2023 Business Planning Priorities for Cross-Functional Product Teams

2023 Business Planning Priorities for Cross-Functional Product Teams

Home improvement products manufacturers and suppliers need to be looking at emerging market dynamics to tee up for a strong 2023. To keep products moving in 2023 and beyond, companies will have to fight for market share again and present a strong value proposition to customers.

The winds of change are still blowing strongly in the housing market and for the manufacturing sector broadly. As such, building products and home improvement manufacturers and suppliers need to be looking at emerging market dynamics to tee up for a strong 2023.

Our team at The Farnsworth Group recommends that your Product Development, Channel, and Marketing teams make the following a priority:

  1. Understand Where Demand Is Coming From
  2. Update Your Merchandising Strategy
  3. Focus on Brand Loyalty
  4. Competitive Mindset of Taking Share

Let's dig deeper into why these four focuses should be core to your go-to-market strategy and the efforts of your teams.

1. Understand Where Demand Is Coming From in 2023

The current market conditions are so choppy right now that you can find data to support almost any argument you want to make, and if you spend enough time following various housing market commentators you will hear just about every conceivable case to be made.

So, what should you trust? We look at various market fundamentals and from those fundamentals, our position has been, and remains to be, that demand will come primarily from the existing home, contractor side of the market.

Because home values remain high, the Joint Center for Housing Studies (JCHS) anticipates remodeling may perform better than new housing.​ Contractor activity fell then recovered during the pandemic, and remodeling continued rising during 2021. JCHS expects activity to continue rising in 2022 with growth slowing entering 2023.​

Declines in homeowner mobility, combined with high mortgage interest rates compared to the last 5 years, combined with changes to local building codes and regulations are paving the way for and increases in remodeling activities and investment into ADUs over moving houses. The existing supply of homes is still only about a 3-month supply based on data from the U.S. Census Bureau and the National Association of Realtors and overall existing home sales are down substantially year over year.

With more homeowners staying put and substantial equity in their homes from large home value gains in 2020, 2021 and part of 2022, they’ll turn to pros to complete larger projects that make their home what they want it.

Home sales react to changes in mortgage rates and indicate broader economic trends, such as housing supply and demand.​ Existing home sales rose steadily since 2020 due to new, pent-up demand and increased mobility. This rebound caused existing home values to rise through 2022. With rising rates, continue home price increases, low consumer confidence, home sales are down substantially YoY.​

2. Update Your Merchandising Strategy

A strong merchandising strategy is made up of 2 primary components: what you should make and how you price it. Over 2021 and 2022, many manufacturers kept up a steady cadence of price increases without causing damage to unit sales. The past couple of years, availability was all that mattered, so customers were willing to purchase a higher priced, “Best” option product if nothing else was available.

Not anymore.  

Going into 2023, your teams need to reset their internal pricing practice expectations and simultaneously reintroduce entry-level SKUs to ensure customers have options as they face more budget sensitive homeowners and building owners.

Homeowners and contractors alike are facing pricing pressures. That $100K remodeling project may now be a $75K project because of rising costs to borrow money and inflationary pressures on budgets. This reality is forcing homeowners to make concessions and is putting contractors on their back foot to really focus on cutting material costs to win the project bid and keep their businesses running at a decent profit margin.

This also means that customers are looking for options that are “good enough” to get the job done, and they are going to be more hesitant to splurge on the “best” option available to them without having a compelling reason to do so. The Farnsworth Group has been tracking the impact of higher material prices, and as of October, 22% of homeowners doing a project spent less than planned, along with 16% 16% buying a cheaper brand or product.  31% of Contractors purchased a cheaper brand or product in October.

Your next move should be to provide SKUs that cover your bases from good, to better, and best. Use custom market research to hear directly from your customer base on what is critical in product selection vs what is nice to have, and inform your 2023 merchandizing and pricing practices.

One other note: focus your sales forecasts on unit sales rather than dollars to benchmark your performance metrics.

