How to Spot Growth Markets (& Demand Decline) in the Home Improvement Industry

How to Spot Growth Markets (& Demand Decline) in the Home Improvement Industry

To stay competitive in the building materials industry, you have to keep an eye on market demand, along with emerging opportunities for growth and the sales potential of new or enhanced products. This involves identifying and responding to the trends that contribute to increased or decreased demand for various types of building products, or specific features therein.

To stay competitive in the building materials industry, you have to keep an eye on market demand, along with emerging opportunities for growth and the sales potential of new or enhanced products.

This involves identifying and responding to the trends that contribute to increased or decreased demand for various types of building products, or specific features therein. Market sizing research can also help your company forecast and strategize in a thoughtful and responsive way so you are investing in the right opportunities that present the greatest potential for customer acquisition, market share, and profit.

How Do You Identify Growth Markets?

In the construction materials industry, markets present opportunities for manufacturers and their products when they are growing or expanding at an increasing rate. These are known as growth markets. For example, eco-friendly building opportunities and wearable technologies in construction both represent growth markets.

Sometimes the growth is organic, being driven by population increase, economic changes, regulatory changes, or other current events. Other times, the demand for a particular product is driven by the evolution of customer preferences, new customer acquisition, the disruptive introduction of new technologies and other shifts within the industry.

Growth markets can present your company with a good opportunity for increased profits, but you have to stay ahead of the curve. To that end, construction forecasting across various customer and channel segments within the industry is crucial. It’s also very challenging.

Generating a general consensus from building professionals via a survey can be helpful, but the data is often colored by optimism. It’s more valuable to take an analytical approach to this process by measuring market demand, determining frequency of product purchases, and calculating brand shares by channel segments. These insights allow you to effectively strategize for future scenarios within the market.

How to Find Market Demand in the Residential Construction Industry

Construction industry growth is influenced by numerous demand factors. A few of these include:

  • The total number of people in a market
  • Current utilization or purchase incidence
  • The tastes and preferences of customers
  • The success of advertising and marketing campaigns and a company’s overall brand awareness in various product categories
  • The frequency of product use and quantities purchased
  • Prices paid or price shifts for related goods (particularly items that complement or could substitute your products)
  • Expectations about future demand for a product or material

On the flip side, an industry shows signs of decline when it’s not able to keep up with the rest of the country's economic growth. This can happen when a raw material used for a building product becomes scarce or obsolete, when new technologies or products emerge to replace old ones, or when demand shifts dramatically. Think of how the concrete sector is facing this challenge presently.

Keep in mind that the demand factors influencing forecasts of total-market size are often different from the factors used to determine the market share of a particular product or a product-category share. For example, the total demand for exterior paint depends in part on factors such as the number of property owners in a market, their needs and habits, the local climate and how the climate affects the average lifespan of paint on outdoor structures. However, the demand for a particular type or color of paint from a specific brand is influenced by the price and quality of that paint compared to similar products on the market and exterior design trends.

When you are forecasting demand, it’s important to first define your market and then break it down into its component parts. These segments, which could be based on end-use customer groups or distribution channels, should be narrow and focused enough that the factors driving demand can be applied consistently during your market sizing research.

What Trends Impact Demand in the Residential Market?

Knowing when to expect a change in the construction market—especially your particular segment—is valuable. It enables you to plan ahead to operate differently in decline markets versus growth markets and identify new opportunities for acquisition, distribution or revenue.

While the construction market in general tends to be cyclical, contracting every 10-15 years or so, there are other nuances to pay attention to. First, the construction market typically lags behind the U.S. economy, which means when there is an overarching economic decline, the construction market is sustainable or even continues growing for another year or two before cycling down, and vice versa.

However, historical demand for a product isn’t always a reliable variable since the relationships influencing demand change over time. Current events, the advent of new technology, and other factors can impact specific segments of the construction market or the demand for particular products. In an industry facing massive disruptions to product offerings and distribution channels alike, historical trends may or may not hold true in the present.

Take the COVID-19 pandemic, for example. This global health crisis has impacted nearly every aspect of life, including the purchasing behaviors of DIYers and construction professionals and other customers in this market.

For example, there has been an uptick in the desire for work-from-home features and products, while items made for office settings are facing decline. In the heating, ventilation and air conditioning (HVAC) world, systems and products that improve air quality and mitigate airborne contaminants are trending.  As are products related to home office remodels.

More importantly, there has been a shift in how customers are purchasing, or the distribution channels they rely on. eCommerce purchases became more prevalent and digital decision making content, like visualizers, more sought after. The trends were already there, but they were accelerated.

Lead time and the availability of products and materials are also influencing purchase decisions more than brand loyalty. Research shows that, in general, the companies who could better communicate with customers regarding those factors before, during and after the sale fared the best overall. 

Some other major trends currently influencing the construction outlook—some of which are indirectly tied to the pandemic—include the escalating costs of raw materials, an increased focus on sustainability and challenges securing adequate labor. These aren’t necessarily negative demand factors, but they may impact the markets in which you operate, so it’s important to be aware of them.

When labor is tight, options that require less labor to install, even if slightly higher in price, can prove more desirable to general contractors. Ready-frame options, for example, help mitigate some of the labor shortage headaches GCs are facing.

Using Market Research for your Construction Outlook

Paying attention to secondary research that calculates the timing of market cycles and watching for trends in the construction industry enables your company to stay nimble and successful. Commissioning your own primary research for your product category and brand specifically is even more informative. This type of data will help you define the opportunities and goals for your product, distribution and customer segment. To assist with market sizing research, our team at The Farnsworth Group collects data about population sizes, the frequency of product purchases and other factors to provide you with addressable market and sales potential by customer segment and channel segment.