Since the start of the Covid-19 crisis, the prices of raw materials such as steel, wood, silicone-based products, silanes, acrylates and resins have increased sharply; in the last six months alone, increases of 50 to 100% have been observed. Companies in the manufacturing industry attribute this situation mainly to a sharp increase in demand, to production capacities that have not yet been fully revived and to an effect of suppliers who take advantage of their strong position, such as the shows a recent survey of experts * conducted by the international strategy and marketing consulting firm Simon-Kucher & Partners.
This poses major challenges for companies in the construction sector, especially since nearly half of the study participants do not expect prices to calm down and fall for six to twelve months; the other half even foresees a persistently high or rising price level.
"Current cost increases must lead to price increases if companies are to maintain their margins", says Franck Brault, Senior Partner at Simon-Kucher. "With an increase in the cost of raw materials of 15% - raw materials accounting for 60% of the cost price - a net price increase of 9% is needed to achieve the same gross margin. And the costs of raw materials have increased further. in a significative way", he emphasizes.
Construction firms are not doing price adjustments well enough
According to the study, surveyed companies in the construction sector, however, have many problems in this regard. Although the sharp cost increases demand the rapid implementation of a selling price increase, more than a third of companies have not yet increased their prices (38%). However, at least 21% announced an increase and 13% prepared for implementation. While 62% have already increased their prices, only 48% have, to date, implemented more than 50% of the increase planned on the market.
"Thus, for at least half of the companies (52%), the strong cost increases come at the expense of the margin", says Laurent Bourgoing, Senior Director at Simon-Kucher.
Market conditions and internal reluctance, causes of the poor implementation of price increases
According to the companies questioned, the reasons for this situation lie mainly in a certain reluctance of the market: for 50% of the managers questioned, customers have difficulty passing on price increases in the value chain and 42% believe that the sector does not You just aren't used to repeated, short-term price increases. In addition, a quarter of them believe that their own sales team is holding back price adjustments for fear of losing opportunities.
This is logically the starting point of the most popular measures for more successful price increases: two-thirds of the study participants focus on preparing and communicating a strong case for the cost constraints suffered. in order to convince both their own sales department and their customers of the need to adjust prices. The second most important measure mentioned by 46% of the managers surveyed is the differentiation of the price increase according to the cost increase specific to each product. This allows companies to make it clear that they will only adjust prices when absolutely necessary.
"In this way, companies are already tackling the right questions", explains Marie Verdier, Partner at Simon-Kucher. “However, a successful price adjustment strategy is not all about this. Dynamic price management, strategic planning and the introduction of sound pricing mechanisms such as short-validity prices, surcharges or redemption clauses. 'indexation of prices in contracts is the way to react optimally to the current situation in terms of price adjustment. "
* About the study: The survey was carried out by Simon-Kucher & Partners in France in August 2021. 48 decision-makers in the construction / building technology sector were asked about their assessment of the rise in material prices raw. Results are available upon request.