"My company’s building-product sales have been concentrated in one regional market. I now want to expand into new territories. What kinds of market variations can I expect? How should I decide where to make my next move?"—N.C.T., president
I once asked an executive of a foreign building-product firm what he learned about the United States after introducing a product here. He observed that the United States is not really a single country, but dozens of different regions. What sells in New England is not the same as what sells in the Rockies.
“Before I brought my product to America, I knew I would have to deal with different climates in such a big country,” he said. “But I had no idea how much construction practices, design tastes, regulatory controls, and distribution patterns would vary. Even the terminology for our product is different from one region to the next.”
The roots of these variations are buried in construction’s historic ties to the land and its climate and resources. For example, clapboard siding is associated with New England because early settlers there had vast forest resources, while adobe construction was used in New Mexico because of the dry climate and scarce building materials.
Building materials are bulky and heavy, favoring the use of locally produced products. And traditional practices often are carried through to the local building codes. Doing business in some locations—such as California, with its stringent air pollution, seismic resistance, and energy conservation requirements—may feel more like crossing an international boundary than a state line.
Regional tastes and expectations must also be considered. Pigments for colored concrete sidewalks and paving, for example, are more prevalent in southern states, due in part to the climate. Many northern builders are reluctant to spend extra money on a patio that will be covered by snow several months of the year, and are concerned about damage from freeze-thaw conditions. But the reasons also relate to more subtle cultural traditions and styles.
Several projects I have been involved in recently bring regional differences into focus. While developing a new concrete masonry system for a California manufacturer, I had to unlearn all the masonry design guidelines I had used in the Midwest. The California product had seismic resistance constraints not needed in the Midwest, but required none of the insulation techniques I had used before. Because of the different requirements, the same product took on dramatically different designs in the two regions.
For a manufacturer of a premium roofing metal system, I had to consider several regional factors when selecting potential sites for a new plant. The competition varied by region: Slate roofing is widely used on upscale homes in the Northeast, wood shakes in the West, and tile roofs in the Southwest. My client’s product required modifications to accommodate hurricane winds in the Atlantic and Gulf states and snow and icy conditions elsewhere. In some regions, metal roofs are installed by roofers, while more expensive sheet metal contractors have jurisdiction in other areas. Finally, we had to determine whether to locate the plant where a direct competitor had already primed the demand for our roof type, or pay the higher cost of creating demand that could lead to a greater market dominance.
While doing sales training for a window producer, I had to adjust to regional variations in its sales force. Depending on the area, the company used either salespeople, independent reps, or building material dealers to handle local promotion and sales. This may sound unwieldy, but it was responsive to regional trade patterns and the firm’s relative strengths in different communities. In one region, for example, the company acquired strong distributors after buying out a local manufacturer. But in another region, where sales were low, the company used independent reps. That strategy kept overhead down while maintaining a regional sales presence to selectively pursue attractive projects.
Picking your region
Before starting business in a new territory, conduct market research to learn more about the region. Approach each region separately to understand the local market conditions and your competitive strengths and weaknesses there.
Market research can be a new experience for entrepreneurs who built their businesses based on first hand knowledge of local conditions and personal relationships with specifiers and contractors. To begin, look at regional economic indicators to determine the market’s size and growth potential. Find out as much as you can about competitors already in the region. If competitors are not active there, ask why and what would happen if they did enter the market. Talk to potential customers about their buying habits and find out if they’re satisfied with existing suppliers. Visit local plan rooms and construction sites to see what is being specified and built. Compare the region to your established territory.
The natural inclination for many firms is to expand into regions adjacent to their established territories. This approach may cost the least initially because it builds off of existing sales and distribution routes, but its long-term potential may not be optimum. If you sell water repellent coatings along the Gulf Coast, for example, the dry hinterland of Texas may not hold much promise despite its proximity. Instead, start with a broad geographic view, and don’t overlook international opportunities. Look for regions with the best overall growth potential.
Another common expansion strategy is to look at statistics to find current growth markets. While current growth should be considered, relying solely on this criterion has several drawbacks. Hot markets can cool off just as rapidly as they grow, and the boom may be over before you become profitable. Furthermore, hot territories attract other competitors, setting you up for a price cutting war when activity settles down.
A sound approach is to look for underlying market strengths and an intimate match between your products and regional market demands. Remember, too, that one of the reasons for expanding is to minimize your vulnerability to regional economic cycles in construction. Stay away from areas that historically rise and fall in sync with your existing territory.
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By Michael Chusid
Originally published in Construction Marketing Today, Copyright © 1995