Pricing construction work: a marketing viewpoint

Abstract

Recent work on pricing has shown that neoclassical microeconomic theory (NCMT) is preferred to tendering theory and that implied by absorption, or full-cost, pricing of construction work because of its explicit treatment of market conditions, competitor behaviour and firm capacity levels. Applying NCMT in practice, however, requires the consideration of pricing from a marketing perspective. This paper examines the challenges involved in terms of the two prevalent marketing paradigms—marketing mix and relationship marketing—to pricing construction work generally, and the traditional contracting (TC), design and construction (D&C) and speculative building (SB) procurement systems in particular. In general, the marketing mix (MM) approach, having the closest fit with NCMT, is most aligned to current practice. However, conceptual and practical limitations are identified. Relationship marketing (RM) is theoretically more applicable, yet has been largely overlooked in practice due to the transaction costs and investment involved. Nevertheless, some RM tools are increasingly being adopted in response to demand criteria and clients' needs for continuous improvement, offering a challenge to NCMT-related pricing. In terms of specific procurement arrangements, SB would seem most suited to the MM approach over the long term as it is closest to consumer good markets. D&C on the other hand is considered to be the most price sensitive to demand factors, with SB the least because of its ability to control resources, specifically land and financial packages, while TC is most suited to developing RM practices.Marketing, marketing mix, pricing policies, relationship marketing,

Construction Marketing: Developing a Reference Framework

“…Although studies, especially that of Skitmore and Smyth [71], have examined the pricing strategies from the marketing viewpoint, the dominant pricing approach in the industry is the cost-based method, while the marketing perspective is neglected in practice [72,73].…”

Differences in decision-making criteria towards the return on marketing investment: A project business perspective

“…Cova and Salle, 2011). On the output side, margins are of limited use in most project markets (Gruneberg and Ive, 2000), for example the percentage mark up on projects is low and sometimes negative for survival reasons during economic downturns (Skitmore and Smyth, 2007). Final accounts and gross margins are subject to long time lags.…”

Making sense of stakeholder values emergence

“…For example supply chain management (Green et al, 2005;Fernie and Thorpe, 2007), knowledge management (Tennant and Fernie, 2013), organizational learning (Barlow and Jashapara, 1998;Henderson et al, 2013), front-end and service-led approaches (Johnstone et al, 2009;Morrey et al, 2013;Morris and Hiugh, 1988;Edkins, et al, 2013;Morris, 2013), uncertainty (Perminova et al, 2008) and the establishment of customer relationships (Pryke and Smyth 2006;Skitmore and Smyth, 2007;Fellows and Liu, 2013). Still others have discussed the commitment, chemistry and emotional attachment that result from project participation (Nicolini, 2002;Dainty et al, 2005).…”