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PCCA Journal|1

st

Quarter 2011

21

I

s your company, like that of so many contractors,

struggling to find profitable work and sell projects at

levels that sustain profitability? As one of our clients

says about the current market prices, “You can’t com-

pete with stupid!”

Construction put in place, down by more than 24 percent

from market peak, accounts for the largest market driver that

is pushing owners to focus excessively on price (See Exhibit

1). Our industry has too much competition for the available

work. Expect mergers, closures, and failures in abundance

over the next two years. Additionally, surety losses tradi-

tionally spike for two years following every recession. All

combined, these market drivers are contributing to “stupid

pricing” in a market already struggling to deal with the new

normal.

Saying the new normal is going to bring change to our in-

dustry is an understatement. Heightened competition, fewer

projects, and sophisticated buyers will eventually produce

better and more competitive contractors. Fewer competitors

are a positive outcome of recessions. Therefore, the key is

surviving and thriving until the market changes and pricing

stabilizes.

There is good news for best-of-class contractors. Banks,

bonding companies, and buyers of construction services will

be getting a healthy dose of negative consequences of below-

cost pricing. Contractor failures, project failures, and low-

quality projects will begin to serve as a wake-up call. Think

of how many profitable jobs it will take to offset the loss

from one poorly priced project. The new normal will require

discipline, patience, and persistence. Marketing, customer

loyalty, value propositions, market brand, and efficiency are

all part of the new normal for contractors.

What do you need to prepare for in 2011 and beyond? This

article presents ideas for marketing in the new normal to

grow profitable revenue.

Keep Marketing

Best-of-class contractors prosper in down markets. One

reason is they value the disciplines of marketing and sales.

They are market-driven companies and know they have to

get in front of new as well as existing customers in order to

succeed. Economic cycles are just a way of life in our indus-

try. The key is being able to identify future market shifts and

being ready to make the changes needed to be successful.

Throughout the ups and downs of the market, investing in

marketing and sales helps level backlog and cement customer

relationships and keeps your name at the front of the minds

of potential customers.

One of the construction industry’s unique features is the

pricing model. Most contractors use cost-based pricing versus

market-based pricing. Market-based pricing means setting a

price based on the value of the product as perceived by the

customer. This assumes that the value the customer perceives

is more than the cost of providing the service. It is a value-

based pricing system. Many everyday products have market-

based pricing, as do unique purchases. Some products, from

cars, artwork, and jewelry to everyday items like Starbucks

coffee and Godiva chocolate, have a high perceived value.

The products are priced on the value they have to us, not the

product’s production cost.

Market-based pricing is difficult, but not impossible, in

today’s market. The only way to get a premium price (i.e., a

market-based price) is to market the value that you bring to

the customer. Without marketing, the chance of selling on

value rather than price, regardless of market conditions, is

similar to an ice cube’s chance of surviving in a hot location.

Marketing in the “New Normal”

Marketing, customer loyalty, value propositions, market brand, and efficiency are

all part of the new normal for contractors. Competitive companies are best-value

marketing machines.

By Cynthia Paul and Ken Roper

Continued on page 22