A recent survey conducted by Bain & Co. of 290 executives in B2B industries throughout 11 countries revealed that two-thirds of respondents said that customers are less loyal than they used to be. This backs up our own observations and anecdotal evidence collected from our contacts in the UK construction and property sector.
Should we be surprised at that? No, I don’t think so, given the fact that we have just emerged from the longest recession in living memory. In desperate times people are more willing to take risks to achieve their goals and targets and many a long term relationship has been sacrificed on the altar of the cheaper alternative.
What should be more worrying for companies selling their products and services to other organisations is that the switching of suppliers has been easier and less painful than expected for customers. This has been driven by the ease in finding alternative suppliers, the availability of comparison data and the hunger of new suppliers who have raised their game and overtaken complacent incumbent suppliers. I see this in the bids that we have been involved in. It is definitely easier to beat incumbent suppliers than it was before the recession.
Will the construction sector return to what it was like before the recession? My view is that the answer is no. We have entered a new age where the competition for mainstream contracts is going to remain fierce and those who don’t evolve will become uncompetitive and shrink or disappear.
If you look back in history, the biggest jumps in productivity, efficiency and innovation have coincided with recessions, where companies have had to respond radically to survive. It will be really interesting to see who emerges as winners in the next two to three years; it may not be the companies you expect.
Customers have an increased appetite for change, have become more savvy and are demanding and getting more for less. This has been the reality for the last five years, but is it the norm moving forward?
Many suppliers have adapted and have found a way to maintain reasonable profits whilst at the same time offering customers more at a lower price. They have found efficiencies and lowered their costs and as a result are leaner and meaner and much more competitive. These are the potential winners of tomorrow.
As long as they maintain their focus on delivering value at affordable cost, measure and collect evidence of this and are able to articulate this to customers when promoting their business and bidding or pitching for new contracts, they will do very well indeed.
Other suppliers have lost money but survived thanks to the strength of their balance sheets which are now considerably weaker than before the recession. With the economy picking up and demand for construction services and products rising quite rapidly there will be many directors and partners thinking that the return to previous profit levels will be facilitated by the market allowing them to charge higher prices. That confidence may be misplaced because although prices will rise, so too will costs and many will find themselves squeezed from both ends. These are the potential losers as we emerge from the recession.