Fundamental to marketing is the concept of segmenting markets. The construction industry is too large and diverse to be dealt with as a whole. This excerpt from an presentation in 1984 offers insight into how to segment construction:
The Six Construction Industries
Here in Washington we often choose to talk about the ‘building industry,’ and discuss issues like changes in the levels of employment, changes in quality and safety, changes in productivity, changes in opportunities and risks from foreign competition, as if it were a single industry. I don’t think this makes much sense.
In many ways the building industry is no more monolithic than the transportation industry. The transportation industry includes the airlines industry, the railroad industry, the trucking industry, and the shipping industry. There is little crossover between the organizations, the institutions, the skilled manpower, the technologies, and the R&D base that are utilized by those sectors of the transportation industry.
Practically no Federal policy can affect each of the separate industries within transportation. But since you don’t want too many units that report to the president, you can create a Department of Transportation and lump all of those things that have to do with movement under it. It also is useful to talk about a transportation industry for economists who want to make measures of the national economic sectors. It avoids having that many more pages of statistics if you can somehow or other have a number that represents the contribution of the transportation industry to the gross national product.
The building industry, or the building industries, as I prefer to call them, are combined for much the same reason. It makes sense to look at the several building industries if what one wants to identify is expected changes in the industry.
For our purposes, it seems to me there are six industries which react quite differently to those kinds of issues:
• The first is the housing industry (Architect as product designer) – the collection of organizations, technologies, skills and financial mechanisms whose purpose is to convert raw land, usually purchased on a speculative basis, into dwelling units that can be sold or rented to individuals and families. The major distinction for the purpose of analysis is that this process is begun before there is a buyer in mind. The builder of these houses builds a house against a potential market, not against clients who come to them and say “These are our needs, and we want a house of this kind.” Very few houses in the country are done that way, and I put those in the fourth category.
• The second is what I call the manufactured building industry. I call this a separate industry because it is a collection of organizations, technology, labor and financial mechanisms whose purpose is not to convert land into buildings, but rather to manufacture off-site units that are anywhere from the whole unit to subassemblies, which can be transported to the site. A few companies like the Ryland Corporation own house manufacturing capabilities, as well as build conventionally, and I’m sure we can find all kinds of exceptions at the margin for each of these.
• The third industry I call the commercial developers. I mean by this people who buy raw land and convert it into buildings other than housing – people who develop industrial parks, people who develop shopping centers, or people who develop office buildings. Again, the character of this industry is that there is no client in advance. There’s a prospective market out there, and there’s land, and there’s investment to be made in building something on this land which will eventually be leased or sold to a set of users which will emerge.
• The fourth industry, is the one that most of us think about when we talk about ‘the building industry.’ It is the conventional collection of organizations, design and engineering firms, banking institutions, general contractors and subcontractors, regulatory bodies, etc. that build buildings for specific clients: an agency of the Government, a private client, or sometimes a wealthy family. The client sets the requirements, decides on where they’re going to locate, usually purchase their own land, and then enter into a process in which a design is created for them that’s eventually put out to competitive bids. The ‘building industry’ listed here is the only industry in which competitive bidding occurs. It is practically the only industry of building where there will be a major change if there is a technological breakthrough. It’s the one building industry where bidding can reflect market conditions as a result of change in prices.
None of the industries listed above really have much competitive bidding. Sometimes market competition works in the housing industry, but only over a long period of time. The major impact of the housing industry, as we’ve mentioned already this morning, is what it cost to buy the land, and what is the mortgage rate that they have to pay? We used to speculate we could practically build a house for nothing, and it wouldn’t change the price which people would pay for housing, because the market price for housing was determined by a whole lot of factors other than the technology of building.
• The fifth industry, the remodeling industry, is one we sometimes forget. Of the $250 billion that represent s our 10 percent of the gross national product, is included almost $50 billion in this remodeling industry. This probably does not include rehabilitation of existing buildings in the sense that an architect and contractor might do it, nor does it include rehabilitation of the kind that homebuilders do. It means the remodeling industry that sells things from aluminum storm sash, to screen doors, to new store fronts for small businesses; that is financed by short-term financing rather than increases in mortgages. It is not regulated by the building codes, by and large. For a long time, it could be characterized by the blue suede shoe type of salesman.
• The sixth industry, and the one that OTA chose not to cover in this workshop, is what I call the heavy construction industries. These industries build highways, dams and facilities. Their clients are primarily public agencies and utilities.
Chusid Associates uses a similar methodology when we begin segmenting the construction industry as part of a marketing plan for our clients. Of course, there are additional segments such as DIY and the Operations and Maintenance business. And there are other ways to segment the "industries". But we will save them for future posts.
By John P. Eberhard, former Executive Director of the Advisory Board on the Built Environment at the National Academy of Sciences. From: Technology & the Future of the U.S. Construction Industry, AIA Press, 1986. The entire report is available online.
