Trade Me Property changes its pricing model - again

On Wednesday Trade Me Property (TMP) announced a new pricing structure, almost a year after the implementation of the radical switch from a subscription model to a pay-per-listing business model.

That model has, it seems, proved to be a too great a stretch for the industry to accept and, likely as not, too troublesome an issue for Trade Me [NZX: TME] to continue to deal with as its annual reporting is just three weeks away.

On the face of it, the new pricing structure is a significant win for the real estate industry as it re-establishes the subscription model, while at the same time offering a scaled per-listing fee and a regionalisation of pricing.

The real estate industry mobilised when the new pricing model was announced last November, with reactions ranging from a  complete boycott of Trade Me Property to merely advising clients that the website had changed its pricing and was no longer a mandatory component of marketing of a listing.

At the same time, the industry circled the wagons around the ‘industry-owned’ website Realestate.co.nz as a way of providing the public with an alternative to TMP.

During the standoff that ensued over the past 10 months there has been a clear demonstration that the impact on Trade Me’s business was being felt in both customer loyalty – as demonstrated by listing numbers – and in investor confidence – as evidenced by the share price (although it is not accurate to entirely correlate share price to issues with the property sector, however critical it is).

I believe this new pricing scheme will patch up the issues TMP has faced in one fell swoop, resulting in the site returning to full strength and full loyalty (and if not loyalty, then at least patronage). It will not deliver the absolute gain to the bottomline that the original per-listing fee pricing model would have delivered but it will get the company back on track to build its business for the future.

So what are the details of the new price structure, who will benefit, who will choose which of the options, what will the medium term outcome be, and who are the winners and losers of this tussle?

Return of the subscription 

The new subscription service with unlimited listings will be open to all offices with a regional split: Metro offices in Auckland / Wellington / Christchurch will pay $1399 per month, an increase from last year's monthly subscription of $999; offices outside these areas will continue to pay $999 per month.

This locaton-based subscription model is a smart move in that it shifts the company away from a single flat fee structure to regional pricing. This will go down well with provincial customers who have long fought to be recognised as having a wholly different cost base to the metro real estate operators.

Once established, TMP may well apply this regional structure to their premium property advertising. It may also further segment by geography – I'm sure Southlanders would argue that Hamilton and Tauranga should pay more than them – or, rather, that they should pay less. Regional pricing makes sense and it will be interesting to see if Realestate.co.nz follows suit.

Listing fees based on rateable value price

TMP will also continue with the per listing fees in what they describe as the "Flexi option", to mirror the differential pricing introduced for private sellers a year or so ago. Single listings will be $159 for a property with a rateable value over $450,000 and $99 for those under $450,000. This will go down especially well with the smaller offices. On top of this, TMP are making a very public statement that the scale of a customer's business affords discounts in the form of Gold / Silver / Bronze.

The average NZ real estate office is actually quite small, handling around 100 listings a year / eight listings a month. In the many provincial offices where the median listing is around $300,000, this change will be welcome news. A year ago these offices would have been paying $999 a month for unlimited listings; the per listing fees bumped this up to $1272; this new structure will cost them $800 – a win!

The retention of the listing fee-based model is, in Trade Me’s words, a way in which offices remove the sunk cost of TMP and appropriately pass itt on to the consumer, in effect saving them thousands of dollars a year. Time will tell if the industry see it this way.

Overall, I think the industry will feel vindicated in leveraging their collective muscle against Trade Me. Maybe Simon Tremain of Tremain Real Estate in the Hawkes Bay and Tim Mordaunt of Property Brokers in the Manawatu and Hawkes Bay will be hailed as heroes for staunchly refusing to capitulate and effectively completely boycotting TMP all this time across all their offices.

I think it's likely the vast majority of offices will switch back to a subscription model, with the metro offices absorbing the higher monthly fee and relinquishing the charging of the fees to vendors. Many small offices will choose the per listing fee as a way of simply saving money,  and not to pass the cost on.

So who’s the winner and who’s the looser in this change?

For my money, the short term winner is the real estate industry. In the medium and longer term TMP is the winner. They will once again re-affirm their dominance of the lead generation business for agents from the largest and most comprehensive portal of listings covering licensed agent listings and private sellers. Once they have regained patronage (if not as yet loyalty), they will build a growing business in premium services that are sold more aggressively through a growing field-based sales team. They will naturally hike fees regularly and in time seek to move to a pure per-listing fee, which will deliver the bottomline the company and its investors want.

As for Realestate.co.nz, I fear they will be the loser in the short and long term. They have emerged from this period a lot stronger in audience terms and with greater appreciation from the industry. With TMP back with a full listings complement, however, the delivery of leads through Trade Me will return and Realestate.co.nz will once again be viewed as a championing industry site but hardly an adversary to TMP. Compounding their problems will be a more aggressive and significantly larger TMP sales team out in the field, who will seek to develop a stronger relationship with agents and offices, matched to a significant ramping up in their technology team.