As published in Scotsman Guide's Residential Edition, February 2006.
Competing for loan production solely on product pricing is a no-win situation for mortgage companies. After all, a company can only cut into its revenue margin so far before a transaction is not worth doing. At the same time, there always will be at least one company willing to do your job for less.
There is often a price associated with reducing costs to attract clients, however, and it is usually borne by the clients. That price can be anything from a longer closing time to changed rates and amounts.
For continued success and growth, a mortgage company's product differentiation must be based on solid ground. To properly establish product differentiation, an organization must have a long-term business approach.
This type of commitment starts at the top, and owners may have their own agenda in place that calls for faster financial gains. They may simply want immediate results to properly market and sell the company. The same may be said for senior management that has its own salary structure tied to current operating results.
This presents a dichotomy: If senior managers strive for immediate results and are willing to compromise the organization's future, they will be rewarded -- but the company will suffer down the line.
How can a mortgage company build successful product differentiation? What allows it to charge market fees and still have satisfied clients? I believe the following are some of the components required for successful product differentiation.
Find the right product for your clients. Counsel your clients, within reason. Let's face it -- most of us want to live in a large house in the best neighborhood, but we can't all afford it. Many prospective clients do not want to accept this reality. They may base their buying power on the many new products available that reduce monthly payments, including interest-only loans and ARMs with teaser rates. These products can have a devastating effect on clients when renewal comes or when interest rates increase. These clients may find themselves in an untenable position and may suffer for it.
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