Building Materials Pricing Strategy

The building materials industry is often characterised by the words commodity ‘cost plus’ and ‘contracting margins’.

Insight

The building materials industry is often characterised by the words commodity ‘cost plus’
and ‘contracting margins’. With the rise in demand for housing and civil construction, there has been a major building boom underway in the Australian market.

Whilst many companies have been able to retain margin percentages and in some cases, grow margins, 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 whilst others have experienced substantial price pressures due to excess inventory and transfer pricing strategies 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, customer wants and expectations and more determined competitors, less than ideal results are occurring due to decision making under time pressure, limited information or lack of technique and process.

Sales teams are increasingly expected to do more with less and this often results in unintended margin erosion.

There are however, margin expansion opportunities amid this pressure and chaos.

Opportunities exist to develop the right set of value drivers for the business to segment customers into market segments of one to develop pricing power negotiations.

Opportunities exist to develop management alignment on the right pricing strategy

Expertise

Our experience with building materials ranges from:

Aluminium extrusions, Cement, Fasteners, Fit out components, Flooring products, Structural Timber and Steel products.

We have worked with some of Australia’s leading building materials companies to improve margins and profitability in what are often considered commodity products.

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

Next Steps

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.