One of the decisions the Belgian government took to reduce the debt was to cancel the 40% tax deduction on works carried out to reduce energy consumption (isolation, double-glass windows, …).
The consequence of this decision will be to change dramatically the competition landscape for firms specialized in energy-reduction construction works. We can with certainty expect that the least robust of those firms (which have popped up in the last years) will die.
I discussed my prognosis with an expert in the field of eco construction and he expected less impact since energy costs will undoubtedly sharply increase. I doubt that his optimism will be confirmed. Consumers are not long-term oriented and I expect that their decision to invest or not will be short-term based, resulting in a sharp decrease of investments.
Opportunistic firms which have invested in this market segment may have wanted to perform a PESTLE analysis before. They would have realized, by analyzing the Legal (“L”) aspects that tax reductions had considerably reshaped the landscape. I expect that rivalry will profit consumers due to several factors :
– Consumers will become more price-sensitive
– Cancellation of tax deductions will put extra pressure on prices and remove above-average earnings
– On the one hand small firms with a light cost structure will try to compete on prices and accept to reduce their margins to survive
– On the other hand, larger firms which have operated on the market for longer time will face exit barriers and will likely be willing to reduce their cost structure to remain competitive and avoid facing exit costs
My take:
Tax deductions had artificially boosted the market and let small less efficient firms pop up. Those firms will eventually die but will in first instance try to survive by reducing their margins. Larger firms will have to be reshaped and will have to optimize their cost structure. In any case earnings will decrease and consumers will profit from pressure on prices and rivalry.
Posted in Marketing, Strategy.
