Pricing Strategy by industry
Building Materials Pricing Strategy
The building materials industry is often characterised by the words ‘commodity’, ‘cost plus’ and ‘contracting margins’.
BUILDING MATERIALS INDUSTRY INSIGHT
With the rise in demand for housing and civil construction, there has been a major building boom underway in the Australian market.
Many companies have been able to retain margin percentages and, in some cases, grow margins. However, many other companies have simply sold more volume at the same margin or slightly lower margins driven by price discounting or increased rebates. It has been a case of profitless prosperity. The opportunity to generate earnings growth has gone unrealised.
The building materials industry is undergoing substantial changes in the way materials are purchased. The rise and rise of professional procurement executives has undermined traditional, relationship based selling which has been a pillar of revenue and margin protection in the past.
Building materials companies now have large product ranges and customer bases due to a spate of M&A activity in the sector over the last 20 years.
Some segments have been protected from imports while others have experienced substantial price pressures due to excess inventory and transfer pricing strategies. These strategies are frequently undertaken by global players who are prepared to sell into Australia at cost, or just above, and repatriate profits into more favourable tax systems.
There is increased pressure on sales teams to generate more value for their customers.
With the increasing complexity of supply chains, changing customer expectations, and more determined competitors, less than ideal results occur due to rushed decision making, limited information, or a lack of technique and process. However, there are margin expansion opportunities amid this pressure and chaos.
OUR CLIENTS IN THE BUILDING MATERIALS INDUSTRY
Areas where we can help your business include:
- Development of customer value drivers
- Designing a pricing strategy aligned to your business model
- Redeveloping trade agreements to capture more value
- Creating management alignment to the right pricing strategy
- Designing and training effective pricing teams
- Developing more effective industrial marketing programs and negotiation methods
- Employing advanced analytics and modelling to identify margin opportunities
- Helping you implement new systems and tools to manage pricing or aligning to SAP / Oracle platforms etc
- Developing a new List Price, Discount and Rebate pricing architecture
We have worked with some of Australia’s leading building materials companies to improve margins and profitability in what are often considered to be commodity products.
How to generate an extra 630 basis points of margin in one year. [$1.4M in gross profit on revenues of $22M]
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You may be wanting to develop a strategic pricing capability and move from a cost-plus culture to a sophisticated value based methodology. Pricing Insight can work closely with you at both a strategic and operational level to improve earnings and profitability.