1. Why companies in ‘home improvement’ products need to shift their model from being building materials companies to being consumer durables firms

Why companies in ‘home improvement’ products need to shift their model from being building materials companies to being consumer durables firms

Companies in ‘home improvement’ products need to shift their operating model from being building materials companies to being consumer durables companies.

Published: May 24, 2017 4:00 PM
Companies in ‘home improvement’ products need to shift their operating model from being building materials companies to being consumer durables companies.

Ravindra Vaidya

Companies in ‘home improvement’ products need to shift their operating model from being building materials companies to being consumer durables companies. However, they need to make significant changes in the way they operate and reorganize their business in order to successfully compete as consumer durables companies.

Companies in ‘home improvement’ products need to shift their operating model from being building materials companies to being consumer durables companies. However, they need to make significant changes in the way they operate and reorganize their business in order to successfully compete as consumer durables companies.

Home improvement products comprise goods such as tiles, laminates, sanitary ware, paints, furniture and furnishings etc. The following trends are impacting the home improvement product companies;

Changes in consumer behavior: Today’s consumers yearn for a unique experience and are getting vocal about the brands and the designs that don their houses. The real estate developers have realized this trend and are aggressively highlighting the quality of marble flooring, luxury branded sanitary-ware in their marketing material to the customers.

Increased affluence levels across the country: Due to growing incomes of the individuals across the country, there is more money at hand which people want to use for better home interiors. This trend is prominent in semi-urban areas as well.

Surge in the variety of products: Over the last few years the variety of products in this category has grown exponentially and the number of designs, styles, colors and specifications is higher than ever before.

Demand surge due to government programs: In addition to rising income levels, Government programs such as ‘Swaccha Bharat’ and “Gramin Awas Yojana” are also anticipated to generate rural demand for sanitary- ware and plumbing equipment.

Consumer durables companies boast of strong capabilities in areas like supply chain management, sales and distribution, brand building and product development. Home improvement product companies need to master these capabilities for long term success in this space.

Efficiently catering to the consumers

Home improvement products are organized in various catalogues and targeted at different customer segments, regions and price points. This complexity in the supply chain makes availability of right style at the right place and time difficult. This leads to situations of lost sales as well as non-moving inventory impacting the sales and profitability of these companies. Putting in place an efficient supply chain can be a difficult task but definitely not an impossible one. Home improvement product companies can draw inspiration from the pharmaceutical or FMCG companies who have adopted advanced supply chain practices to fulfill customer demands.

A segmented supply chain strategy that clearly categorizes the product catalogues and customers into various segments is the need of the hour. By doing this each segment will be serviced with different operating guidelines, forecasting methods, inventory norms, stocking points and replenishment modes.

Home improvement product companies have a significant portion of the product portfolio in traded products wherein products are manufactured by contract manufacturers while branding and distribution is being done by large branded companies. In this case a rigorous methodology to evaluate make versus buy allocations becomes important to maximize the bottom-line and to ensure competitive pricing. The advent of GST provides an opportunity for companies to redesign their supply chain networks to ensure optimal inventory levels, logistics cost and fulfilment rates.

Adopt a new sales & marketing model

Home improvement product companies can spruce up their marketing and sales capabilities by imbibing best practices from consumer goods or consumer durables sectors.

Consumers want to spend on brands that are aspirational. Therefore, home improvement organizations will have to invest in brand building activities that create a “pull” towards the brand. Word of mouth has a big impact on customers’ buying decisions. Reaching out to the influencers such as architects, interior designers, plumbers and carpenters will help customers gravitate to the brands.

Home improvement product companies will have to increase their physical reach, and launch product at varied price points to sell to geographically diverse consumers. Increasing the distribution is necessary to push volumes of low to mid-level stock keeping units. This calls for home improvement companies to focus on gaining market share within the multi-brand outlets as well as hardware stores. Home improvement product companies need to segregate their outreach strategy based on the target audience. For example, the younger population comprises a large proportion of home buyers and companies need to increase presence on the digital media where the younger audience does its basic research. To attract high income customers’ home improvement companies should invest in “destination stores” hosting catalogues where consumers can be coached by interior designers on the desired themes for their homes. Companies have started offering this service for a fee however, this should be seen as a lead generation exercise focusing on sales in the near term.

Launching new products and managing the product portfolio.

For consumers, aesthetic and functional value are equally important. Home improvement product companies should renew focus on product development. Companies can take a leaf out of the apparel sector which introduces new styles twice every year. To improve the new product development process, companies need to invest in basics like; putting in place a design and a market research team who work in tandem. Companies can draw inspiration from developed markets to come up with a desired portfolio of products, conduct test marketing and regularly refresh the catalogues with new styles.

Shortening the ‘time to market’ would mean better choice for consumers. This requires cross functional collaboration between several departments like marketing, consumer research, sales and distribution, research and development, manufacturing, procurement and supply chain.

Home improvement organizations should evaluate the catalogue more often to identify the white spaces and price points for new products. They should also drop old styles from the catalogue. This evaluation should be based on business indicators like market sizing, volume trends and product gross margins, pricing architecture and competitor activity.

The home improvement products sector is undergoing a paradigm shift led by changing consumer behavior and complexity of products. Companies need to invest in ‘best in class’ processes and capabilities to compete successfully in this sector.

Author is Managing Director for Accenture Strategy in India

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