TAM Construction essay
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2.0 Service Description
2.1 Needs of the Customers:
According to the American Time Use Survey, Americans spend majority of their time at home (19 hours / 24 hours) leading to an assumptions that people want to live in pleasant houses. This is one of the main reasons why people remodel their houses in varying ways ranging from; home improvement, home renovation all through to making additions to a house. There are a lot of reasons why people renovate their homes. One common reason is because people want to have a beautiful home especially if they live in an older house that has an outdated style. Moreover, people nowadays want modern looking spaces in their house while others remodel homes to upgrade the property value. Real estate can be increased in value when the house is remodeled and modernizing a house will create a higher value when it sells. In fact, many houses undergo some form of remodeling before they are sold. There are number of ways through which homes can be remodeled. Some of the most common home remodeling protocols that have been proven include: addition of a bathroom, new siding, additional room and finished basement among others.
A house can also be remodeled to serve the needs of a new homeowner. Home remodeling can provide more effective use of space especially is smaller houses with larger household. Another reason for remodeling is the wear and tear of homes. Even though Americans are staying in their homes longer than they did before, the median numbers of years Americans nowadays remain in the same houses for more than one decade home converse to the 10 years duration in earlier decades. This prolonged stay in one home thereby renders the homes in dire needs of remodeling, especially if the houses are built in places experiencing acidic rains for instance next to large factories.
A multiple reasons behind remodeling create a strong demand for construction services especially in the suburban areas where there are more house owners than renters. Given that remodeling projects can be expensive, people are looking for the best deal to remodel their homes. Additionally, they want to hire a contractor who they can trust since they are letting this person into their home. Customers also look for great quality of service as they are spending significant amount of money and they want to be satisfied with the service they obtain. Customers also want to be well informed about the detail of the project. They will want to know how the project is progressing, any updates on changes and will want to be assured that the project is staying on schedule on budget. Based on that, customers want to receive excellent customer service. Customers also have different needs in terms of the project size. Some customers want to do major remodeling where other customers want small improvements.
2.2 Service Application & Value Proposition of TAM Construction:
TAM Construction will be a residential construction company that will offer complete interior home remodeling services. This will be a small company that will have approximately 5 employees and will be managed by the owner who will work closely with the other employees to meet the diverse construction needs of the customers. The company will provide a wide range of services that will include, but won't be limited to kitchen remodeling, bathroom remodeling, painting, flooring and basement and room conversions. The company services will be centrally based in Cook Country of Illinois but will also be glad to accept projects outside of that location. Apart from meeting the basic construction requirements and services of the clients by providing on-time estimates, prompt service, clean job sites and quality materials, the company will also strive to be unique in terms of rendering excellent customer service, high quality, and all size projects at a relatively low price with an ultimate aim of providing a diverse spread of projects throughout America.
Exceptional clientele service will be expected from all the company members including the administrator and the contractors. The owner of the company will first build rapport with the customers in their first encounters for an estimate by providing consulting, taking customer's needs under consideration and building connection with the customer. This role will be performed by the owner by giving the customer sense of importance. When the customer decides to work with TAM Construction, this excellent customer service will continue. The other exceptional service will be the customer service. The contractor will approach the customer from the beginning with very professional approach where the customer will be well informed on the project. The proposal will include the cost and timeline and will break up the project into phases. A contract will meet with the client after completion of each phase and discuss progress, timing, budget and any potential risks. The customer will also get a chance to provide feedback and concerns. Additionally, all members of the company will view the customer as number one priority. The overall objective of this service is to build trust and provide service that is usually not expected from the small company. The next value proposition will be high quality. This company will focus on the best service to ensure that the customer is satisfied. TAM Construction will hire experienced individuals who will get the job done with highest quality. The owner will stay involved in the process and inspect all projects together with instilling the attribute of quality work to the employees. The uniqueness about this value proposition is the underlying price element considering that such construction services that are mostly offered by large companies will be offered from a small company. Given that the customer will feel as he or she is getting an excellent service at good value. The company will also offer all size projects. If a customer just wants a new floor in the kitchen or full kitchen this company will meet all needs.
2.3 Competitive Advantages
The competitive advantage of TAM Construction will be to provide services of large construction company at the low price. Currently many small construction companies do not focus as much on the exceptional customer service when they offer a low price. Additionally, large companies that do offer great customer service do not offer low prices. TAM construction on the other hand will offer both. Since construction is such a big and expensive project, customers will want to be informed on what is going on with the project. With time this company will also build its presence in the market and start competing the established firms for market share while slowly building trust. The most important attribute of a contractor is the reputation and the customer relationship goodwill that it enjoys due to past experiences. The company will also indulge in small and large projects providing more flexibility to the customer. They will work with the customer to provide best fit and best cost. The contractor will not try to take advantage of the customer and convince them to get the largest project, bur rather consult on the project that best fits customer needs and budget. The overall objective is for the owner to build a close relationship with the customer so the next time they want to remodel or recommend to a friend they will think of TAM Construction.
4.0 Target Market
4.1 Target Market General Overview
The construction industry, captured by SIC code 1521 (General Contractors Single Family Houses) and NAICS code 236115 (New Single Family Housing Construction), covers greater scope of construction services but also captures interior remodeling. Single family housing design and build firms and construction management firms acting as general contractors are included in this industry. These general contractors engage in maintenance, repair and home improvement work. Home improvement consists of additions and alterations to existing structures involving major interior and exterior changes.
Single family home construction industry is extremely susceptible to changes in economic factors and financial markets. There is strong negative correlation between federally controlled interest rates and the volume of new homes under construction. In general, when interest rates are low, construction work starts because of increased affordability. Additionally, consumer confidence has a significant impact on the construction industry. Since home remodeling is not a necessity, consumers put these projects on hold if they are not sure of the future.
The U.S. construction industry traditionally has had low capital requirements and low economic barriers to entry. Contractors tend to have relatively little fixed overhead. Most of their workforce is in the field on projects, not in offices. Workers are hired and let go as needed. Rather than buy large pieces of equipment, contractors often rent equipment on an as-needed basis. All of these factors impact the high number of contractors in the field. This is an easy industry to enter and therefore there is a lot of competition. In fact, small construction businesses have even more competitors given that those companies are very easy to establish.
4.2 Target Market Trends
In 2004, the total number of singe family construction, remodeling and repairing of houses stood at some 288,592. Singe family housing construction represented the largest sector of the construction industry, with 48.2% of the market. New construction of singe family houses represented 23.1%, while general remodeling of singe family houses held 20.6%. During the decline of the singe family housing construction in mi-2000s, the focus shifted to home remodeling.
The home improvement sector is observing positive growth. The value of homeowner improvements is on track to top $117.6 billion in 2010 and $133.7 billion in 2011, according to IBIS World. Many people who bought their houses during the real estate boom years realize that they won't be able to sell their house due to decrease in the market price. Their mortgages might be manageable, but after years of depreciating home prices, their equity is so low that they transaction costs of buying a new house would leave little for down payment. So these people are making their homes more comfortable for a longer than expected stay. According to the real estate agents and contractors, smaller projects like updating kitchens and baths and attic-bedroom conversions are more popular, while two-story master suites and $100,000 kitchen blowouts are decidedly out of fashion. Hidden improvements like insulation also are on the rise, as people realize that this will impact their future sale. Home-improvement retailers also see a trend toward small renovations. According to a survey conducted by American Express, 72% of affluent homeowners planned to make improvements to their houses in 2010. But they expected to spend an average of just $11,500. Baby boomers expected to retire at assisted living facilities are bypassing that option and renovating their homes to be tastefully functional and accessible.
As documented by U.S. Census Bureau, spending on singe family housing construction increased on a monthly basis for the first time in more than three years between May 2009 and June 2009, growing 2.4%. HIS Global Insights predicted singe family construction would continue to grow. By 2010, figures in the residential construction industry looked promising. In April 2010, $272.2 million was spent on residential construction starts, an increase of 406% form April 2009. This is a good sign for small companies such as TAM Construction as larger companies will exit the home remodeling business and go back to building houses and leave more work for smaller businesses.
4.3 Target Market Segmentation
The interior remodeling services are utilized by the population that owns a house or a condominium and that has sufficient income. Remodeling services are more likely needed in older houses but new houses should not be ruled out either. Small construction companies also operate in a manageable geographic area where they have adequate population that is not too small and not too big. Based on that, the target market of TAM Construction will be individuals who own a house or a condominium and who are in a particular income range. This company will operate in Cook Country Illinois and will target specific segments of that population. In the future the company might expend to other counties within the Chicago land but for now it will focus on this geographic area.
TAM Construction will place its major focus on home owners who live in Cook Country with regards to the notion that this location has a manageable size market and has diverse population. An overview of Cook Country population stipulates that the population as of June 2009 was equal to 5.3 million residents of which 1.2 million own houses or condominiums (excluding renter occupied housing units). The county is divided into thirty townships, in addition to the City of Chicago. These townships cover different towns that range from higher income household such as Park Ridge to middle income household such as Alsip (evaluation based on taxes paid). This distribution provides different set of customers who represent different needs. This type of diversity in customers will provide different size projects. This geographic segment also covers a lot of older houses in this area which will be the bigger source of customers who need remodeling services. According to the U.S. Census Bureau majority (80%) of the houses in this area were build before 1980 with 26% of houses build in 1939 or earlier. This distribution creates an opportunity for different size projects, small and large. In addition to that, Cook Country also offers favorable distribution of houses based on their value. The majority (86%) of houses range between $150K and $500K+ providing diversity as well. This also suggests that this market is attractive as older houses need more renovation than newer houses. This will helps us segment the customer base and use different approaches to attract customers.
Cook County also has a favorable distribution of different income bands. TAM Construction will target population with income of $50K and above which accounts for 68% of that population. The company will segment its customers based on the following household income bands: $50-$74K (20%), $75-$99K (16%), $100-$149K (18%), $150K+ (15%). This overall segmentation will provide approximately 800,000 owner occupied housing units that might have sufficient funds to purchase different home remodeling services. This segment will grow once the home building industry recovers. This recovery has been slow but it is moving forward as mentioned above. In a long run, the housing market will recover and there will be more home owner units. Additionally, unemployment is recovering as well slowly so our eligible population will increase as well. The Chicago unemployment decreased to 8.7% in December 2010 vs. 9.4% in December 2009. This rate dropped since August of 2010, showing improvement month over month.
4.4 Target Market Risks
The Single family home construction industry is extremely susceptible to changes in economic factors as stated above. The construction companies that build houses will be impacted by the interest rates. In theory if interest rates are low the construction of new houses will grow. Current economic environment shows that this is not always true. If unemployment is high and consumer confidence is low, demand for new homes will also diminish. But how does this impact TAM Construction? The major companies that develop new houses will shift its business to home remodeling and create more competition for TAM Construction. Additionally, overall economic state will also impact our customers who might be impacted by job market or will put construction projects on hold due to uncertain economic environment. Also, when more companies get into remodeling business the competition will increase and due to this competition increases, companies might have to cut their prices and that will impact TAM construction's biggest advantage, its low price. The good news is that the housing market is slowly improving; though decrease of new houses will impact on the overall growth of the customer base. New homes also can bring potential business for TAM Construction. Overall, our target market is heading in a more positive direction. All construction businesses took a big hit during the great recession and now they are heading into more attractive market as America recovers from the recession.
5.0 Competitive Analysis
In 2003, there were 732,175 construction companies in the United Sates, according to the U.S. Bureau of Labor Statistics. The low capital requirements and low barriers to entry make the construction business very competitive. Construction companies can be divided into three categories: large size companies, medium size companies and small companies. Therefore, this suggests that there are a lot of different potential competitors for TAM Construction in Cook County with the top competitors anticipated to be123 Remodeling, Galaxie Home Improvement and small contractors with staff of 1 to 3.
5.1 Direct Competitors
123 Remodeling is a Chicago land construction company which has been in existence for over 10 years. The company specializes in kitchen remodeling, bathroom remodeling, basement refinishing, garage remodeling, deck construction, and fence construction and roofing services. They provide full range of services that cover both interior and exterior services. This company places its focal interest on the high standards of service, quality, personal attention to clients and above all, integrity. As the company attests in its web page, building trust within long-lasting relationships with customers is their highest priority. This company is licensed, bonded and insured for over 2 million dollars. 123 Remodeling has a diverse construction portfolio and specialized divisions and subdivisions that ensure that each project is matched with the right project manager, resources and expertise.
123 Remodeling has its strength in high standards of service and quality. This company provides professional design services in addition to the standard construction services. The organized structure of it management and structure to provide complete customer satisfaction is recommendable. Since this company has a lot of overhead costs due to office staff and physical office locations, they are not able to provide low prices. This company offers customer referral rewards, discounts and gift certificates, all geared towards ensuring that their customers keep returning. The company's web site contains customer testimonials that can be summarized into very positive experience masterpiece of customers' feelings towards the company. Additionally, the company's web site is well structured where it provides many visuals on the finished projects. The company engages in sponsorships and also attends expos where it presents its services. The overall strategy of this company is to provide excellent service to the customers from designing to executing the product. They stay strong for their values and principles and try to build long term relationships with the customers.
Galaxie Home Improvement
Galaxie Home Improvement Company is a Chicago home remodeling company that uses slightly different strategy than 123 Remodeling. This company is more focused on the lower prices and being in compliance with building codes. They offer 40% to 60% savings with their manufacturer's direct savings program on cabinets, tile & fixtures for kitchens, bathrooms, additions & recreation rooms. This company focuses on the exterior remodeling ant offers 44% off on labor & materials for replacement windows, siding, porches, decks and masonry work. The company hires professional staff that is factory-trained, certified in installations, using highest quality materials. The company also offers lifetime warranty. Although this company offers high discounts, they won't be able to compete with TAM Construction in terms of price. This company has more staff and it also has physical offices. This overhead will drive the higher prices.
Another source of competition will come from small contractors who either perform work themselves or have 1 to 2 employees. The contractors can offer a competitive price as they hardly have any overhead expenses and usually hire cheap labor. These contractors usually advertise thru word-of-mouth where they form relationship with customers. One of the weaknesses of these contractors is an overall approach to the customer. They might be busy and also focused on the work that they won't provide excellent customer service. That might work to their disadvantage for benefit TAM Construction.
5.2 Indirect competitors
Indirect competitors will include individuals who do their own remodeling. They might work with more experienced family members or friends and try to remodel a bathroom, paint or do other projects around the house. There are a lot of different publications that provide instructions on how to do this work around the house. Additionally, stores like Home Depot or Menards have very knowledgeable staff that might provide consulting to home owners.
6.0 Channels of Distribution
TAM Construction will use mix of distribution channels to reach its customers. Both, direct and indirect channels will be utilized and arranged in such a way that consistent vision is communicated to the existing or potential customers. TAM Construction will use direct marketing channels such as the person responsible for presentation of the services to the customer as well as internet.
6.1 Direct Distribution Channels
The owner of the company will be the person who will present TAM Construction to the customers. He will handle all of the presentations and estimates. Since this company will be known for its excellent customer service, the owner will use a professional approach to the customer. When first meeting with the customer, this person will present needed job aids to make this company look stronger. He will come prepared with samples of the work that he will offer so the customer can have a visual. His approach will be to build a relationship with the customer and gain their trust. Since this individual is an owner of this company, he is already self motivated. Another person who will also work directly with the customer will be the person in administration. This individual will handle administrative work and billing. However, customers will contact that person if they will have any questions regarding their bills. This person will be instructed to handle customers with highest quality. This person will be trained to approach every customer with respect, professionalism and friendliness. This person will be the wife of the owner and will work from home.
Another direct distribution channel will be internet. TAM Construction will have a professional web site that will provide an overview of this company. The web site will be designed in such a way that it will have a professional look with easy navigation and customer friendly prompts. It will provide the background of the owner and stress out the overall objective of the company that will be focused on customer service, quality, various size projects and low price. The site will offer pictures of the potential projects that the company will change. With time, this company will have customer testimonials and work of actual projects. The overall structure of the web page will reflect the overall strategy of the company.
6.2 Indirect Distribution Channels
TAM Construction will also form alliance with other professionals in the field who work with home owners on other projects that are more specialized and are not competition for this company. These professionals would include plumbers, electricians, and heating & cooling and even external services companies. Both parties will advertise one another with no cost. It will be small circle of professionals who know each other and trust each other. They all will be focused on high quality work, excellent customer service and relatively low prices. These individual will see if customers have any other needs and they will suggest the services provided by one another.
TAM Construction will evaluate selected channels of distribution to ensure that they are effective and we potentially come up with new strategies that will improve them or look for new ones. The overall objective of the selected channels of distribution will be to deliver consistent message to the customer.
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