Building pricing power through differentiated value

By The Coffee Shops®.

Insights into how product manufacturers can strengthen price realization.

In the building product market, having a strong product is not enough to ensure strong margins. Building product manufacturers must go beyond just having a good innovation, technical support and customer relationships to strengthen their pricing power.

In a recent article, FMI Consulting's Sevda Akbari and Paul Trombitas dove into how companies can build their pricing power through product development, specification, selection and sale.

Differentiating yourself

Manufacturer pricing power begins with determining where you can create meaningful differentiation. Sevda and Paul explain, “That requires looking beyond product features and technical specifications to understand the outcomes each stakeholder is trying to achieve. Product performance, innovation and technical superiority matter, but their value depends on how stakeholders evaluate them relative to the next best alternative, whether that’s another product, system or way of solving the same problem.”

It is also important to remember that the way you differentiate yourself must be chosen based on your stakeholder, market and application. For example, in hail- or hurricane-prone regions, roofing system warranties, impact resistance and wind performance may carry significant value for building owners. That value may be especially important for hospitals, data centers and other facilities where a roofing failure could disrupt operations.

Alternatively, in markets facing labor constraints or strong construction demand, a lighter system that is easier to handle and faster to install may create more value for contractors. Building type, geography, project requirements, ownership horizon and stakeholder priorities can all affect what matters and how much it is worth.

Making your value visible

Once you have identified what sets you and your product apart from the market, it’s time to make sure that your audience sees the value of your offerings. Because, as Sevda and Paul write, “Creating value doesn’t guarantee customers will recognize it or pay for it. Many building product manufacturers develop products that solve meaningful problems but struggle to realize the premium those solutions deserve.”

How do you go about making you and your product’s value visible? Sevda and Paul think about it as a three-step process:

1. Measure the value: find ways to quantify the value your product adds. For example, switch out statements such as “faster installation,” “better performance” or “lower maintenance” for actual labor hours saved, additional structural capacity created or lifecycle costs improved.
2. Demonstrate the value: don’t just tell them what your products do, show them. Providing credible evidence of how a product has performed on a jobsite is key. Consider running controlled installation trials, pilot projects and side-by-side comparisons to gather your evidence.
3. Communicating value clearly: last but not least, you have to find effective and clear ways to communicate the value of your product. Even if you have clearly measured evidence, it doesn’t do any good unless you can get your audience to understand what you’re saying.

Broader commercial strategy

Once the initial hurdles of creating value and helping stakeholders recognize that value has been cleared, it’s time to turn that value into realized revenue. This is often a stumbling point for manufacturers. Sevda and Paul explained, “Products may be technically superior, widely specified and well understood by customers, yet still underperform financially if pricing, commercial offerings and market execution are not aligned with the value they claim to create.”

The first thing to know is that capturing value is about more than setting a price. To capture value, manufacturers must consider their internal production costs, their competitor’s prices, their expected volume increase, their buying process and more. As Sevda and Paul explain, “Capturing value is ultimately a commercial discipline that extends well beyond pricing. It requires alignment across product management, marketing, sales, technical services and channel partners.” They go on, “[Once value is created, manufacturers must] make informed, deliberate choices about price, offering and commercial models based on distinctive customer needs and willingness to pay, thus protecting the manufacturer's bottom line through more thoughtful strategy.”

Read Sevda and Paul’s full article for more about how building product manufacturers can identify, demonstrate and capture differentiated customer value.