As we all know, disruption has been palpable over the last few years for contractors and distributors. The way distributors do business is always changing as technological developments and world events throw new curveballs our way. That means that continuously gaining insights into market trends is vital to thriving in business.
By: Lincoln Smith
HMI Performance Incentives is proud to present our market research report: Contractors Speak Out: How People, Process, and Relationships Can Drive Growth for Distributors and Manufacturers. This report sought to understand what contractors are looking for from distributors now and in the future.
This research was gathered via electronic survey in the first few months of 2021 with the help of partners Prokeep and SproutLoud. Respondents consisted of key decision makers from industries such as electrical, plumbing, HVAC/R, building materials, roofing, and landscaping. We’re so excited to share these insights with you, as understanding ever-changing contractor needs is a key concern for so many businesses and leaders in distribution. Here’s just a small sampling of the key findings we’ve learned from this research.
1) Channel Erosion is Happening
“Channel erosion” might sound doom and gloom, but it just describes what you already know is happening. Our research found that the majority of contractors (around 52%) buy at least three quarters of their materials from distributors. However, they also consistently buy (between 1-25% of all orders) from retail, online only, and direct from the manufacturer channels: 79%, 62%, and 41.7% respectively. To combat this, savvy distributors will have to continue to adapt their ecosystem of offerings to compete with these new forms of disruption to the traditional distribution model.
2) Don’t Count Out Loyalty
Customer retention and loyalty are important factors of doing business, but that doesn’t mean that your loyal contractors will be exclusive with you. In our survey, under 10% of contractors reported exclusively buying from one distributor. However, that number does grow when it comes to the question of loyalty: 21% of respondents said they were “loyal” to just one distributor, while around 41% said they were loyal to two or three distributors. So, even though your contractors likely aren’t coming to you exclusively, building and retaining those relationships is still essential.
3) All Aboard the eCommerce Train
As you probably know already, eCommerce is no longer just an exciting feature to consider for tech-savvy companies. Now, it’s a necessity. The even bigger question of today is, how should you be using these tools as a distributor? 65% of contractors surveyed shared that they regularly used eCommerce tools to make purchases. Websites were the most commonly used tool at 42% (followed by text ordering at 22% and then distributor apps at 15%). For website utilization, respondents primarily said that they were used for finding price information, placing orders, and researching products.
4) Think Inside the Box
Inside salespeople matter. When contractors were asked what differentiates one distributor from another, the most common response (over 45%) was the relationship and trust built with a distributor’s inside sales staff. The second highest response (around 38%) was the distributor’s consistent ability to meet contractor expectations and needs. Contractors expect to be able to rely on their distributors. Other important differentiators were ease of doing business, the relationship with the distributor’s outside salespeople, and the brands carried by the distributor.
5) Incentives Matter
Even with those competitive differentiators in mind, there are times when all are relatively equal in the eyes of the contractor. In these cases, incentive or loyalty programs play a significant role in making one distributor stand out among the competition. In total, 74% of contractors said their business “could be moved” to a new distributor based on incentives, with all other differentiators being held equal.
74% of contractors shared that at least one of their distributors have offered either an incentive or loyalty program at some point. 53% said that they would purchase more from a distributor running one of these programs.
These are just a few of the insights we’ve learned from this research. Curious to learn more? Check out the full report here!
Lincoln Smith is the CSO at HMI Performance Incentives and has over 20 years of experience helping manufacturers, distributors, and service companies design award winning performance incentive strategies that motivate sales organizations and channels to accelerate growth and enhance customer engagement.