More About This Episode
The Smarter Building Materials Marketing podcast helps industry professionals find better ways to grow leads, sales and outperform the competition. It’s designed to give insights on how to create a results-driven digital marketing strategy for companies of any size.
Understanding what is happening across the building materials market is crucial for standing out as a manufacturer in 2023. Join top sales and marketing leaders from some of the world’s top building product brands at the Building Products Customer Insights Workshop in Denver, CO on October 12th and 13th for two days of intense learning, insights and collaboration in the industry.
Here’s a sneak peek at the type of insightful, data-driven information that you’ll gain from this workshop — it’s definitely an event that you won’t want to miss!
Questions Manufacturers Are Asking
Grant Farnsworth joined us on the podcast because he’s fielding the same kind of questions from manufacturers that we are. We’ve started to hear some common threads of questions from manufacturers that have started to influence the type of research we are conducting to present at the Building Products Customer Insights Workshop in Denver, CO on October 12th-13th, 2022.
“At our firm of The Farnsworth Group, our job is providing custom research to help our clients make better decisions strategically and tactically. That goes not just for manufacturers, but also retail and suppliers. So I would say a lot of the questions that we're getting from the manufacturers that we work with are kind of the same questions that we're getting from the supply side as well,” Grant explained.
The event next month allows us to come together as industry partners and peers and have collaborative discussions. We can bounce ideas off each other and ask each other questions like “What are you hearing?” “What are you seeing in the market?” or “What are you working on to help address some of these issues?”
Collectively, there may be an answer. A common thread of many of the questions all manufacturers are facing is demand. The top three questions manufacturers are raising are:
How will a recession impact the demand for my products and how does this impact my strategy?
How does the flip and pain of availability, along with price hikes, impact my demand?
Where is the new demand coming from?
The Impact of Recession on Demand and Strategy
“I think there's a lot of unknowns in [how a recession will impact demand] because while we've been through recessions before, I like the phrase ‘History doesn't repeat itself, but it often rhymes.’ Right now, I think we have some elements that may be similar to prior recessions, but we have some elements that are different that are going to dictate how you might view your business and your strategy for this recession differently than prior recessions,” says Grant.
In the home improvement and building product space, there’s still some solid activity and movement because of the supply and demand fundamentals. These fundamentals didn’t exist in 2008 during the last recession when the housing and construction market was at the forefront of the cause.
During the last recession, the strategy was built around a doomsday scenario because sales declined so dramatically. Cutbacks occurred across the board as demand just went away. “We would probably put more emphasis around maintaining and still trying to gain share. I talk to manufacturers on a daily basis and I'm always trying to get like, ‘Hey, give me a pulse of demand.’ ‘Are things slowing down for you at all?’ The common answer I hear is like, ‘Nope, not slowing down,’” explains Grant.
While manufacturers are paying close attention to consumer confidence, many are optimistic about the next 18 months in the market. Backlogs are strong, sales are up, and they’re looking forward to key growth over the next year. Many manufacturers are starting to get back to some more traditional planning after a few years of “just putting out fires.”
The Pain of Availability and Dealing with Price Hikes
When asked about their biggest pain point of the last couple of years, many manufacturers point to availability challenges. Now, this pain point is moving towards pricing. Zach asked Grant about what he’s heard about manufacturers' sense of pricing:
“So I think it starts at the customer level. Everything is about the customer we serve. Because of the demand that has existed for the past two and a half years, paired with the low availability of product and the low availability of labor, we've got a lot of trades that are still six to nine months out. With contractors yet to start or wrap up projects that were budgeted and approved prior to these new price hikes and current inflation, we maybe haven’t fully realized the homeowner’s budget concerns. As contractors work through those backlogs and start to get to new project conversations, they are beginning to hear the budget implications from homeowners.”
Comfortability with spending is changing, the price of materials are going up and borrowing money is getting a little more expensive. Many homeowners who originally were okay with spending $100,000 are now reducing that number to $75,000 and so on. It’s important for the industry and manufacturers to realize that just because your contractors haven’t pushed back on your pricing yet, they will. Higher expenses are pushing people more and more to consider dipping their toes into price shopping and looking at competitor products.
The Farnsworth Group just released their Farnsworth Contractor Index for Q3. With insights from hundreds of residential trades, there was the first decline in years in closure rates among the trades. The quality of leads is stronger than historical averages, but the ability to close on them is starting to drop.
“What I would say to manufacturers is, ‘If you haven't gotten into some serious pricing strategy planning, you're probably a few months behind the ball right now because you've got to get back to this good, better, best,’” says Grant.
Questions you should be asking are:
What does your merchandising play look like?
How are we going to gain, share and maintain what we’ve got?
Drivers of New Demand
Economists are tracking a lot of supply and demand fundamentals across new construction, as well as existing construction.
“We see the existing home side being an area of opportunity. When you think about it, statistically, you've got only 4%, maybe 5%, of the population moving any given year. We had an increase in mobility during the pandemic, but prior to the pandemic, mobility rates were declining. I think we're going to continue to see those decline as we get back into post-pandemic life. I think people are going to stay in their homes longer. I think that's driven by a number of factors,” Grant explains.
“We don't have a good supply of existing homes. The new home supply is starting to become very strong, but the price points aren't achievable for most homeowners. So I think we're in a position where people are choosing to stay home because it's not worth selling or taking that equity and going into a new house that maybe isn't even as good as what they're leaving. So I think the demand side of things is strong for existing homes,” he continues.
The Farnsworth Group looks at the equity picture as well. “Over the last two years of the pandemic, we increased our equity in this nation of our homes by 30-35%. Even if equity nationally drops 5%, we've still realized two years of massive gains. We're above $200,000 of equity per home in this country. That's an insane amount of money that homeowners can pull on to do improvements knowing that they don't have an option to move anywhere else.”
Want Even More Insight?
When it comes to the housing market and homeowners’ plan to move, Zach shares some insight on how one celebrity feels about the record-high inflation rates. “Well, you quoted an economist. I'm going to quote Cardi B.,” says Zach.
“I saw a great tweet. I forget the individual's name. She's the chief economist at Redfin. She shared a video of Cardi B, basically going off about how nobody's going to move. She's like, ‘Everyone's locked into a 2.75% rate. You're not going to leave your house with your current mortgage for another house, one more expensive?’” Zach continues.
However, despite the challenges in the housing market, Grant makes it clear that there are still plenty of opportunities for pros to grow and excel in the industry.
“I know there's always some new thing that comes along. Oh, tiny homes. That's the way of the future.” Grant says. “codes are changing pretty quickly in a lot of markets to allow for ADUs. That might be just one of these smaller opportunities as we think about the next two years of growth,” he adds.
More remote and hybrid work means opportunities for health and wellness renovations, outdoor projects, kitchen and bathroom remodels, tiny home builds and more. And with people exhausting their DIY capabilities over the pandemic, the need for larger projects and more home equity means an increase in demand for contractors and an increase in project sizes — all exciting opportunities for industry professionals to capitalize on.
You can reach out to Grant by email at [email protected] to connect and talk more about building materials marketing.
You can also visit thefarnsworthgroup.com for extra resources, blogs and insights they’re learning from their clients and colleagues in the industry.
If you’re interested in attending the 2023 Building Products Customer Insights Workshop, click here.