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Twelve of Victoria’s main real estate firms have joined with Fairfax through the successful MMP entity to establish a competitor to realestate.com.au.  The competitor was originally designed to force REA to reduce prices and prevent the regular 30-40% annual price increases.  The scope of their ambitions has increased to include the creation of an income producing asset as well as a saleable asset, forcing REA to purchase them at some point in the future if it wishes to regain pricing power.

The plan is fully operational and the horse has already bolted in many ways. The agents have bundled their mastheads in with the website, allowing them to build their print business and their website business. They will also use their 33 mastheads to heavily advertise the new website, reviewproperty.com.au (RP), and to raise consumer awareness for the site.  There is a genuine benefit to consumers in this arrangement; the RP equivalent to Premier Properties costs less that half in Boorondara/Stonnington/Bayside and less than a quarter in other markets. When a vendor purchases the RP product, they also receive 10% off the cost of a Weekly Review product.  For the Boorondara/Stonnington markets, this will equate to the premium properties being $400 or so after the discounts for the glossies are factored in.  In outer markets, the premium product will pay for itself for those vendors who advertise in the glossies.

This structure is quite clever, as it leverage both of MMP’s product ranges to support each other.  MMP also has a huge, letterboxed platform from which to raise brand awareness.  Finally, it creates immediate revenue for the site.  It also recognises the lack of coordination between REA and its parent company News.  While I’m sure REA will be forced to quickly reduce prices on the Premier Properties, it will take time to move the bureaucracies of Leader and even if it’s done, the lack of Leader publications in the wealth belt will limit REA’s ability to offer competing products.

REAs price reductions will actually justify the entire exercise by legitimising the site and providing the agents with evidence that they are acting in the consumer’s best interest.

Response
REA has a number of extremely bad options on the surface:

• Go to War with its Customers: This could take a number of paths, price discrimination, competitor support, negative PR, direct attacks etc., all of which will provide the evidence the agents need to show the market that they are the victims of a vicious and predatory monopoly.  This would create tremendously negative brand equity and potentially poison REAs already tarnished reputation nationally.  These tactics are expected and will surely steel the resolve of the group, who have not only a website to protect, but a $150m publishing venture with 33 mastheads.  They are joint shareholders and have tremendous upsize if they create a legitimate competitor.

• Divide and Conquer: This strategy involves paying large sums of money to agents that can break ranks.  It could even involve trying to divide up individual agencies with strategically placed incentives.  This is expected and I see the primary issue with this strategy as the scale.  The 12 foundation members consist of over 200 different office/business-owners.  Assuming that each office would require hundreds of thousands of dollars to destabalise, this is probably not practical. Not to mention the brand destruction it could cause REA in Victoria and nationally.  Given that this is a small industry, it is also extremely likely that blocks of customers from other states will line up to get “their fare share” by threatening to copy the Victorian example.

• Throw value at your customers: The option to provide customers with significant discounts to the core product.  While this may appeal to some offices, it is expected and will allow the industry to declare victory.  Given that the agents are expecting this, it will likely give them increased confidence in their plan and actually support MMP.

• Do nothing: Not as silly as it first sounds.  While a appreciate a bias towards action, it probably isn’t appropriate. REA can choose to ignore the entire exercise and send out a positive message based on value and audience figures–“REA is more expensive because we deliver more buyers.”  If the product isn’t discounted, then the agents will have a much harder time justifying the benefits of their site.  REA would need to spend a small fortune on marketing and awareness and ensure that customers knew the stats.  The line between this advertising campaign and the “war” strategy above is a fine one.