Digital and marketplace trends demand focus on five critical areas

BOSTON — (BUSINESS WIRE) — February 28, 2019 — Despite the recent announcement that U.S. housing starts fell to a two-year low in December 2018, the rising number of building permits issued for new residential construction indicates a strong rebound in 2019. However, according to a recent construction industry analysis conducted by the global strategy and marketing consultancy Simon-Kucher & Partners, construction materials and service providers still face a range of challenges including cost pressures, shifting materials sales channel preferences, a rapidly evolving digital value chain, a need for new pricing structures to accommodate the impact of the IoT on smart homes, and the demand for increased customer focus.

Cost Pressures
Volatile raw material costs, fees for CO₂ certificates, and higher freight and transportation costs will continue imposing a dynamic market environment. Implementing price increases will remain the most important factor to counter margin pressures – or increase margins – in 2019.

“Price increases have been a key sticking point for years, with firms still struggling to implement them,” said Dr. Andrea Maessen, Senior Partner and Global Head of Construction at Simon-Kucher & Partners. “Successful companies embrace and instill a ‘price-increase mentality.’ This encompasses clear processes, mechanisms, and the right mind-set.”

Maessen advises companies to “revisit their guidelines and workflows, and update their steering and monitoring approaches.”

Online Channels
Online portals are effective sales channels for construction materials and technology, but customer loyalty to traditional channels will decline with increased digitalization. Firms can secure enhanced industry footing by embracing new channel opportunities and selling how their digitally-oriented customers prefer to buy.

“Traditional distribution structures will be challenged and the question of who owns the customer needs to be answered,” said Sebastian Strasmann, Partner at Simon-Kucher & Partners. “Manufacturers and builders must determine which products to offer via which channel and to which customers, as well as designating who within their organizations should be closest to the customer. Defining a clear channel strategy is no longer avoidable. If companies do not act, other construction providers will take center stage.”

Customer Focus
According to a Simon-Kucher & Partners study, the construction industry is having limited success interacting with their customers digitally. Only one-third of construction firms with a CRM system have seen an impact on their top lines.

“A CRM system properly adapted to a company’s sales processes will help identify untapped potential, which is vital to address the shift within the decision structures along the value chain,” says Maessen.

“Having a clear customer path provides a significant competitive advantage and drives growth forward,” advises Strasmann. “To land key projects, companies must match their CRM system closely to their customer segments and decision makers.”

To further strengthen relationships with targeted stakeholder groups, partner programs will experience a revival in the digital economy.

Digital Value Chain
Digital planning tools that translate data directly into individually fabricated components will increase the level of prefabrication and modular construction, leading to greater efficiency, fewer errors, and higher-quality work on the construction site.

Construction material innovators are using ‘digital twins’ (digital replicas of physical products, including technical attributes) to establish fully digitalized planning, manufacturing, and construction processes. Sales processes also are changing.

“Today, the sales process for projects starts with a tender or proposal. Soon, companies will decide which products to specify during the digital planning phase as soon as the building’s blueprint is finished,” said Maessen.

“Effective BIM (building information modeling) has a key role within these new processes, along with a detailed understanding of the decision structure that goes with it,” Strasmann points out. “In addition to reviewing their sales processes, manufacturers need to adapt their offerings to become solutions providers.”

Smart Homes
With the adoption of IoT technology, buildings themselves are becoming more digital. Smart-home solutions are transforming offerings and increasing complexity. The need for new price models, in which the hardware is no longer the focus, is increasing.

Consider the ‘Mobile Key’ concept at hotels, a service based on a complex ecosystem of platforms. Hotel guests download credentials to their smartphone, which functions as their key and can be used to check in/out. Hotels no longer buy keys or locks. Instead, they pay an annual subscription fee for each door, based on the hotel’s increased efficiency and reduced costs. In view of the advanced technology involved in these systems, Strasmann is clear: “Smart-home solutions require a completely new skillset and innovative pricing models.”

Simon-Kucher & Partners, strategy & marketing consultants: Simon-Kucher & Partners is a global consulting firm specializing in TopLine Power^® with a focus on strategy, marketing, pricing, and sales. We help our clients achieve growth and profit targets by applying practical, evidence-based strategies. Simon-Kucher & Partners is regarded as the world’s leading pricing advisor and thought leader. The firm has 1,300 employees in 38 offices worldwide.

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