Good Markets Can Make You Complacent and Over Confident
The biggest challenge for building materials companies in 2017 is a good economy and the growth of construction. Most people would see this as a good thing rather than a challenge.
And they’re right—in the short term. This can be a good thing at first, but in the longer term, it can create a problem as you can lose your competitive edge.
3 Reasons Why Good Can be Bad
1. Ignoring Market Share
When times are good, manufacturers tend to focus on growing sales and profits over growing market share. Growing sales and profits is easier when the demand is growing. It’s easy to ride the upturn and give yourself credit for the sales growth when you probably had little to do with it.
The danger is that when you are ignoring or not focused on market share, your competitor may be growing sales faster than you and gaining share on you. You may not care about that today, but when the next recession hits, you will wish you had put more effort in growing your market share.
You are either growing or losing share, and the companies who are growing share will be better off during the next recession.
2. Status Quo
When the economy’s good, there is little reason to be innovative or disruptive. Most companies just work to optimize their current sales, marketing, and product offerings.
It’s like they are a football team who always runs the ball up the middle, so they are looking for a bigger and faster fullback and better blockers. They use small, risk-free improvements while hoping for bigger growth in sales.
The bigger threat is that you become predictable. Everyone knows what you are going to do, including the competition and your customers. You are setting yourself up to start losing sales to a current or new competitor because you are making it easy for them.
We are seeing more and more disruption in building materials, and it’s coming faster and faster. It is also coming in unexpected ways and from unexpected places. These disruptors frequently start out small and are easy to dismiss. But these are the companies that will grow and change the market very quickly.
Do the words NEST, Elon Musk, online sales, installed sales, Houzz, Pinterest, Tiny Houses, rental homes, panelized/modular, solar and even Trump mean anything to you? They are disrupting the status quo. You will either be disrupted or be a disruptor.
Building materials customers are also changing faster than most building materials companies can deal with. The big are getting bigger, and you are losing leverage. Your customers are changing their approaches. Many of them are trying to become the brand and make the manufacturer’s brand less relevant.
If you are enjoying the fruits of a good economy and not keeping up with your customer’s changes and think you’ll be able to react when the customer demands it, you are mistaken. Your customers may decide that they no longer need you and not even give you a chance to keep their business.
Don’t let the good times make you lazy or too sure of yourself.
3. Making the Customer Less Important
When times are good, many companies look at their sales growth and plant capacity and decide that, since they’re selling a lot, now’s the time to cut costs and improve profits. One of the things they cut back on or stop investing in is customer service. In their minds, their customers have nowhere else to go so why pay for little extras like good customer service?
So, you cut back on things that have value to the customer and shift to doing things that have more value to you. That old question starts to be asked, “What do our customers expect? We can’t do that?”
Customer service is one of the biggest reasons a customer will stay loyal to you. It takes a long time to build it up and a short time to lose it. When the tables turn, and there is less business, you will no longer have the loyalty you once had. You will have made it easier for your competitors to take your business.
There are a number of companies who are focused on gaining new customers during these good times. The best ones are also focused on helping their existing customers grow and buy more of their products. There are also a lot of companies who are mistakenly using these good times to grow sales and profits while ignoring their market share.
The companies I am working with who want to grow, are finding it easy to take customers from many of their competitors. Customers, like contractors, builders, and dealers, are reporting a noticeable drop in the level of service and support they used to receive.
Losing Your Edge
When you let off and cruise through the good times, you won’t be ready when things get tough again. It’s like a sports team that practices less and faces easier opponents. When it comes time to step it up, they are simply not ready. They must take the time to learn how to play the game again and be more competitive.
But you don’t have to put yourself in that situation. It’s always better to never let off in the first place.
What are your goals this year? Are you measuring customer retention and conversion and customer satisfaction or it just sales and profits?
Is there a sense of urgency at your company or are things a little too comfortable?
Thanks for the following comments. I’d like to hear your feedback and suggestions.
National Accounts Manager