Future outlook of the construction industry

The construction industry, which performed well in an extraordinary year like 2020, will continue to grow in 2021 and beyond. As the industry grows, it will also undergo a significant transformation. Simon-Kucher Partner Cem Balıkçıoğlu and Simon-Kucher & Partners Director Öykü Elmas revealed the future outlook of the construction industry. Focusing on the risks and opportunities of the new era, the two experts evaluated what needs to be done to stay ahead of the competition.

According to Simon-Kucher & Partners experts, the most important challenges and opportunities awaiting construction industry companies in 2021 are to create the right growth strategies, enrich their market entry strategies and perform multi-channel management.

Simon-Kucher & Partners Director Öykü Elmas states that the demand in the construction industry will continue in 2021 and the following years, and that the main challenge for companies will be to respond to this demand in the most accurate way. “The best way to respond to demand is to understand which of the trends that started in 2020 will continue in 2021 and beyond, and which will reach a balance between old and new,” says Elmas.

Simon-Kucher & Partners Partner, Cem Balıkçıoğlu, states that the crisis caused by COVID-19 and the measures taken against this crisis has significantly changed interpersonal interaction, communication and especially the way of shopping. Balıkçıoğlu states that the construction industry will continue to adapt to new trends and changes in the world in the coming years, as it did in 2020.

The pandemic has changed shopping priorities. Especially with the increase in the time spent at home, consumers started to allocate their holiday and entertainment budgets to home decoration and home-related renovations. It seems that the permanent work from home will slow down office investments significantly in the coming period. On the other hand, it is expected that investments to be made in accommodation areas for mass tourism will decrease with the spread of the concept of isolated holiday. Balıkçıoğlu also states that with the easing of the effects of the pandemic, a balance will be established between working at home and in the office. Stressing that the direction of this balance will vary from country to country, Balıkçıoğlu says, “Companies in the construction sector should act flexible and practical and take advantage of opportunities while establishing these balances.”

The pandemic has also radically changed communication and value chain models. Stating that the pandemic has acted as a catalyst for digitalization throughout the entire value chain, Öykü Elmas states that in this process, the number and acceptance of digital channels, digital interactions, and, digital touchpoints have increased significantly throughout the customer’s experience journey.

At this point, the rapidly changing market conditions with the pandemic; It seems to be a final call for companies to reshape their growth strategies, create digital market entry strategies, and adapt their pricing and bidding strategies to the omni-channel world.
Simon-Kucher experts state that if companies in the construction industry are successful in these three areas, they will gain a significant advantage over their competitors and they express what needs to be done as follows:

1-Growth strategy

The unpredictability of the path demand will evolve in 2021 and beyond is the biggest challenge companies are currently facing in formulating a growth strategy. Sub-segments of the construction industry are expected to be affected differently by the alleviation of the COVID-19 crisis, the change in consumer behavior and the course of current funding situations.

Some companies need to fine-tune their growth strategies, while others need to take their growth strategy in an entirely new direction in 2021 and beyond.
In addition to demand changes, it seems that the interest in localization, efficiency, digital technologies and sustainability in the construction industry will increase. In this case, it is important for companies in the construction industry to evaluate potential market scenarios and reconsider their commercial strategies together with the segments they will target in order to grow profitably.

2. Market entry models

Market entry models in the construction industry have been heavily influenced by digitalization for the past few years, but with the COVID-19 pandemic, the impact of digitalization on the industry has increased. The digital customer experience has become more important. Now, companies can gain significant competitive advantages against their competitors with digitalization. Among the priorities of the industry are developing a superior digital experience along the customer experience journey, increasing e-commerce capabilities, using order management technologies and deep digitalization integration with distribution partners and stakeholders.

It is also time to make the activities of “push” products to customers more efficient by enriching the entry models and to increase the activities of “attracting” customers to create preferences. However, with digitalization, new pricing models are needed. Most companies in the construction industry are working on “smart” products and services, but many of these companies use legacy product-based models as a starting point for pricing. To price smart products and services, different pricing metrics are needed, starting with profitability analysis.

3. Strategic management of omnichannel offerings

Construction industry companies have been following the concept of “multi-channel management” for the past few years. However, the number of companies that see this concept as an important opportunity and make it a long-term strategy is quite limited. Many construction companies are involved in various channels such as direct – indirect, online – offline due to market dynamics.

According to Simon-Kucher & Partners experts, omnichannel management should not be seen as a passing trend but should be brought into focus and treated as a strategic initiative. To be successful in omnichannel management in this direction requires clear strategies that focus on professional customers rather than consumers, segmenting channels and assigning clearly defined functions to channels. It is important that every company in the construction industry actively designs and manages its strategies in their sales channels, not leaving it to market dynamics. In addition to the services offered by companies for successful and profitable channel management, another important issue is to differentiate the offers they offer between channels and to create advanced pricing policies to minimize conflicts between channels. Besides, it should not be thought that omnichannel management will eliminate physical sales channels because wholesalers play an important role in the industry as a consolidator and aggregator, and many contractors and end-users with complex jobs still see wholesalers as important business partners. For this reason, it is expected that wholesale channels and online sales channels will continue to coexist in the coming period.

In summary, the construction sector, one of the locomotive sectors of the economy, will continue to grow in 2021 and the following years. However, this growth will bring with it an important transformation. Being aware of the risks while experiencing this transformation and focusing on the opportunities presented by Simon-Kucher & Partners experts will make growth healthier and more sustainable while standing out from the competition.