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Renewed optimism has residential contractors projecting revenue growth during the coming years, which is changing their strategies for how they bid jobs, select products and where they shop for building products. L.E.K. Consulting’s third Contractor Behavior Survey finds that shifting contractor behaviors will have an impact on building products manufacturers and the channel. And for the first time, contractors ranked the highest-performing manufacturers across 14 product categories. L.E.K. report highlights for the construction and building materials industry include: -Brand vs. price: Shifting contractor criteria for product selection -Shopping shifts: Are big boxes losing contractors to pro channels? -Contractor checklist: Which product qualities and channel services are the most important and why? -Rankings of the highest-performing product manufactures – from foundations (concrete) to roofing (and key categories in between) -Key recommendations for building products manufacturers and the channel
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L E K . C O M
EXECUTIVE INSIGHTS VOLUME XIV, ISSUE 25
L.E.K. Consulting / Executive Insights
L.E.K. Contractor Behavior Survey: Optimism Creates New Openings for the Building Products Industry
There continue to be strong signs that the building and construc-
tion market is beginning to rebound after a considerable decline.
In addition to recently improved housing starts, L.E.K. Consult-
ing’s findings from its annual Contractor Behavior Survey show
that residential contractors have increased their optimism across
a number of business drivers during the past year.
To better understand contractor purchasing priorities and pref-
erences, L.E.K. surveyed 650 residential contractors across the
United States for its third L.E.K. Contractor Behavior Survey.
For the first time, the L.E.K. report also identifies top-rated man-
ufacturers across 14 categories based on contractor responses.
Protecting Margins by Selecting the Right Products, Adding Services
Contractors’ behaviors reflect their renewed sense of optimism.
Many are simply walking away from jobs that they don’t expect
will provide appropriate margins (see Figure 1). They are also
increasingly finding non-price mechanisms to address pricing
pressures, with nearly half of those surveyed performing extra
services rather than reducing their quotes.
When selecting products, contractors have continued to value
their trusted brands during the downturn and generally remain
loyal to proven products rather than risk purchasing less expen-
sive alternatives by other manufacturers. Contractors are also
decreasing their searches across multiple retailers and distributors
to purchase their favored products at the lowest prices.
L.E.K. Contractor Behavior Survey: Optimism Creates New Openings for the Building Products Industry was written by Thilo Henkes and Aaron Smith, both Vice Presidents at L.E.K. Consulting in the North American Basic Industries Practice; and Robert Rourke, a Vice President and Head of L.E.K.’s Chicago office. Please contact us at [email protected] for additional survey findings or related information.
Figure 3Contractor Average: Purchase
Frequency By Channel (2006-2015F)
Figure 3Contractor Average: Purchase Frequency By Channel (2006-2015F)
Percentage Change
15%
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
16%
14%
12%
15%
11%
22%
22%
22%
39%
42%
44%
46%
43%
40%
48%
48%
53%
49%
41%
47%
2011 Survey2012 Survey2013 Survey
OtherOnlineBig Box Retailer
Two Stepper/Specialty IndependentOne Stepper/Specialty ChainBroadline Distributor
Figure 1Contractor Response to Price Pressure
Percent of Contractors Rating 6 or 7
Source: 2013 L.E.K. Contractor Behavior Survey
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
Source: 2013 L.E.K. Contractor Behavior SurveyNote: * Based on contractor responses for their top two job types; **Based on company set for which usage rate is greater than 10%
0 1008040 6020
0
20
40
60
80
100
2015F
(1.5)
(0.8)
3.0
1.6(0.2)
1.2
2006-12
0.0
0.2
(0.8)
1.00.1
0.5
12-15F
2010 2011 20122006*
Purchasing same brand at lessexpensive retailers and distributors
Performing extra services on each job
Working on those fewer jobsthat are priced more appropriately
Taking lower margins on jobs
Purchasing less expensive brands
Purchasing same brands butlower-grade products
No response categorized as important
Figure 2Contractor Product Purchase Criteria Importance
Percent of Contractors Rating 6 or 7
