Many companies have failed in the building supply industry because their executives could not answer this fundamental question about themselves: Who am I?
Because the customer base is so convoluted, many companies within the building supply industry struggle with defining a clear identity and business strategy. Are you a retail dealer, a pro dealer, a home center, a manufacturer, a distributor, or an installer?
This is not to say that companies cannot be multifaceted, but like eyes and hands on a human, something has to be dominant.
The most difficult business model in our industry is a company that on the front end caters to retail customers as a home center while in the backyard it tries to operate a contractor supply yard. The challenges to operations like this include:
• Logistics: There are problems and complaints due to mixing contractor and retail deliveries. Who gets priority?
• Pricing: This is a huge obstacle because everyone who enters the business—including the 80-year-old blue-haired lady—considers himself or herself a contractor and wants contractor pricing.
• Payment terms: Contractor accounts are all of a sudden turned into consumer accounts, with customers demanding special payment terms.
• Disgruntled customers: It’s not uncommon to see bitterness develop between retail and contractor customers waiting in the same line. Inevitably, an inexperienced retail salesperson or stockperson will cross the path of your biggest contractor customer, and the customer gets offended for not being recognized.
In addition to these issues in a combo business pro/retail operation, one operation will often mask the profit deficiencies of the other operation. Typically, if a P&L is done separating the two entities, the executive will find that one of the entities is being propped up and is only in existence because that was originally the business model. I have seen too many retail yards call themselves pro dealers and just end up with lower margins and added expenses.
The type of dominant business strategy you decide on will determine the type of customer you pursue. This is particularly important for pro dealers. Customers who do business with pro dealers must be congruent with the dealer’s level of pricing, value, quality, and service offered. Knowing your customer is paramount. Let’s review the primary types of pro customer:
• Bidders are only concerned about numbers. They will cherry pick quotes and will rewrite any purchasing agreement in their favor.
• Worker customers will dump everything they can on you, plus a little more, but will sell you out for a couple of bucks at the end.
• True business partners are the gold standard of all customers. They understand that their success is tied to your success.
• Serious do-it-yourselfers build major projects and cannot be ignored.
You see, ultimately, if you are able to identify your customer base and pursue the correct dominant strategy, sales and profits will increase.
Don Magruder is CEO of Ro-Mac Lumber & Supply and former chairman of the Florida Building Material Association. Contact him at email@example.com or 352.267.5679.