HOUSING SECTOR ( CONSTRUCTION )

PEST Analysis of Construction Industry

PEST refers to all political, economic, social and technological factors affecting any industry.

The objective of PEST analysis is to objectively study the environmental factors facing a firm,

company or an industry. The external environment affects the company in many different

manner and unlike internal environment it cannot be influenced much.

Political Factors

The political factors affecting the construction and housing industry mostly consists of

documentation’s and permits that has to be obtained during the various phases of construction of

a structure and its sale.

Building Commencement Certificate: Construction of a building or any such structure

cannot take place unless and until the builder or the company secures a commencement

certificate from the authority, in case of Mumbai it is the BMC who gives IOD&CC-

Intimation of Disapproval & Commencement Certificate.

Floor Space Index (FSI): FSI is basically a ratio, which determines how tall can

buildings or a structure can be constructed on a particular plot. The local authority issues

it.

Occupation Certificate: After the completion of construction work of a building, the

builder or the company has to secure an Occupation Certificate without which the flats in

the building cannot be occupied for residential or commercial purposes.

Brihan Mumbai Corporation [BMC] Developing Plans: BMC’s developing plans

form the most basic criteria in selecting a site. These developing plans chart out pre-

defined areas, which the BMC has already allocated for certain purposes.

E.g. In a given area, some land is reserved for plantation/farming, some piece is kept for

industrial establishments like the MIDC area and the other one reserved for residential

purposes. So the Builder finds out the type of land, which is suitable for his purpose, i.e.; if

he wants to build up a residential complex, then he has to do so in the area reserved for

residential purposes; as per the BMC’s developing plans.

CRZ (Coastal Recovery Zone): According to this rule a builder cannot carry out any

construction within the radius of half kilometer from sea.

TDR (Transfer of Development Right): This right is available to a builder for

utilizing the additional FSI. Normally TDR is given by the local Municipal

Authority who acquires the portion of land of builders either for the purpose of

constructing road or for making gardens.

Others: Apart from the above mentioned points there is also tax exemption that is

given for the construction of building on the land having area of more than 1 acre.

Economic Factors

Fluctuations in prices of inputs: Many builders tend to stop work when the prices of

inputs like cement, iron etc goes up so as to wait for the time when they expect the prices

will come down. This result in unnecessary delay in the work and the cost of wasting

time would actually be more than the increase in price.

Changes in demand: Changes in demand due to factors like changes in disposable

income of prospective buyers and inflation. Also with the easy availability of housing

loans and tax exemption on loans the demand for houses is rising.

Future Growth & Resale Value: Any project must be located in an area that if not

fully developed must at least be on the way. This is because people prefer those areas

having high resale value and will fetch them a good amount of gain.

Stamp Duty & Registration: Payments of Stamp duty followed by the registration of

the agreement are two important acts when one enters into an agreement with a

developer/seller. With the decrease in the stamp duty by 50% it is considered as a good

sign for Construction Sector.

Social Factors

Credibility of the company/firm: People don’t know what kind of materials has been

used in the construction of a building or a structure. Credibility of a builder or the

company plays an important role in convincing the buyer to buy the house and be sure of

the quality of construction work done. A low credibility or image can lead to poor

financial performance. A good image is not just built in a day, it takes years of servicing

the society through following high standards of work in the process of construction and

sale.

Perceived Image of the property developed: A flat in a so-called “posh” area may cost

much more than a one in a “not so posh” area. This factor can also determine the success

of failure of a project. A flat is selected on the basis of infrastructure facilities like water

availability, transport facilities, nearness to schools, colleges, hospitals, shopping

complexes, leisure centers, etc.

Building Facilities: The builders may offer buildings that have swimming pools, health-

clubs, gyms & parks.

Technical Factors

Due to technical nature of the construction process, the technical environment keeps on changing

everyday. There are developments in techniques used, materials used and various other such

aspects of the construction business. A few of such developments are as follows

Pre-structured Concrete Blocks: These are blocks of concrete, which are made in the

factories according to the dimensions of the building or structure to be built. It is just like

a jigsaw puzzle where these blocks are put together using a huge crane and joined

together using mortar by workers. This enables quick completion of work and also

economies of scale.

Mixture of Cement and Sand: nowadays in order to save time the constructor can order

the mixture of sand and cement directly from the suppliers as against the traditional way

of ordering cement and sand separately and then filtering them and then mixing it.

Other Equipments: other modern machines that are used in construction are the use of

huge drilling type of machines to dig the ground, which was before done by workers.

7 P’s of marketing mix:

PRODUCT:

In marketing product refers to the totality of the offering.

In Construction industry the total product includes services offered by the contractor in the

support of the core product i.e. physical product.

For the construction industry products are :

Physical: houses, public and commercial facilities infrastructure & building products.

Service: expertise consultancy & design

Persons and reputation: eg hafeez contractor

Ideas and proposals: urban regeneration, regional development and competitions

Essentials: water gas electricity telecommunication, transport facilities

Highly desirable: schools, hospitals, shopping complexes, leisure centers

Desirables: environmentally secure, adaptable.

