Understanding How Your Market Will Increase Profit
As we begin to hear more and more about certain building materials having longer lead times don’t be surprised to see manufactures starting to put prices up. In 2007 at the manufacturing end of the building material supply chain we witnessed one of the worse recessions most of us can remember while only a short time before this everything was buoyant.
As a sales and marketing director in the industry at that time I witnessed sectors such as the new build market going down year on year by in excess of 65% in a matter of three months. As a result manufacturers had to reduce capacity and overheads fast or face running out of cash and going bust. Unfortunately this meant capacity for making building materials was lost and one day we could pay a price for this macro external factor damaging the supply chain of our industry, when demand would once again outstrip supply. This is easily done as capacity today in geared towards the 2008 market size, but we have seven years of pepped up demand just anxiously waiting to buy their first house or carry out home improvements, capacity will not keep up with demand.
According to the Construction Products Association in the last 25 years the pace of global investment has accelerated at an unprecedented rate and is reshaping the international economic landscape. In construction, many firms conduct business on a multi-national scale and, as a result, they have a choice over where they invest. The key challenge facing the industry is to ensure that the UK is the favoured location for global firms to invest. This study is the first in a series of projects that the Construction Products Association is contributing to support ‘Construction 2025: Industrial Strategy for Construction’. The key findings include: the construction industry is expected to undergo a period of strong growth over the next decade and the industry would benefit from greater investment in order to improve both capacity and productivity.
This being the case if investment doesn’t materialise the industry could see substantial price increases on building materials. Builder’s merchants therefore need to examine their supply chain and look to importers for supply but the pricing culture within builders merchants will need to change.
So what do merchants need to change to take advantage of this upturn?
- Drive through price increases in excess of those being passed on from the manufacturer.
- Train external sales people in the art of closing price increase objections when going for price increases. This is often a dedicated days training as surprising to some, sales people are not often good at closing price increase objections.
- Management should stand firm with salespeople and customers when going for price increases even to the point of losing volume.
- Set targets against customers, regions and sales people to measure your overall price increase averages.
- Understand and control things like a delay in a price increase is a discount. For example, a price increase of 8% delayed for a month is a reduction of 0.66% over that first year, but 0.66% on a company with a pre – tax net profit of 4%, is a missed opportunity to increase profits by 19%.
- Better price control; raise referral levels up for everyone involved in pricing. When the industry has a price increase say from a £1 to £1.08 on an item today, two months later for example they will take new business at £1.02 or even £0.98.
- Management may need to change their trading culture to that of profit as material supply could end up being short.
We are all in business for profit and now is the time you should be putting marketing at the heart of your business to understand pricing better than ever before that will more than pay for itself through increased profits.