Evaluate the option of diversifying into lettings management for SLSL.

Question 21 on the APT pack. I managed to make some of the important stuff bold, but you can decide what else is important. The Thatcher government bit is not necessary, though.

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Question 21
Evaluate the option of diversifying into lettings management for SLSL.
According to the case material, there has been a `modest rise in properties bought for the buy-to-let
market' and it seems like this market provides an opportunity for SLSL seeing as the housing market
experienced a downturn in 2008, and it has not fully recovered, hence Alistair considering this
diversification into lettings management. This option of diversification must be carefully thought out
in terms of suitability, acceptability and feasibility because any strategic decision SLSL takes can be
risky, but must also potentially contribute to the objective of a 4% increase in revenue.
People used to live in rented accommodation in Britain until living standards changed with Thatcher's
government policy of selling off council houses and the prospects of a capital gain from owning
houses ­ this led to the decline in the lettings market. However, the lettings market has seen a
revival in recent times with the rising prices of houses and rise in required deposit to obtain
mortgages, so it is only right that SLSL takes an interest in the market. Diversifying into lettings
management might actually be a sensible decision to make seeing as it is a related diversification
because SLSL is already strongly involved in the housing market with the appropriate expertise in
property and handling clients, so the risk involved with moving into lettings management may
not be very high, therefore it might be an acceptable option to the employees along with the
three shareholders. The shareholders (Alistair & Penelope Roley, and Andrew Boddie) might also
accept this option provided it has the potential to be profitable, so more research into the
lettings market needs to be taken for the stakeholders of SLSL to agree to this decision.
The suitability of this option is very important in terms of achieving the objective of a 4% increase in
revenue and potentially solving some of the problems the business faces such as Stamton's
underperformance. The option could potentially contribute to achieving SLSL's objective because it is
speculated that there is a growing market, and SLSL moving into it might be beneficial to the
business in the long run. Firstly, the market SLSL currently operates in is facing a decline with first
time buyers finding difficulty in obtaining mortgages so demand may be constantly falling. If vendors
cannot sell their smaller houses, they will be unable to move up market to buy the properties
available in SLSL's high-end market, thus affecting both SLSL and its clients because there are no
buyers. This decline in the owner-occupied market means that the fluctuation in the rented market
will be the opposite as the down-turn will cause demand to rise in the rented market. This potential
for demand to rise makes the option of diversifying a sensible one to consider as it has the
potential to increase SLSL's revenue as during lean times in house sales, business may boom in
rented accommodation. It therefore seems a suitable option as it might achieve the objective,
and potentially increase profit which is the primary motive of a business such as SLSL.
If SLSL is going to be established in the lettings market, the branch that should be considered is the
Stamton branch because it is the largest area with lower average house prices; therefore it is
likely that there is a better opportunity for lettings management there. It will serve as a form of
market segmentation on SLSL's part, especially if Oakford and Upham remain high end estate
agents dealing with house sales. It could also improve Stamton's performance because, as
mentioned before, there is a rise in the lettings market, so this might eventually cause business
in Stamton to flourish. However, this is only on the basis that it must be better staffed in terms of
quality and quantity. Alistair could employ more people to work in the Stamton branch, and he must
also spend some time there to ensure that it runs smoothly, even if this means training the staff
himself, because if Alistair sets it up and goes back to running the high end branches, the
establishment may fall through. Although this option seems potentially profitable, more research is

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Alistair can ensure that it is a perfectly suitable option to consider for the long term benefit of
the business.
Furthermore, the physical and financial feasibility of this option of diversifying must also be greatly
considered before the decision is made. In terms of premises, if the lettings management work is
carried out in the Stamton branch, there must be a sufficiently large space for lettings management
so that the movement will not require a significant fund to be established.…read more

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