Contractor Survey Reveals Strong Brand Loyalty

March 7, 2011

A return to growth in building and construction activity may come with some unexpected changes in building products sales channels, according to a new report from L.E.K. Consulting.  Based on a survey of more than 500 residential contractors across the United States, the report looks at the steps they took to weather the economic downturn and their strategies for the future.

The survey found contractors have experienced business declines across the board, reporting that their percentage of bids lost due to price has nearly doubled between 2006 and 2010. To address growing price pressure, contractors preferred switching channels to purchase trusted brands at promotional prices versus trading down to less expensive brands more than 2 to 1, and trading down to lower-grade product options was seen as one of the least desirable ways to respond to price pressure. To remain competitive, nearly half of contractors performed extra services on their jobs, while 44 percent took lower margins to win business.

“L.E.K.’s findings clearly show that building products manufacturers with strong brands have more pricing power than originally thought,” says Robert Rourke, VP and head of L.E.K.'s North American Building & Construction Practice. “To drive growth, OEMs should continue to invest in contractor affinity and education programs while ensuring the highest performance on key product features such as reliability and durability.”

Homeowners also appear to be playing a growing role in product selection.  Nearly 30 percent of contractors surveyed feel that homeowner influence in product purchasing has increased since 2006. As such, L.E.K. suggests manufacturers complement contractor-focused programs with homeowner marketing initiatives that raise brand awareness with consumers and underscore brand differentiation through education. In all cases, the Internet will continue to play a larger role in both brand awareness and sales, and should be addressed accordingly in future programs.

Implications on the Channel
Contractors’ relative loyalty to brands rather than specific sales channels has funneled sales to big box and away from other channels across most categories. Despite the seeming lack of channel loyalty, there remains some degree of channel preference. As the housing market improves, contractors expect to shift away from big box and back to their historically-preferred pro channels to take advantage of value-added offerings such as delivery and contractor services.

When asked about their purchasing decisions by channel, contractors anticipate that their purchasing patterns in 2013 and 2014 will trend back to more pro-orientated channels. One steppers (specialty chains), for example, are expected to recoup most of their share loss. Contractors state this channel shift will occur across most trade categories, and the greatest relative shifts are expected in roofing, carpentry, paint, siding, drywall, windows and doors. By understanding that many contractors gravitate toward channels that provide value-added services, distributors can strengthen their positions by identifying and targeting the most attractive contactor segments that will drive future profitable growth.

“Channels that combine the right balance of brand and product line exclusivity with differentiated services will be well-positioned to enhance loyalty with their core customers and have the opportunity to replicate this success with other segments in the future,” said Lucas Pain, L.E.K. VP. 

The Internet is also playing a larger role in the product selection via the channel, and this trend is also expected to increase in product fulfillment, the study notes. Although online sales represent a very small portion in most categories today, its share has doubled since 2006. It is essential for both channels and manufacturers to carefully consider the Internet’s role in reaching contractors and homeowners in their sales and marketing strategies.

Additional findings from the study are available in the L.E.K. Executive Insights report.