Product offerings can be explained through the total product concept which consists of core

product, formal product and augmented product.

In the Housing industry:

The core product consists of : permanent accommodation / living space. The format product

consists of : locations, utilities, electricity, brand name, availability of schools and hospitals

nearby.

The augmented product consists of : security available clean environment, amenities.

PLACE:

Product has to reach the ultimate buyer so the company works with its intermediaries to bring to

bring their product to the market. Marketing channels perform work of moving goods from the

producer to the consumer.

In the housing and the construction industry construction cannot be transferred but here

intermediaries transfer information of distinct places about the availability of accommodation so

that not having any idea about these constructions get to know about it. In this industry

distribution is done through real estate agents, who acts as connecting tool between the consumer

and the provider.

PRICE:

Agreeing the price for a piece of work seals the relationship between contractor and the client. It

is the central feature, and reflects the value placed on the relationship.

Prices is based on the combination of:

What the market expects

What the client can afford

The nature of competition in the sector

What the contractor can afford to work for

Any specific factors concerning the particular job e.g. location material used

What is being agreed and paid for- whether completion of a bldg or wider process offered

supported by maintenance, pre sale and after care agreements?

Pricing considerations

For housing an construction industry there are many considerations:

Capital projects & bldg activities are priced so that variable costs- the costs incurred as a

result of gaining the work-are covered. Ideally the price also makes a contribution to the

fixed costs of the contracted org. It is also necessary to consider charges incurred by the

contractors as the result of having to underwrite the project from inception to delivery &

from the need to acquire any specialists equipment and expertise necessary.

Building products are priced so that an individual perception of quality value and service

are at a level that the size and nature of the can sustain. it is also increasingly common to

find differentiate pricing approaches as competitors seek real and perceived price

advantages.

PEOPLE:

The people in housing and construction industry can be divided into groups:

Those who develop the product

They consists of location hunters architect builders. They are required to have technical skills of

geological mapping soil testing building designs and so on. The possessions of this skills is of

utmost importance because building cannot be constructed on all types of land. Also materials

use to build houses in different regions because of climatic differences. E.g. in England most

houses are builds of woods whereas wood is not a viable portion in the tropical area. Builders

who do the final construction consists of civil engineers skilled and unskilled labor

Those who market the product

These consists of marketing people who may or may not have civil engineering background but

certainly have the skills of understanding the customer as a well as the product. The marketer

uses all the tools that help to overcome the unique characteristics the service industry. It includes

the construction of a sample flat, which will break the tangibility factor intensive advertising to

overcome the perishability factor and so on.

PROCESS:

Service Company can design a superior delivery process. Because of heavy initial, capital

investment, long gestation period and a speculative tendency (irregular demand) housing and

construction industry works other peoples money i.e. construction begins with advance booking

and then customers are suppose to pay installments most of the payment is made after the

product has been handed over this strongly experiences intangibility aspect of this industry.

In this industry tangible industry is supported by services in which the services offered enhance

the client appeal for the product this relates to all aspects of the building and civil engineering

where the creation of [particular facility is supported by the project and environment

management, client liaison and specialist consultancy services and sometimes through maintain

refurbishment upgrading and facilities management services and for public project sometimes

also for general services to wider community.

PHISICAL EVIDENCE:

A service industry can develop a more attractive service environment where a service can be

delivered. In the housing and the construction, sample houses photographs and posters of

previous achievement can be displayed in construction offices or those can be shown to the

customers when they come foe enquiry gets attracted to it.

The need to place the client need rather than the contractor expertise at the core of all

activities

Attention to all aspects of project design and inception, and the development of presales

services and activities the service aspects of work in progress and after sales activities.

Attention to quality and durability of the project when complete.

Acknowledgement that presentation is as important as technological expertise.

Continuous attention to service, service extension and service development

Taking the truly enlightened view of the needs wants and demands of the clients and

commissioner of work the pressure on contractors and consultants and understanding

them

Total enduring impact of activities on the particular environment and location in which it

takes place.

PROMOTION:

The construction industry is concerned with following forms of production:

The promotion of its capabilities and expertise to client and potential client

The promotion of its finished products to the community and society at large

The promotion of professionals within the industry to each other promoting specific general and

continuing inter relationships and confidence between architecture, contractor quality surveyor

planner other consultant civil engineers and sub contractors.

The promotion of general confidence, public sympathy and support for activities.

The overall purpose of promotion is:

Promotion activities of the construction industry can be divided in following:

Primary promotion

Direct sales:

This is targeted at client’s potential clients and other capable of using the distinct expertise on

offer. It involves opening up client face to face contact with those commission work and inviting

tenders and presenting the distinct expertise on offer in the client’s best interest.

Targeted direct market: If this is to be effective it requires knowing who the people with influence are promotional

material, brochures, and achievements can then be arranged and presented and if necessary

specially prepare on client or sector specific basis.

Secondary promotion

General advertising:

General advertising especially in the trade press to ensure continuing general awareness. From

time to time some construction companies have engaged in television and radio ads.

Logo design and reinforcement:

Billboards, hoardings and perimeter fences.