The Six Construction Industries
Here in Washington we often choose to talk about the ‘building industry,’ and discuss issues like changes in the levels of employment, changes in quality and safety, changes in productivity, changes in opportunities and risks from foreign competition, as if it were a single industry. I don’t think this makes much sense.
In many ways the building industry is no more monolithic than the transportation industry. The transportation industry includes the airlines industry, the railroad industry, the trucking industry, and the shipping industry. There is little crossover between the organizations, the institutions, the skilled manpower, the technologies, and the R&D base that are utilized by those sectors of the transportation industry.
Practically no Federal policy can affect each of the separate industries within transportation. But since you don’t want too many units that report to the president, you can create a Department of Transportation and lump all of those things that have to do with movement under it. It also is useful to talk about a transportation industry for economists who want to make measures of the national economic sectors. It avoids having that many more pages of statistics if you can somehow or other have a number that represents the contribution of the transportation industry to the gross national product.
The building industry, or the building industries, as I prefer to call them, are combined for much the same reason. It makes sense to look at the several building industries if what one wants to identify is expected changes in the industry.
For our purposes, it seems to me there are six industries which react quite differently to those kinds of issues:
• The first is the housing industry (Architect as product designer) – the collection of organizations, technologies, skills and financial mechanisms whose purpose is to convert raw land, usually purchased on a speculative basis, into dwelling units that can be sold or rented to individuals and families. The major distinction for the purpose of analysis is that this process is begun before there is a buyer in mind. The builder of these houses builds a house against a potential market, not against clients who come to them and say “These are our needs, and we want a house of this kind.” Very few houses in the country are done that way, and I put those in the fourth category.
• The second is what I call the manufactured building industry. I call this a separate industry because it is a collection of organizations, technology, labor and financial mechanisms whose purpose is not to convert land into buildings, but rather to manufacture off-site units that are anywhere from the whole unit to subassemblies, which can be transported to the site. A few companies like the Ryland Corporation own house manufacturing capabilities, as well as build conventionally, and I’m sure we can find all kinds of exceptions at the margin for each of these.
• The third industry I call the commercial developers. I mean by this people who buy raw land and convert it into buildings other than housing – people who develop industrial parks, people who develop shopping centers, or people who develop office buildings. Again, the character of this industry is that there is no client in advance. There’s a prospective market out there, and there’s land, and there’s investment to be made in building something on this land which will eventually be leased or sold to a set of users which will emerge.
• The fourth industry, is the one that most of us think about when we talk about ‘the building industry.’ It is the conventional collection of organizations, design and engineering firms, banking institutions, general contractors and subcontractors, regulatory bodies, etc. that build buildings for specific clients: an agency of the Government, a private client, or sometimes a wealthy family. The client sets the requirements, decides on where they’re going to locate, usually purchase their own land, and then enter into a process in which a design is created for them that’s eventually put out to competitive bids. The ‘building industry’ listed here is the only industry in which competitive bidding occurs. It is practically the only industry of building where there will be a major change if there is a technological breakthrough. It’s the one building industry where bidding can reflect market conditions as a result of change in prices.
None of the industries listed above really have much competitive bidding. Sometimes market competition works in the housing industry, but only over a long period of time. The major impact of the housing industry, as we’ve mentioned already this morning, is what it cost to buy the land, and what is the mortgage rate that they have to pay? We used to speculate we could practically build a house for nothing, and it wouldn’t change the price which people would pay for housing, because the market price for housing was determined by a whole lot of factors other than the technology of building.
• The fifth industry, the remodeling industry, is one we sometimes forget. Of the $250 billion that represent s our 10 percent of the gross national product, is included almost $50 billion in this remodeling industry. This probably does not include rehabilitation of existing buildings in the sense that an architect and contractor might do it, nor does it include rehabilitation of the kind that homebuilders do. It means the remodeling industry that sells things from aluminum storm sash, to screen doors, to new store fronts for small businesses; that is financed by short-term financing rather than increases in mortgages. It is not regulated by the building codes, by and large. For a long time, it could be characterized by the blue suede shoe type of salesman.
• The sixth industry, and the one that OTA chose not to cover in this workshop, is what I call the heavy construction industries. These industries build highways, dams and facilities. Their clients are primarily public agencies and utilities.
Chusid Associates uses a similar methodology when we begin segmenting the construction industry as part of a marketing plan for our clients. Of course, there are additional segments such as DIY and the Operations and Maintenance business. And there are other ways to segment the "industries". But we will save them for future posts.
By John P. Eberhard, former Executive Director of the Advisory Board on the Built Environment at the National Academy of Sciences. From: Technology & the Future of the U.S. Construction Industry, AIA Press, 1986. The entire report is available online.