Outsizing by Steve Coughran

Author:Steve Coughran
Language: eng
Format: epub
ISBN: 9781626346321
Publisher: Greenleaf Book Group Press
Published: 2019-03-21T16:00:00+00:00

EARN A PRICE PREMIUM

Simply put, companies command a price premium by charging more than competitors. This approach demands customer-centric understanding. Consider the following questions:

▪ Why are customers willing to pay more for your products or services?

▪ What additional value are you delivering that warrants a price increase?

In many instances, price premiums can stem from effective positioning strategies. There are a few ways in which proper positioning can lead to a price premium. One approach is to establish a firstmover advantage to cement a higher price point for goods or services. First movers set prices and consumer expectations. First movers also secure reign of the market before competitors can catch up, building brand presence and eliminating pricing pressure at least temporarily.

I consulted for a large general contractor that began exploring P3 (private-public partnership) projects years before many of its competitors. P3 entails complicated contracts, a unique equity structure, and complex work agreements; therefore, it involves a learning curve and certain level of risk for inexperienced firms. The concept of P3 has existed for centuries, initially rising in popularity as a viable contracting model in the UK. The North American construction market was largely unexposed to these projects. This contractor, however, employed a few people who were familiar with the structure and operations of P3 agreements, and the contractor jumped at the opportunity to bid on P3 projects.

The decision to move into this new space turned out to be extremely profitable. Where the average net operating margin for a general contractor on most federal projects fell between 1 and 2 percent at the time, the company was earning margins in the low double digits for its work on the P3 projects. The company’s price premium endured for a few years; however, as competitors gained education and experience in the P3 realm, the barriers to entry that preserved this brand’s price premium, such as knowledge and certification, began to diminish. Within a few years, the contractor had to return to the drawing board to devise a new value-capture strategy as fees compressed in the P3 arena.

Construction is among many industries where creating barriers to entry can help companies capture a temporary yet sizeable price premium. As shown in Figure 4.3, all products and services travel along a commoditization curve, illustrating the rise and fall of demand from launch to maturity. Breakthroughs in technology ride one of the most aggressive commoditization curves. For example, in the last decade, renewable energy has taken center stage in construction due to regulatory requirements and economic and environmental benefits. When renewable energy was first introduced, engineering, procurement, and construction (EPC) firms building solar and wind projects were reaping large returns, upwards of 20 percent on the projects. However, the situation has changed. Today, more competitors are operating in the space, industry fees have compressed, and margins have shrunk to single digits over the years.12

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.