Attendance at trade, professional and regional fairs and exhibit

Other efforts include:

Speculative designs and proposals

Tendering

Tertiary promotion

Positive media coverage

it is in various forms e.g. Contractor’s places the hoardings at side of the finished bldg stating

completed six months ahead of schedule

General positive pubic relations:

the current activity that comes under this hading at present includes general support for schools,

colleges and universities and contribution to the general amenities to communities

Marketing:

Marketing the Construction industry forms a very crucial part. A good awareness level is

required for your product to be successful. Marketing under this sector is done through various

mediums such as:

Advertisements in newspapers and magazines, television and radio and also through e-

mails and websites

Sole selling agencies: These are agencies that are given the contract of marketing the

product who are responsible for the sale of the product.

Hoardings: These hoardings are put up at the site and contact numbers are given.

Hoardings are also put up at railways, roadways and on BST buses, etc.

Marketing through Estate agents: These estate agents also called as consultants act as

middlemen between the customer and the builder. They are provided with brochures and

site maps.

Target market:

The target market i.e. determining the customer are based on the following considerations:

1. Locality: The region where the building is constructed and the type of crowd it will attract

will have varied expectations. E.g. whether its in the suburbs or south Mumbai

2. Income group and family size: Depending on the budget of the customer, a particular

income group people will be given specific type of amenities. In a country like India, every

product is formed after taking into consideration the family size. E.g. carsOccupation: There

are colonies and societies set up for people from the same occupation also employed by the

same company e.g. Indian oil nagar at Andheri (west) and Railway quarters for the railway-

employed people.

3. Religion, races and social class: There are societies for people from a particular caste

e.g. Parsi colony at andheri (west)

Service encounter:

The total number of interactions between the service provider and the customer is known as the

service encounter. These interactions are called as the moments of truth.

Construction is a secondary service sector unit but is gaining much importance now. In this

way, people (customer) coming directly in contact with service provider are very low.

The moments of truth here are during:

1. When the estate agent, who acts as a middleman, fixes a meeting between the service

provider (builder) and the customer (buyer). This is the first meeting/ interaction where

negotiation takes place.

2. The final meeting when the deal is finalized between the builder and the buyer to fulfill

all the formalities.

This falls under low direct contact service.

Service quality: RATER

The 5 dimensions of quality can be explained as follows:

RELIABILITY

Reliability under construction would mean if the builder gives timely possession to the buyer’s

and fulfills all his commitments.

ASSURANCE

Credibility: This is the trust developed by the builder, the goodwill that he has attained since so

many years. E.g. Raheja builders , people know that if they go to Raheja’s they wont be cheated.

The trustworthiness is maintained since years.

Security: Strong foundation of building earthing, proper indicators on towers as a safety

measure, the building exterior paint to be stain resistant.

Courtesy: Respect your customers and their suggestions. Be friendly and understand their

complains.

Competence: the personnel have to be knowledgeable in their concerned fields so that any issue

raised on them will sort out as soon as possible.

TANGIBILITY

In construction, major quality dimension is the tangibility. Facilities provided are the tangible

factors such as e.g. a builder shows a furnished flat he gives good fittings & fixtures, furniture,

aqua-guard, intercom facility, elevators, etc. the most important tangible factor is the locality of

the building.

EMPATHY

Access: The customer should be able to easily access any information regarding our product. The

ways to access can be the site office present at the site itself, websites, some organizations also

have the facility of call centers, etc.

Communication: Listening to the customer’s needs and communicating in an easy language.

Understanding: To understand their needs and make changes according to their necessity.

RESPONSIVENESS

Willingness to provide prompt service. There are people appointed in large organizations for

handling queries of the customer.

Complain handling:

In Construction, there is a standard way of handling complains, the customer has to give his

complain in writing to the builder that can be before possession or after possession and within 7

days action is taken. This also shows after sales service given by the constructors.

The procedure to lodge these complains can be explained as follows:

Screening and logging:

The date the problem occurred; a description of the problem, and any other information should

be formally being given in writing to the builder

Investigating:

After the builder receives the complain, he gathers facts about the problem and investigates on

the issue.

Acknowledging:

Let the customer know that the matter is receiving attention and how long it will take to resolve

the issue.

Formulating a solution:

While formulating a solution, the important criteria to consider include the warranty obligations,

customer’s expectation, and the cost versus benefit of alternative solution. Here, within 7 days

appropriate action is taken after considering these important criteria’s.

On person within the organization has the ultimate authority and responsibility for customer

relations.

When a customer complains they expect 3 things:

1. Outcome fairness: In construction, if the builder fails to construct the building within the

mentioned period, then he has to give his customers a compensation in the form of providing

housing facility to them for the remaining period. e.g. if the construction of the building is

delayed by 6 months then he has to provide the buyer’s with housing facility for 6 months.

2. Procedural fairness: Here, the builder takes the responsibility to solve the complain

within 7 days of receiving it in writing.

3. Interactional fairness: The builder listens to the problem of the buyer and tries to

resolve it. Listening plays a very important role in communication. It is always

considered here that the “Customer is always RIGHT”