Dealers have told us the relationship they value the most is with their customers. Why is that? Conventional capitalism would guide dealers to think that there are a fixed number of customers which need to buy a fixed number of materials to supply a fixed number of construction projects. In other words, the market is only so big, we need to “capture” as much of it as we can, by influencing the “loyalty” of customers.
According to the U.S. Census Bureau, the market of retail sales spent on building materials was valued at $381.89 billion in 2020. Using 2020 sales as a barometer, the Construction Supply 150 produced by Webb Analytics estimates big box retailers, including Home Depot, Lowe’s, Menard’s, and Ferguson, account for nearly three-fifths of the market. The top 150 dealers in the building materials market captured roughly 23% of the market in 2020 and all other dealers captured approximately 18% of all building materials sales in 2020.
We are going to argue that the market is actually limitless in a moment, but before we do, we need to make another observation.
From this limited view that the market is fixed, we dealers work tirelessly to do “better” by coming up with ways to lure more customers, to hook them in, to make them want or even “need” to buy from us. This isn’t sustainable, of course, in fact it’s ridiculous to think customers would be loyal.
If I’m a contractor, I’m not thinking about the loyalty of my dealer. If my job ran into trouble, and I can’t afford to pay some of my bills, will my dealer give me materials for free? If I ordered the wrong materials, ie. the wrong window sizes, will my dealer drop everything they are doing to fix my order and get it to me same day? Of course not. Contractors know dealers can’t do that which is why they are always looking for new dealers, new products, new discounts, and more to meet the needs of their projects and their clients.
It seems there is a problem with the assumptions that dealers and contractors are making about each other. Dealers assume there are limited customer contractors and contractors assume there are unlimited options via discounts from competing dealers and new building technologies from manufactures, for example.
What Does Good Look Like for Dealers?
Though our assumptions might be misaligned, the reality is that we dealers do very much care about our customers. So let’s stop trying to do better within a limited market and start imagining what good looks like with unlimited potential.
Our customers are just one piece of a larger jigsaw puzzle. In a limited view, two pieces of a puzzle may fit together, but they cannot create a full image on their own. Focusing so closely on a few pieces can give us blinders, allowing us to lose sight of the final image we’re trying to create.
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We can start working towards this final image by looking beyond our customers, not because we want more of them, but because we want to put ourselves in their shoes to truly serve them well. What other parts of the picture are coming into view now? How about our customer’s customer? And their customer’s customer? From contractor to project owner, to resident, merchant, student, and beyond, there is so much more to see.
Serving your customer’s customer introduces a new level of potential for dealers.
What else does good look like? What if we could get our customers and our customer’s customers to sell for us, for free? In the tech world, they call this network effects.
Generally, customers will derive more value from a product or service from a dealer as their customers join that dealer’s network. This results in two positive ripple effects: an increase in value derived by all customers (builder/remodelers/homeowners) and an increase in motivation for your customer’s customers not part of your network to enter it. Cross-group, or indirect, network effects are seen when two different customer groups, say builders/remodelers and homeowners, are dependent on each other, as the value derived from one group grows in step with the other group.
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Relationships for Dealers
Dealers are in the relationship business. They know developing and cultivating strong relationships are essential to success and longevity. However, as the industry evolves, how businesses think about relationships may need to evolve as well. We previously argued that thinking linearly about relationships leaves one vulnerable to market shocks.
What we are asking dealers to do, especially in this eye-opening time of a pandemic, is to think differently and not just better. Think beyond your market size, beyond your immediate customer and beyond the needs of today’s built environment.
