>Published by Construction Executive – May 2015
No one wants to work for the lowest amount possible, but somehow this pricing is still the norm for many construction companies. Two reasons lead to this quandary. Once a construction company overcomes these two reasons, it will easily increase hit rates and fees.
This generality means a company has nothing special to offer, and this mindset keeps construction a commodity, when it shouldn’t be that way. Buyers are looking for the perfect contractor, not the cheapest. They choose the cheapest option because construction companies give them no other options.
In other words, the buyer cannot distinguish the difference between bidders. This misunderstanding means buyers do not know why one construction companies costs more than others. The construction companies that distinguish themselves win more often and have higher profit margins.
No one wants to buy the cheapest option, but a buyer needs to rationalize its decision to pay more. From buying TVs and vehicles to professional services such as construction, buyers want the best bang for their buck.
To win a best value project, the winner must explicitly explain its value. Construction buyers pay more for expertise because it is the safer bet. Companies that have “been there, done that” are less risky than the cheapest option.
The challenge comes when buyers cannot distinguish the differences in the bidders, and cannot explain why one company costs 20 percent more than the rest, so they pick the lowest price by default. That decision is not the buyer’s fault; it is the bidder’s fault. When buying a car, the salesperson must explain the value of the car. The same holds true in the construction industry.
In order for a construction company to move out of the commodity mindset successfully, it needs to have a strong positioning. Positioning means knowing who the company works for and what the company does. More importantly, positioning states what the company does not do and who the company does not work for, because this positions the company toward the right prospective buyers. Positioning moves the company away from being a commodity or, in other words, a low bid.
This mindset works great in theory, but many companies do not implement the theory, so they stay stagnant as a commodity. For a construction company to make positioning actually work, it needs to write down a positioning statement and share it, especially internally. Besides attracting the correct clients that are more profitable, positioning also attracts the right employees who work harder and stay with the company longer.
Next, the company needs a written value proposition statement that summarizes what challenges the company solves for their clients and where the company creates value for the buyer. Although companies do not share this statement externally, it is the core of the company’s marketing message and proposal verbiage.
Finally, this all falls apart without a strong go/no-go process (formula). Companies that are well-positioned pass on more work than they pursue because not all work fits their company and value. Passing on opportunities where low price is the only way to win will increase your hit rate, which in turns lowers overhead expenses from chasing unattainable projects. This time savings also gives you more time to enhance your current clients’ experience and provide more value. This service and value will self-perpetuate itself in the form of referrals and repeat (negotiated) work.
The best construction companies do not chase low bid work and they only competitively bid projects to start a new relationship. Then, that company performs the work well and provides so much value to the client that the client will never leave that contractor. That way, the construction company will be more profitable by doing fewer bids—and zero low bids.