The number one criteria influencing contractor decision-making today is access to inventory. The supply chain disruptions are the talk of every conversation. No material, no work.
Putting the supply chain issues aside, why do contractors select the distributors that they do and what will drive their decisions tomorrow?
Earlier this year Channel Marketing Group reached out to contractors in 5 different industries, to understand how contractor buying decisions have changed.
Over 750 contractors responded to a survey and shared:
- Channel erosion is continuing, and possibly accelerating. Overall, distributors control 72% of contractor spend but direct, DIY and online are growing.
- The definition of loyalty to contractors is not sole source. 53% are “loyal” to 1 or 2 distributors with the average contractor purchasing most of their material from 3.5 distributors. The five most important reasons are product availability, competitive pricing, delivery, brands, and location. Other key reasons are credit and personal relationship.
- People and process are important to contractors. It is still a people business but the “people” who are important today are more likely to be an inside salesperson, especially given the longevity of account relationships. And contractors are more likely to do business electronically (phone, email, direct connect, text) with the distributor. Across all industries only 19% of respondents do more than 50% of their business at the counter (in electrical, distributors report <10% of business done at the counter, and this is with small contractors and nominal decision-makers.)
- Speaking of a growing channel … eCommerce. Especially for omni-service activities such as gathering prices, conducting product research, determining inventory availability, gathering spec sheets and ordering. 65% of respondents shared they are doing some online purchasing. Having an eCommerce platform is becoming a “cost of doing business” … an “ante” to be considered a competitive distributor or manufacturer (in the eyes of customers and suppliers if you are a distributor). It doesn’t have to cost a fortune given emerging platforms and product content as a service that can be seamlessly ingested into a platform with nominal people involvement. There are cost-effective platforms that make this viable even for small distributors (but you can pay $250k+ if you want / need to and it also depends on the bells and whistles that you want. ) Omni-service customer support is the key. Manufacturers also need enhanced websites to support rep, distributor, contractor and engineer needs.
- The research found that 61% of contractors have been involved in an incentive program and 73% state a program could influence their purchasing decisions. Rewards range from gift cards and cash to credit for future material / advertising support to travel and merchandise rewards as programs are typically targeted at independently owned contractors.
- Contractors, especially those in the plumbing and HVAC trades, are becoming more adept at marketing.
Programs of the future should consider customer segments and target applicable rewards as well as provide appropriate reward systems to generate loyalty, or incremental performance, from industrial and institutional customer bases as well as large contractors. In a changing world where McDonald’s and Home Depot offer incentives and cultural people ask WIIFM, you need to be able to answer. These programs should become database driven customer engagement platforms that need to be mined to ensure you capture value. Performance can be optimized by targeting specific activities that unleash the seven elements of “motivation” so they can be integrated into a strategy that generates loyalty and ensures a return on your investment.
- In some industries, specifically HVAC and plumbing, s. This is due to their residential focus. Given the growth in the residential sector – remodeling, home automation, electric vehicle, lighting controls, landscape lighting – there could be opportunities for distributors to explore this opportunity.
Contractor key issues are:
- Finding and retaining labor
- Technology utilization and adoption
- Marketing their business
They expect material at a fair price. The differentiation comes down to “who can make it “easiest’ for me?” (And there are many definitions of easy.)
Further, given the ongoing supply chain disruption, coupled with Covid and supply chain consolidation, these dynamics are accelerating the changes in the channel.
The impact on the channel, and distributor planning, can be profound and will result in share shift in many markets.