiveness Score

5.7

5.84

5.91
 
Works Cited

David, 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

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