Alan Gayle is a sales and marketing consultant specialising in the construction industry. In this column he offers advice on how to make an impact in the market. This time he looks at profits without price cuts.
Did you see Skanka’s 2011 corporate results when they came out last month? For anyone that missed them, the highlights for the UK division are as follows:
First the bad news. Turnover was down 4% to £1.2billion while orders fell by 34% to £878million.
Now for the good news. Margins were up from 3% to 3.3% and, despite the reduction in orders and turnover, profits were up 10%.
Mike Putman, President and CEO of Skanska UK, said: “The old cliché that turnover is vanity and profit is sanity has never been truer and we will continue to make sure that our work is bid at a sensible margin.”
The company’s impressive increase in profit must surely be the envy of its competitors and flies in the face of the commonly held belief that customers in the property and construction sector are only interested in the lowest price.
It’s even more impressive when you factor in the current economic climate where cut-throat pricing has widely been superseded by suicide pricing causing another 3,515 construction companies to go out of business last year.
As you read this, I know a good proportion of you will be saying: “Typical marketing mumbo-jumbo. If you think we can increase our margins in this climate, you’re not living in the real world. It’s all about price”.
The other side of the coin is that there will also be people reading this with a wry smile because they have increased their profits and continue to do so.
Stone System of London, the winner of this magazine’s inaugural Business Initiative Award is a case in point. I’m sure those who don’t think there are any opportunities to improve their margins vastly outweigh those who do. But ask yourself – how did Skanska do it? If they can do it, surely others can do it as well.
I don’t know the intricate details of Skanska’s results, and no doubt there are several factors, including cost cutting, which contributed. But I’m confident marketing played its part.
Not the marketing they did last year, but the marketing they have been committed to for many years. Knowing their strengths and their competitors’ weaknesses, focussing on profitable repeat business and making themselves stand out from the crowd… these are the marketing objectives that will, over time, deliver increased margins.
In January I wrote about the value of case studies and how, if used properly, they can give the market confidence in your company over competitors. What case studies really do is give you a cheap and workable way to differentiate your company from its competitors.
Differentiation. That is, translating what is different about your company into benefits for your customers. It is one of the keys to increasing margins.
According to Ross Sturley, who writes a marketing column for Construction News, is a long serving committee member of the Chartered Institute of Marketing Construction Industry Group (CIMCIG) and is generally known as a construction marketing expert: “Differentiation is important – well-differentiated companies usually make more money as they are able to command a premium price for their services.”
There are loads of examples out there, in construction as just about every other industry, of companies that have managed to make the market realise they are different, have made the difference desirable and have been able to charge a premium for it.
Next month we will explore differentiation in more detail and look at some more success stories.