Gontractors change their buying habits

[ronrHE sEcoND vERn in a row, .l-' L.E.K. Consultins surveved more than 500 contractors across the U.S. While most are cautiously looking toward the future, they are changing how and where they shop in order to remain price-competitive.

"For the first time since the recession, contractors are planning for growth," says Chris Kenney, an L.E.K. vice president and head of the international firm's North American basic industries practice. "There's an opportunity to capitalize on growth by promoting trusted brands, introducing product features that will command a premium, and reevaluating how to reach customers across traditional and

Contractor Responses to Price Pressure

online channels."

Other key findings for LBM dealers. distributors. and manufacturers include:

Pricing pressure continues despite market optimism. A third of respondents said they lost bids last year due to price-double the percentage in 2006. Contractors responded by looking for their preferred products at competitive prices.

Brand loyalty remains higher than channel loyalty. Contractors are loyal to trusted building product brands, not the channels through which they buy. Contractors are twice as likely to channel shop rather than trade down and purchase less expensive alternatives. This indicates that strong brands have significant pricing power and should examine distinct pricing strategies for different channels.

Loyalty to big boxes declines. When respondents were asked about their loyalty to sales channels, big boxes remained at the bottom for the second consecutive year. Contractors said that big boxes under-perform on the three most important channel selection criteria, other than price: delivery speed, stock on-hand for immediate purchase, and contractor services. Contractors' loyalty to twosteppers increased the most from 2010 to 2Oll.

It's time to re-focus on the pro channel. Manufacturers typically surrender significant profit margins in exchange for large sales volumes generated via big boxes. It might be better to sell new and premium products through pro channels, where profits are traditionally higher and differentiation of products is sustainable. For this strategy to work, manufacturers must have clear pricing strategies among channels and establish programs to support distribution partners.

Online purchasing continues to grow. Nearly 507o of contractors said they have used the Internet for price comparisons, and 40Vo expect to conduct more purchasing online during the next three years.

Social media affects purchasing. Along with the Internet, social media plays a growing role in contractors' decision-making processes and purchasing decisions. Almost a third of those surveyed said they are using social media more than they were a year ago to follow suppliers and brands, and 357o expect to be more active on social media this year.

Product selection criteria are changing. Energy efficient and sustainable products are becoming increasingly important factors in product selection. More than half of contractors indicated a willingness to pay a 107o or higher premium on both product types.

However, the importance of these two features varies significantly between residential and commercial contractors. Residential contractors are willing to pay a premium for energy-efficient products and consider it the second most important purchasing criterion behind price. But they are generally unwilling to pay more for sustainable products. In contrast, commercial contractor purchasing decisions are equally influenced by both energy efficiency and sustainability.

According to L.E.K., contractors will have more flexi-