3. Work to Reduce Brand Switching

Expect to see a more traditional, competitive environment where you must maintain your customer base despite ongoing levels of brand switching behaviors among pros and homeowners through 2023.

2020 and 2021 were years of logistical challenges that forced many building product manufacturers to trim down product lines and reduce SKUs given market conditions. As availability for many categories remained scarce, it forced customers to try new brands unless they wanted to wait months for certain products to be available. However, you may not have felt the impact to your revenue because there was a high increase in total demand.  Next year that volume will be flat or 5% YoY, which is a more typical year.  Therefore, if you want to grow, you must compete for the customer and keep them.

Because of the availability issues in 2020 and 2021, contractors and DIYers became very willing try new brands and over 90% of those trying new brands reported being satisfied with the new brand. As contractors are pressured to reduce material costs to win construction and remodeling project bids among similarly cash-strapped homeowners, we expect this brand switching behavior to continue, but for different reasons than in years prior.

In October 2021 24.2% of Pros tried a new brand or manufacturer for the first time. This increased to 30.4% in October 2022. In October 2021, 35.5% of Pros tried a new product for the first time. This increased to 45% in October 2022. View more.

Your Product, Marketing, and Channel teams should be working to refine your SKU mix to cover good, better, and best options to help prevent your customer from switching brands, keeping them loyal to your brand.

To this end, it is important that your teams understand the distinctions between “deliver” and “delighter” product attributes across your brands. In other words, your teams need to seek clarity on which product attributes your customers consider to be a basic requirement for purchase and which product attributes add value to their project.  

You should be working to hear directly from your customers about their key purchase drivers.

For example, at a bare-minimum, a battery-powered leaf blower needs to be powerful enough to move damp foliage at scale. The value-adds may come from product attributes like sound-dampening and lower cost battery packs.

Qualitative and quantitative customer usage & attitude research will be able to provide this information. We recommend that you first lean into Qualitative research to understand more deeply what is influencing customer behaviors, especially as market conditions are shifting.

4. Keep Investing in your Marketing and Advertising Efforts

The worst kind of scenario you face is reducing your marketing and ad spend and losing market share due to lack of information, lack of visibility, and declining customer delight. It can take decades to recover market share that was lost over just a year or two and you don’t want that.

In fact, your teams should be behaving in opposite fashion. You should be investing MORE into your marketing and advertising efforts in 2023 than you did in 2020 and 2021, because you will be fighting for decreasing demand.

2023 will ushering in a season of increased project-based sales potential, which means you also need to have penetration in the DIY market, contractor market, and among facilities managers.

Information from your marketing and advertising vendors about the ROI of their campaigns is not enough.  You need to hear directly from your customers about which media channels they are using to conduct project and product research specific to your category during their path to purchase.

Use the information you have gathered that sheds light on customer usage, attitudes, and path to purchase behaviors to prepare your product messaging for 2023 marketing campaigns.  Know who to target, what to say to them, where to say it, and when to say it.

Don’t let up on the gas.  Gaining share in competitive markets is critical if you want to increase revenue.

Focus on messaging that will enable you to increase market share among DIYers, Facilities Managers, and Contractors.

Next Steps for Your Teams

To keep products moving in 2023 and beyond, building products, home improvement, and lawn & garden companies will have to fight for market share again and present a strong value proposition to customers.

Building material product sales are still strong, and are projected to remain positive despite slowing, so if your company is seeing lagging metrics, do not pass off those metrics as the result of a cooling market.  

All indications are that homeowner intent to complete remodeling projects is still high, which we know has a positive correlation to retail sales.

If you are plagued with questions about what’s going on in the mind of your customers, how your brand health is fairing, and what kinds of markets you should be targeting to achieve year over year company growth, our research team at The Farnsworth Group can help.

For over 30 years, manufacturers and suppliers in the building products, home improvement, and lawn & garden industries have trusted our primary research team to gain deep insights in their customers’ behaviors, their go to market strategy opportunities/risks, and their overall market presence.

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