It Ain’t the Price – It’s The Cost

Would you pay a higher initial price for something if it brought a lower overall cost?

By Robert Menard

Robert Menard is a speaker, author, purchasing and sales construction expert, and friend to the precast business.

Precast concrete manufacturers historically have had a tougher time selling their products compared with manufacturers of competing materials because of precast’s higher initial cost – but all that is beginning to change. In fact, precast concrete has gained market share in the growth sectors of buildings and transportation, because the marketing and selling strategy has moved off price fixation and onto the Total Cost of Ownership (TCO).

The message is that price should not be the determining factor, and savvy precasters are having success in marketing their products as a lower total cost.

Cost does not equal price
Price is just one element of cost and only an initial one. To an owner, consumer or investor, TCO is the sum of the costs of Quality + Service + Delivery + Price. Construction is a long-term capital investment in which ongoing costs can easily dwarf the initial price.

When I ask precasters what they sell, usual responses include manholes, hollow core, grease traps, wall panels, vaults and ornamentals. Unfortunately these products relegate precast to the commodity world of lowest price – yet if precast comes at a higher price, it always brings a lower TCO.

Construction consumers have many choices to solve their problems, ranging from traditional cast-in-place and unit masonry to metals, plastics and combination systems. For precast concrete to compete with this slate of choices on the basis of price alone is a losing strategy. What is worse, we may even reinforce any perceptions that precast is heavy, ugly, gray stuff. By marketing and selling precast as the lowest TCO solution, we grow market share and increase demand. And as we have seen in the oil, steel and cement markets over the past few years, increased demand means higher profits.

Our marketing and sales efforts share a unified strategy of lowest TCO. In the article “Why Precast Costs Less” ( Precast Solutions, Spring 2004, available online at www.precast.org/ publications), we examined the costs of underground precast structures versus cast-in-place concrete alternatives. Let’s turn our attention now to two growth sectors of the precast industry: wall panels and transportation.

Wall panels
Why should customers pay a higher price for precast wall panels when they can buy site-built steel stud and brick veneer curtain walls for a lower price? Precast’s Delivery advantage is the greatest cost savings and rationale for this choice. The precast wall panels for a six-story building can be ready before the job site can accept them. These panels can then enclose the entire structure in about three weeks. To enclose the same building with steel studs and sheathing, and then scaffold the structure to lay tens of thousands of bricks by hand, one by one, will take about three months – four times as long. This time savings creates a tremendous cost reduction advantage for the investors. From the moment they decide to proceed with design, the single-minded objective is opening the doors and collecting revenue to recover their investment.

Transportation
Precast is the material of choice for retaining walls, beams and girders, pavement slabs and drainage structures for airports, railroads, naval ports and especially highways because of its great time savings. In major urban centers around the United States, DOTs are upgrading interstate, state and local highways to relieve traffic congestion.

Take the example of a new on-ramp for an urban highway with four existing lanes in each direction. To build the ramp, bridges, pavement, drainage structures and retaining walls with cast-in-place concrete might require a crew of 25 carpenters, 20 laborers, five rod busters and a few months of false work. Then add a fleet of concrete trucks, pumps, cement masons and traffic control details to get the ramp completed.

Contrast this high-cost scenario with having all concrete components cast off site in certified plants. Instead of tying up the highways for months and exposing commuters and workers to unnecessary risks, tractor-trailers laden with precast concrete and small crews with heavy cranes accomplish the work in a fraction of the time, generating huge dollar savings to the local economy and lopping off hundreds of thousands of unproductive hours for commuters. Just imagine what it can do for residential applications – and we have not yet accounted for the Quality and Service cost advantages.

Quality
While the Delivery issue is perhaps the cost advantage closest to the investors’ wallets, Quality and Service are close behind. The inherent Quality of precast over competitive systems is exemplified by its superior thermal-, moisture-, sound- and fire-resistant characteristics. Although shared to a greater extent by cast-in-place and to a lesser extent by masonry, precast alone is manufactured under repeatable quality controlled factory conditions with consistent and well-trained crews. On the job site, nearly all other competitive systems suffer from understaffed and/or ill-trained personnel, who are subjected to the vagaries of weather, water/cement ratio and field conditions. For most customers, Quality and Delivery are the tandem cost advantages driving the choice of precast.

Service
The short- and long-term Service costs savings round out our lowest TCO advantage. In the long term, precast concrete costs less than wood, metal, glass curtain and plastic veneer wall systems. The permanence of high-quality precast concrete minimizes expensive and ongoing maintenance costs.

Precast distinguishes itself in the short term. The comparatively simple erection of precast wall panels exposes built-in-place systems as outdated and needlessly complex with their time-consuming and complicated logistics of multiple trades and equipment choreographed over protracted time periods. Precast simply deploys a small crew and a crane, and the work is done at a stunning pace despite the weather.

Literally and figuratively, do the math for your customers and prospects. Show them how the TCO of precast is by far the best value they can obtain. The truth is, it ain’t the price – it’s the cost.