Discover your free Construction Marketing Ideas Email Newsletter

Thursday, August 28, 2008

Builder, consumer (or both) markets

The Fireplace Center and Patio Shop and Advanced Prefabs Ltd. in Ottawa successfully serves both the retail and builder markets. Although the retail and builder-oriented businesses operate under the same roof, the long-established business distinguishes its marketing and procedures for the different markets. Note how the businesses have separate websites.

If you are a sub trade or supplier, should you focus on the direct-to-consumer or builder/trade supply markets, or both? The question isn't that easy to answer because business-to-business and business-to-consumer markets (and marketing) have some fundamental differences, which will affect your choices. Crossing the 'divide' and working both markets creates both opportunities (diversification and greater income security) and risks (you may find yourself overstretched in unfamiliar territory). Theoretically, you can leverage your connections, supply chains and labour force to work both markets simultaneously -- and many large, successful and well-established sub trades and suppliers do just that. But they virtually all have one thing in common: Separate marketing/sales divisions and clearly defined policies establishing the rules of the game for both markets. (Life always is more complex than that, especially if you are a supplier serving, say renovators who may be large organizations or small businesses; in this case, your policies may straddle both sides.)

From the perspective of a business primarily serving the trades or commercial markets, consumer markets offer these advantages:

Pricing power (you can charge more); larger potential client base (less dependence on a single or small number of clients), closer 'connection' to the end-user-market (useful in working and advising the commercial side.)

The disadvantages: Be prepared to spend much more time and resources on marketing -- you need to reach many more, smaller clients, who will need to be satisfied with our work; you will have fussy, finicky clients who waste your time and make you very little margin; you need to keep retail hours and have staff comfortable and qualified in dealing with the general public; your business clients may in some cases see you as a 'competitor' and thus you may adversely affect your commercial accounts.

From the perspective of a business primarily serving the retail market, the trade or builder market offers these advantages:

Volume -- you'll sell a lot more, which may be helpful if you have excess capacity; also you will get lower prices from your suppliers, which may increase your margins on the retail side; reputation and referral options for consumer markets (ie show homes, upgrade sales etc); the ability to acquire maintenance and ongoing contracts at source (new home purchaser needs to maintain the furnace you installed).

The risks are real, however:

Cash flow will strain especially if you give any credit to your commercial clients, especially on low margin sales; worse, you may find they fail to pay or delay so much that your own credit is impinged; resource diversion and strain may affect your ability to properly serve retail clients, staffing will be a problem if you have to add new staff/crews for the high volume peaks and valleys.

See this thread about a retail-oriented contractor thinking about to meet a builder; and read the observations of others who have been there.

If you want to cross between the retail and business-to-business markets, proceed with caution.

No comments: