Why The Older Generation ‘Knows’ The Market Price Of Aggregates (Or So They Think).
By Barry Hudson
There’s a peculiar phenomenon in the world of aggregates (yes, we’re talking about gravel, sand and stone – not fine wine) where the most experienced generation of industry professionals often dismisses the need for a formal pricing process. “Why waste time with all that fuss?” they scoff. “I know the market price.” It’s a charming level of confidence, really – assuming the market hasn’t changed since the last time they checked. You know, maybe sometime around the Nixon administration.
Nostalgia Economics
The seasoned generation grew up in a world where relationships and handshakes sealed deals, and pricing was a straightforward conversation between two people over coffee or maybe at the golf course. Back then, the market was relatively simple – fewer players, fewer variables and crucially, fewer regulations.
But the world has changed. Market forces have evolved. Aggregate pricing now depends on everything from fuel prices to supply chain disruptions, environmental policies, and even global construction booms. And yet, some veterans cling to the belief that the market price exists as some immutable truth etched into stone
‘Gut Instinct’ vs. Reality
“Why waste time on a pricing process?” they ask. Their gut has served them well for decades, so surely it must still be accurate, right? Nevermind that the gut might be poorly calibrated to modern complexities like inflation, regional demand shifts or competitive pricing from digital-first players who use actual data.
Ironically, this “gut instinct” is often the fastest route to underpricing or overpricing products, either losing the company valuable contracts or leaving money on the table. But hey, why let numbers and trends get in the way of a good gut feeling?
The Data Revolution: A Bridge Too Far?
For those of us living in the 21st century, a pricing process isn’t just about crunching numbers – it’s about harnessing technology to assess market dynamics in real-time. Software tools such as Price-Bee.com can track demand, competitor behavior, and of course your own pricing history and performance.
But here’s the kicker: suggesting such tools to some older industry professionals is like proposing witchcraft. “Why do I need a computer to tell me the price of a ton of gravel?” they ask, often while jotting down figures on a yellowing notepad.
The Cost of Certainty
This refusal to adapt doesn’t just impact pricing – it impacts the bottom line. Companies that don’t embrace modern pricing methods risk being undercut by competitors who have no qualms about diving into data. Yet, the older generation’s certainty remains steadfast. They’d rather lose a sale than admit their decades-old “market knowledge” might be out of date.
Is Tradition Worth It?
Look, experience is invaluable – no one’s arguing that. The older generation has weathered industry storms, navigated recessions, and built businesses from the ground up. But clinging to the idea that “market price” is a static number discernible without analysis feels less like wisdom and more like stubbornness.
Maybe it’s time for the older generation to step away from the nostalgia and embrace the fact that the industry has moved on. After all, knowing the market isn’t just about the past – it’s about understanding the present and anticipating the future.
And let’s face it: if your gut instinct were that good, you’d be in Vegas or betting on horses, not pricing gravel.
What Can a Robust Pricing Process achieve?
At Price Bee, we have been pleasantly surprised at the acceptance of the industry as it relates to pricing process. Whatever the driver has been – maybe our collective experiences of the extreme inflation we experienced after the global pandemic, it is a good thing to see some aggression in aggregates pricing. The headline numbers are really good in 2024. According to investors.com:
- Knife River: Similarly, Knife River’s stock rose by 52% during 2024, indicating effective pricing strategies and market positioning.
- CRH: As an industry heavyweight, CRH saw a 45% rally in its stock, underscoring the positive impact of pricing improvements and sustained demand in the construction sector.
- Vulcan Materials: This company reported a 24% increase in its stock, reflecting its strategic pricing and strong market demand.
- Martin Marietta: The company’s stock advanced by 18%, indicating successful pricing strategies and robust demand in the aggregates market.
At Price Bee, we don’t have the details of these companies, their exact pricing strategies or how they execute these strategies, but we know enough to be confident there are still medium to large opportunities for revenue improvement through a well-executed price management initiative. How is your company performing on pricing?
Data Sources That Expose the Myth
To understand why relying on instinct is outdated, here are three key sources of data that inform modern aggregate pricing:
1. Fuel Price Indices. Fuel costs are a significant factor in aggregate pricing, as transportation is one of the largest expenses in the supply chain. Data from fuel indices like the U.S. Energy Information Administration (EIA) or similar regional platforms provides up-to-date information on diesel and gas prices, ensuring accurate cost modeling.
2. Construction Demand Reports. Organizations like the National Association of Home Builders (NAHB) or the Construction Industry Federation provide insights into construction trends. Higher construction activity drives demand for aggregates, affecting regional prices and requiring frequent adjustments.
3. Market Competition Analysis. Tools like IBISWorld or Statista allow businesses to track competitor performance and pricing strategies. This data prevents companies from pricing themselves out of the market or undervaluing their product.
When Gut Instinct Pricing Flops: Lessons from Other Industries
While the aggregate industry wrestles with pricing based on “gut instinct,” history is littered with examples of how this approach has failed miserably in other sectors. Here are a few illuminating anecdotes that underscore the power of data-driven pricing:
Retail: JCPenney’s ‘Fair and Square’ Disaster
In 2011, JCPenney’s then-CEO Ron Johnson scrapped the company’s traditional discounting model, opting for a gut-instinct approach called “Fair and Square” pricing. The idea? Eliminate sales and markdowns in favor of simpler, everyday low prices.
The result? Consumers, used to discounts and deals, stopped shopping. The company lost $4 billion in revenue and eventually reverted to its old model. Data analytics would have shown that consumers expected specific discounting patterns and wouldn’t adjust without gradual changes.
Lesson: Data about customer behavior and expectations should guide pricing strategy – not gut feelings about what feels simpler.
Airlines: Overestimating Demand
In the early 2000s, airlines often relied on senior managers’ instincts about demand to set ticket prices. One infamous case occurred during the aftermath of the September 11 attacks. Many airlines priced flights too high, assuming demand would stay robust due to business travel.
However, data later showed a massive decline in air travel demand across the board. The industry adapted, with companies like Southwest Airlines leading the way by using predictive analytics to set dynamic pricing models based on real-time demand, capacity and competition.
Lesson: Relying on instinct in volatile markets can lead to overpricing and significant revenue loss. Data-driven dynamic pricing allows businesses to remain competitive even in unpredictable times.
Hotels: Ignoring Data, Losing Revenue
Marriott Hotels, before embracing data-driven pricing in the late 1990s, used to price rooms based on a combination of historical pricing and managers’ intuition about demand. This resulted in significant revenue losses during peak seasons when rooms were priced too low and during off-seasons when they were priced too high to attract guests.
After switching to a data-driven Revenue Management System (RMS), Marriott experienced a 20% increase in revenue per available room (RevPAR) within a year. Their RMS analyzed historical data, competitive pricing, and even local event calendars to recommend the optimal rate for any given day.
Lesson: Pricing based on intuition overlooks critical market factors. Data ensures precision, boosting revenue even in complex markets like hospitality.
At Price-Bee.com we like a challenge. If you have read down to this point, and still think the “market price” for your aggregates is a known value inside the heads of people in your team, we are prepared to work with you, with your own sales data, and highlight for you your areas of missed revenue. If we cannot show you a minimum of 2% additional revenue – cash, we will not charge for our services.
Barry Hudson is the co-founder of Price Bee, a culmination of experience and ideas forged together over five years to become a powerful tool to streamline your sales process and increase revenues in the construction materials industry. He can be contacted at [email protected].