Round up a group of LBM executives and, sooner or later, one of them will complain his customers don't appreciate the value of the services that the dealer may offer for free. The bile gets particularly bitter when the dealer sees customers abandon his store for the big-box alternative down the highway.
Now comes a survey with a comforting message: The contractors that stuck with you are more loyal than you might think, and some of those that haven't been are likely to return.
L.E.K. Consulting's poll of more than 500 residential contractors signaled that message when it asked those surveyed to ask how much a price would have to rise at their preferred material source–or conversely, how far a price would have to fall at a competing store–before they'd consider switching.
The Chicago-based firm found that contractors who preferred to shop at two-step building material suppliers would stick with their favorite so long as its prices were no more than 3.4% different than a competitor. The loyalty factor was about the same at one-step, specialty dealers; there the price could go up or down as much as 3.2% before the contractors who preferred one-steppers said they would move.
But contractors who said they preferred to go to big boxes were more fickle. "The guy who values the big box will pay only up to a 2.2% premium above the pro channel" in recognition of the benefits that he sees at the big box, said Robert Rourke, vice president and head of LE.K.'s basic industrials practice. "If the pro dealer wanted to get that customer, they'd need to be just 2.2% lower."
All respondents had at least five years' experience in construction, were in a company with more than three employees at peak season, and were responsible or directly involved in their company's purchasing decisions. They came from across the country and did a wide variety of construction work.
Similar surveys by groups such as the National Association of Home Builders found that contractors have been seeking cheaper materials. But L.E.K.'s poll found that only 22% said they had switched brands. In contrast, 53% said they were buying the same products and brands, but did it at retailers and distributors who sold those brands at a lower price. It's particularly true for drywall contractors; 88% of them had sought new sellers of the same products.
The pressure to be frugal helps explain why, when contractors were asked to name the store they were most likely to frequent, the share that listed big boxes rose from 27.2% in 2006 to 29% in 2010, while two-steppers and one-steppers combined declined by the same 1.8 percentage points to a 44% share in 2010 from 45.8% in 2006.
The survey also indicated that big boxes may have taken advantage of contractors' profit squeeze. Respondents increased by 14% the importance they gave to volume discounts, rebates, and promotional prices than they did in 2006 when deciding on where to buy. That jump in value was topped by only one factor: Whether the sales channel had stock on hand for immediate purchase or delivery. That rose 16% in importance from 2006, scoring 6 on a 7-point scale. The only other big-moving factor–delivery speed / on-time guarantee–climbed 14% to rate 5.8. Discounts and rebates scored 5.3.
Looking ahead, L.E.K.'s survey respondents suggested that the big boxes' share of customer frequency would drop by 1.7 points back to 27% overall. But independent dealers may not reap all those benefits. Two-steppers' share was expected to shrink another half-point to 18%, while one-steppers would grow 0.4 point to 26%.
Rather, the big gainer could be online sales, which grew from 2% of contractor visits in 2006 to 3% in 2010. Respondents said this channel could rise to 4% in 2013. "I think the online piece is something this industry is unprepared for," Rourke says.