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