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Product Shift Keeps Mortgage Firm Afloat
At the start of last year, LoanWell Financial Corp. faced two big problems. The company was nearly out of cash. And it sold mortgages -- not exactly the type of business banks were enthused about lending to.
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The situation: LoanWell Financial had eaten through $1 million in seed money. And the mortgage company couldn't get a bank loan -- especially since it's based in a part of Florida where the housing-market meltdown was hitting hard. Therefore no bank wants to borrow money for firm.
The Fix: Instead of continuing its marketing traditional mortgage , the firm decided to shift to a product line completely with more growth potential -- reverse mortgages ,which is available generally to people age 62 or older. Reverse mortgage allows older people to use the equity in their homes to receive monthly payments from a bank. CEO Michael Banner thought his company could take advantage of their well position in Florida because here retirement-aged population rise and a prime in Florida as a growing potential market..
First, they needed more cash. Since any bank didn’t give loan they seek investors finally, could find partnerships. The partners set a plan together with demographic data and statistics showing why reverse mortgages were poised to grow in Florida. And LoanWell created a convertible note that pays investors regular interest for now and converts to equity when company hits a certain profitability level.
Next they needed customers who own their homes and need cash. Reverse mortgage has a mixed reputation, with the perception that fees are high and residents could lose their homes.
The company created and mailed out brochures and advertisements, spending about $15,000 each month buying names and addresses from marketing companies. It also designed seminars for seniors, paying about $8,000 per month for mailings, room rentals and food.
Mr. Banner cultivated relationships with financial planners and insurance brokers with a mostly older clientele -- such as long-term care insurers.
LoanWell also uses its small size as a selling point, paying the personal attention clients would get -- something older people appreciate. The company is expanding in New Jersey and is applying for licenses in five other states.
The Risks: Changing a core business means having to market to a whole new customers. And it could dilute the company's established brand.
My opinion
A drastic change when company getting close to bankrupt could survive company. As i studied in class one of the growth strategies is diversification. For this company they used unrelated diversification, the new business lacks any common elements with the previous business. The things that i studied from this article:
Marketers must can find advantage of the situation even the company gets in trouble. Mr.Banner could see its advantage of well position for growing market- senior citizens.
Shifting to new market is easier for smaller firms, which are generally more nimble and have fewer bureaucratic and management hurdles. Also, employees at smaller companies adapt to change more easily than larger ones. Morever, they could make a proper business contract with partners as pay regular interest now and then share equity by explaining real situation. Still, shifting to the new product line is not easy, it may causes alienate its loyal customers and dilute brand.
Annotation:Product Shift Keeps Mortgage Firm Afloat by Simona Covel, may 11,
http://online.wsj.com/article/SB120959122980357471.html?mod=SmallBusinessSmallBusinessLink_feature_articles