The coatings industry is grappling with pricing pressures and thinning margins. Here are 7 ways to gain a competitive advantage and boost profits in a tough market:

There’s no sugarcoating it—the industry is facing difficult challenges. A sluggish economy, pricing pressures and intensifying competition among chemistries are draining profits. And while most industry analysts expect an upsurge in the second half of the year, their forecasts differ by market segment and geographical region.

Accounting for nearly $7 billion of the $18.5-billion U.S. paint and coatings industry, coatings sales to the original equipment manufacturer (OEM) market are expected to increase by just 2% this year. And with nearly an equal share of the total coatings market, architectural coatings are projected to grow by only 1%, while special-purpose sales will likely go up by about 3%.

What’s more, the long-term outlook continues to be overcast, as the Freedonia Group predicts that U.S. paint and coatings sales will grow by only 2.2% a year through 2006, supported by increases in durable equipment coatings and the continued robustness of the automotive OEM and refinish markets.

In response to thinning profit margins, coatings companies are not only cutting overhead but also finding ways to gain a competitive edge. Here are 7 of the most effective strategies:

1) Simplify product choices.

In the architectural coatings market, where nearly 85% of demand is related to residential repair and maintenance, coatings makers have focused on offering customers more colors, designs and techniques, such as fleck paints and Venetian plaster. But all these choices have made painting a room or home much more complicated. The solution—simplify the selection process for customers with tools such as the Internet.

Some paint companies have equipped their website with color and virtual painting software tools. For example, Benjamin Moore’s Personal Color Viewer tool lets users “paint” a room to examine the effect of different colors, methods and styles. “With the new version, customers can even scan in a digital image of their own rooms and homes to change the colors prior to painting,” says Jeffrey T. Spillane, senior marketing manager at Benjamin Moore. “It takes some of the guess work out of it, meaning they won’t have to actually paint a room to realize they don’t like the color or style.”

2) Name the benefit.

This is another way for coatings companies to make the selection process less complex for customers. Instead of letting brand names get bogged down with technological terms—e.g. vinyl versatate, styrene acrylic and ethylene vinyl acetate—make sure names clearly express the benefit that the product offers customers, advises Steen Bjerre, president and CEO of coatings company Dyrup, Denmark. For example, if you are choosing between naming your product “acrylic paint” or “Permanently White,” remember that the latter will have more impact on potential customers.

3) Don’t undercut prices.

Coatings makers should avoid playing the price game. While price competition is an inescapable reality, intensifying when business conditions are tough, Benjamin Moore’s Spillane warns, “No matter how low you are willing to go, someone will always beat you.” And continued price lowering can often result in cost reduction measures that can eventually hurt product quality.

Indeed, more coatings companies are acknowledging the limited effectiveness of lowering prices. “2002 was the year that paint and coatings manufacturers began to see that the bitterness of poor quality remains long after the sweetness of low price has worn off,” says Roland J. Valin, manager of sales and technology marketing at Engelhard. “Value, not price, became key. More and more companies began looking for innovative ways to bring value to their customers.”

4) Improve the value equation.

To boost the value equation for customers, companies must not only increase service levels but also ensure that products are effective and environmentally safe. And they must try to do all this without raising prices. “We will see a continued trend towards full-service pigment suppliers, but a movement away from the traditional tendency to move up the ladder in price to improve quality,” says Valin. “The paint manufacturers whose formulators are astute enough to try new and different products to find the best value will be the companies that lead the industry into the future.”

5) Be ready to do more.

Coatings manufacturers must be prepared to meet more and more customer demands. For example, in the automotive coatings market, where vendor input has trended upward, coatings makers will be expected to keep prices steady, take on more R&D and production responsibilities, increase transfer efficiencies and improve product performance. While these demands are challenging, the rewards for meeting them will be tremendous. Coatings manufacturers that fulfill such customer needs can win lengthier, multi-plant and region contracts. And greater volume will bolster thin profit margins and counteract the lengthening list of customer requirements.

6) Make sure products are globally consistent.

Coatings makers must contend with the continuing march toward globalization. Instead of supplying local manufacturers, makers must now provide products to plants located around the world. That means that their products must satisfy requirements in various markets, including Europe, which has the most exacting regulations. To ensure high quality on a global basis, coatings manufacturers must exercise a high level of discipline in their facilities, strengthen internal communications and develop a dependable supply chain.

“As we have watched the world get smaller as a result of travel and communication, coatings must also exhibit the same qualities everywhere,” says Jon Hall, manager of OEM color development at BASF Corp.

7) Don’t lose sight of the basics.

In particular, know your market. This is a fundamental principle that can get lost amid fears about escalating raw material prices and competitors’ market share. Dr. Alan Barton, vice president of Coatings, Rohm and Haas, identifies three key concepts: market research, market proximity and market urgency. In other words, coatings makers should ascertain what customers want and respond by developing distinctive products that address those needs through technology, packaging and branding.

Primer Links

Organizations

Electrocoat Association http://www.electrocoat.org/

Federation of Societies for Coatings Technology http://www.coatingstech.org/

National Paint & Coatings Association http://www.paint.org/index.htm

The Powder Coating Institute http://www.powdercoating.org/home.htm

The Society of Vacuum Coaters http://www.svc.org/

Publications

Coatings World http://www.coatingsworld.com/index.htm

Industrial Paint & Powder http://www.ippmagazine.com/

Modern Paint & Coatings http://www.modernpaintandcoatings.com

Paint & Coatings Industry http://www.pcimag.com/

Products Finishing http://www.pfonline.com/

Sources: 2003 Industry Forecast
Compiled by Greg Valero
Modern Paint & Coatings, Jan./Feb. 2003
http://www.modernpaintandcoatings.com/mag/mpccover.html

Experts Paint Cloudy Picture
Greg Valero
Modern Paint & Coatings, Jan./Feb. 2003
http://www.modernpaintandcoatings.com/mag/mpc1.html

Shaping the Future
Dr. Barbara Brune/European Coatings Journal
Paint & Coatings Industry, March 1, 2003
http://www.pcimag.com

Architectural & Decorative Coatings
Mike Agosta
Coatings World, Jan. 2003
http://www.coatingsworld.com/January031.htm

The Automotive Coatings Market
Andy Teng
Coatings World, March 2003
http://www.coatingsworld.com/March031.htm