Under his tenure as the chief operating office since 1999, KB pushed a strategy called KBNxt, which turned the company's reputation as a builder of inexpensive, entry-level homes on its head. Instead, KB focused more on higher quality homes that could be customized from a wide list of options.
"We're far more focused on the customer than we were 20 years ago," said Mezger, who noted that customers tend to spend about $35,000 per home on custom upgrades.
These upgrades account for about 11 percent of the company's annual revenues, something that has caught analysts' attention and favor. "Instead of offering five different types of tile for your kitchen, KB offers 25," Gieber said. "Think of going to buy a BMW and you have 1,500 options available. It's very similar to that."
At the same time, Mezger pushed to expand the company's number of national markets to 34 from 17. However, since he has taken over, the new chief executive has temporarily put a halt to expansion plans. He's hunkering down and attempting to build share in existing markets, even those where housing sales have slowed.
"We feel that the tougher markets are our sweet spots. For now, we're going to focus on those markets instead of looking at new ones," he said.
Another strategy is to move ahead with its so far successful collaboration with Martha Stewart Living Omnimedia Inc. in which KB builds homes with traditional touches such as wainscoting and front porches. The company already has two of the developments in Southern California and is adding another in Stockton by the end of the year.
There are 10 Martha Stewart branded subdivisions nationwide totaling 2,300 homes, which have pulled in as much as 10 times the regular traffic on their grand openings and helped KB's larger profile.
"The co-branding deal with Martha Stewart has definitely helped sales at our surrounding communities," Mezger said.
And at least publicly, the new chief executive said he isn't worried about the collapse of the subprime lending industry, which has seen big names such as Santa Monica-based Fremont General Corp. exit the business and New Century Financial Corp. file for bankruptcy even though 13 percent of the homes KB sold in 2006 were financed by subprime mortgages.
"Lenders will find a way to help people buy homes. The market will correct. It always does. Back in 1981, when rates were at 17 percent, I bought my first home with one of the most exotic loans I've ever heard of," Mezger said, with a laugh.
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