How Building Products Manufacturers Can Create Value From Digital Disruption

The COVID-19 pandemic is forcing new behaviours throughout society, including accelerated adoption of digital channels for personal and business purchases. The building products and materials sector has historically been seen as less penetrated by digital, but that perception is misplaced, and digital adoption will receive a further boost as social distancing norms and new ways of working persist.

L.E.K. Consulting undertook a survey of U.K. contractors and tradespeople before the crisis, and the results clearly demonstrate that digital channels were already becoming ubiquitous for researching, comparing products and ordering across building product categories.

For product manufacturers, this is a significant development. No longer can they afford to rely on traditional relationships with builder’s merchants, specialist distributors and DIY stores. Now, ecommerce leaders, such as Screwfix and even Amazon, present real alternatives to physical stores; visibility in search engines is essential; and direct engagement with customers becomes ever more important in a world of increasing transparency.

This Executive Insights discusses how building product manufacturers can unlock value in this increasingly digital environment.

The shift to digital research

According to our survey, a growing number of contractors and tradespeople are using digital channels, with about 80% regularly using smartphones for work.

A key use of the technology is online research before placing an order. Our survey suggests that going online to check prices and availability, gather product information, and assess product quality is becoming the norm, especially with planned purchases.

A significant majority (70%) of contractors and tradespeople conduct research every time or most of the time for planned purchases across product categories. For unplanned purchases, the figure is about 55%.

For planned purchases of heavy materials, the most common research activities are gathering product information (69%) and comparing prices (54%) (see Figure 1). Some 41% of contractors and tradespeople gather product information and compare prices, and almost the same proportion (38%) gather product information without comparing prices.

Contractors and tradespeople are less likely to gather product information before planned purchases of light materials (e.g. wiring, windows and plasterboard), consumables and tools, given the frequent nature of purchases and familiar suppliers. However, they are more likely to compare prices online (around 65% do so for light materials).

Be there at the start of the purchase journey

The lesson from these figures is that building product manufacturers can no longer afford to ignore any of the available digital channels. Contractors and tradespeople start their purchase journey in a range of places online, including the websites of builder’s merchants, specialist distributors and DIY stores, as well as search engines and, to some extent, Amazon and YouTube (see Figure 2).

Manufacturers must develop a multifaceted digital strategy so that they are present at the first step of the purchase journey. Product companies need to get in front of search engine results (via SEO and SEM), and work with builder’s merchants to appear in the top results on their websites. This means developing a clear understanding of target customer segments, key purchase drivers and keywords used in online searches.

Product manufacturers need to build an understanding of the information that tradespeople are most interested in for each product category, and then have a focused information dissemination strategy. For instance, in the case of building materials, there is strong interest in both product specifications and pricing; whereas for consumables, availability also becomes key. Product companies need to work closely with merchants to develop joint online marketing campaigns and incentivise merchants to push their products.

Developing favourable positions on merchant websites requires proactive account management and joint planning as well as developing demand pull from contractors, who commonly have preferred brands for different categories.

Pricing is also an important consideration. Customers increasingly research prices online to check relative positioning. Product manufacturers need to be clear in their intended price/value positioning and consider how their products are perceived relative to competition. While trade discounts and rebates are still common, customers use online list prices to inform purchase decisions. A well-thought-out pricing strategy is key.

In progressing digital activities, product manufacturers must keep up the traditional best practices of ensuring the right distribution coverage. Our survey suggests that contractors and tradespeople are more willing to switch distributors than to switch product brands, so local availability is essential (without needing to be in every store).

Ignore Amazon at your peril

Amazon is becoming a key factor in building product manufacturers’ digital strategy. Our survey suggests that 40%-60% of building products orders are placed online, and Amazon’s customer penetration is surprisingly high, with 10%-20% of contractors and tradespeople having used it in the past 12 months — higher than most other suppliers.

One of the most interesting findings from our survey is that customers are using Amazon for heavy and light materials, rather than just for tools and consumables. Amazon is not far behind Jewson and Travis Perkins on heavy materials and Screwfix on light materials (see Figure 3).

Amazon is naturally more popular among fast-moving, less differentiated products such as consumables, and for product categories that do not require much technical advice. However, all building product manufacturers need a digital strategy that addresses Amazon head-on.

One option is to use Amazon as another channel, particularly for customers who value Amazon for attributes such as price transparency, convenience, trust and customer service. Nevertheless, there are risks to working with Amazon, including channel conflict, inventory markdowns and brand dilution, though these challenges can be managed with effective planning that takes account of the commercial and strategic trade-offs.

End-customer influence

Our survey suggests that building products manufacturers can benefit from paying close attention to the preferences of end customers and increasing engagement throughout the customer lifecycle. Their influence on product choice is significant (see Figure 4), and contractors and tradespeople are relatively loyal to product manufacturers. As a result, product manufacturers have an opportunity to create significant demand pull by investing in the development of strong brands that are recognised and trusted, and by providing support to customers through user guides, tutorials and specification tools.

Product companies selling fit-out products, heavy materials and light materials must consider how to improve product positioning to end customers and end-customer representatives. The good news is that brand stickiness appears to be relatively strong across all product categories, with customers preferring to shop elsewhere than switch brand (see Figure 5). Even though customers review preferred suppliers frequently, they are surprisingly reluctant to switch product manufacturers due to product familiarity and trust. About 40% have not switched in the past four years, and only 20% have switched in the past 12 months, with the exception of consumables at 30%.

Perceptions of quality and availability are important, particularly in fit-out products, so this behaviour could be a significant opportunity for suppliers to build brand awareness, improve positioning and enhance loyalty. Consumers’ extensive online research also offers an opportunity to build brands through digital marketing, reinforced by offline activities. Aspen Pumps, for instance, has built significant brand recall through strong marketing, branding and installer awareness.

Five steps to gain value from digital disruption

Product manufacturers should review and enhance their commercial strategy to take advantage of digital disruption, following a five-point action plan:

1. Rethink their end-to-end digital go-to-market strategy across the customer journey from awareness and research to purchase and fulfilment
2. Focus on driving product discovery and favourable competitive positioning in online search results across search engines and builder’s merchants’ websites
3. Develop a clear strategy to deal with the growing role of Amazon and other pure-play online suppliers
4. Ensure there is adequate distribution coverage and local product availability, including for online orders (e.g. click and collect)
5. Develop multichannel marketing strategies to engage directly with customers and build a strong brand to increase customer recall and drive loyalty

By delivering on these steps, building products manufacturers can create value from the increasing digitisation of the construction purchase process, building a stronger brand and enhancing their customer value proposition.

The COVID-19 crisis provides a beneficial window of time to try new things and ‘break some rules’. Product manufacturers should take this opportunity to devise their five-point action plan and start piloting new approaches in times when customers, channel partners and employees are all embracing change. Businesses that do so are likely to be best positioned to take advantage of the upcoming recovery.