Figure 4Highest-Performing Manufacturers*
Percent of Contractors
Source: 2013 L.E.K. Contractor Behavior Survey
0 1008040 6020
72%Durability
69%Price
67%In stock for immediate delivery
66%Reputation
63%Aesthetics / visual appeal
63%Manufacturer guarantee / warranty
63%Available at preferred retailer / distributor
57%Energy efficiency of products
50%Quality of relationship w/ manufacturer
50%Request of owner / specifier
49%Level of customer support
43%Sustainable attributes / water efficient /recycled/ waste reducing
42%Complete system solution
34%Research product online
32%Recommendation of distributor
Percentage Change
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
Other
Online
Big Box Retailer
Two Stepper/Specialty Independent
One Stepper/Specialty Chain
Broadline Distributor
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
0
20
40
60
80
100
2015F
(1.5) 0.0
(1.8) 0.2
3.0 (0.8)
1.6 1.0
(0.2) 0.1
(1.2) (0.5)
2006-12 12-15F
2010 2011 20122006*
EXECUTIVE INSIGHTS
L E K . C O MPage 2 L.E.K. Consulting / Executive Insights Vol. XIV, Issue 25
Examining Product Purchasing Drivers
The importance of using trusted brands reflects contractors’ belief
that durability is the number-one product purchasing criterion,
with related attributes including product reputation and warranty
also among the top-10 product selection considerations (see Figure
2). Price remains a significant influencer on contractor purchasing,
but has run second to durability during the course of the three
L.E.K. contractor surveys. Energy efficiency is also significant, with
57% of contractors stating that it is an important consideration.
Measuring Channel Shifts
In the two previous L.E.K. surveys, contractors stated that price
was a major reason for shopping at big box stores, but that the
big box channel was underperforming on other services relative
to the pro channels (one-steppers/specialty chains, two-stepper/
specialty independents and broadline distributors). While price
is important this year, more than half of contractors said that
convenience has driven them to spend more at big box stores,
citing benefits such as close proximity to job sites, inventory and
product selection. Having the right products in stock enables
contractors to purchase materials as needed at the big box chan-
nel rather than tying up capital in materials or worrying about
storage logistics of purchased items.
But there are still other factors that are drawing contractors away
from the big box channel. As the importance of price becomes
slightly de-emphasized, our data shows that the shift towards big
Figure 3Contractor Average: Purchase
Frequency By Channel (2006-2015F)
Figure 3Contractor Average: Purchase Frequency By Channel (2006-2015F)
Percentage Change
15%
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
16%
14%
12%
15%
11%
22%
22%
22%
39%
42%
44%
46%
43%
40%
48%
48%
53%
49%
41%
47%
2011 Survey2012 Survey2013 Survey
OtherOnlineBig Box Retailer
Two Stepper/Specialty IndependentOne Stepper/Specialty ChainBroadline Distributor
Figure 1Contractor Response to Price Pressure
Percent of Contractors Rating 6 or 7
Source: 2013 L.E.K. Contractor Behavior Survey
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
Source: 2013 L.E.K. Contractor Behavior SurveyNote: * Based on contractor responses for their top two job types; **Based on company set for which usage rate is greater than 10%
0 1008040 6020
0
20
40
60
80
100
2015F
(1.5)
(0.8)
3.0
1.6(0.2)
1.2
2006-12
0.0
0.2
(0.8)
1.00.1
0.5
12-15F
2010 2011 20122006*
Purchasing same brand at lessexpensive retailers and distributors
Performing extra services on each job
Working on those fewer jobsthat are priced more appropriately
Taking lower margins on jobs
Purchasing less expensive brands
Purchasing same brands butlower-grade products
No response categorized as important
Figure 2Contractor Product Purchase Criteria Importance
Percent of Contractors Rating 6 or 7
Figure 4Highest-Performing Manufacturers*
Percent of Contractors
Source: 2013 L.E.K. Contractor Behavior Survey
0 1008040 6020
72%Durability
69%Price
67%In stock for immediate delivery
66%Reputation
63%Aesthetics / visual appeal
63%Manufacturer guarantee / warranty
63%Available at preferred retailer / distributor
57%Energy efficiency of products
50%Quality of relationship w/ manufacturer
50%Request of owner / specifier
49%Level of customer support
43%Sustainable attributes / water efficient /recycled/ waste reducing
42%Complete system solution
34%Research product online
32%Recommendation of distributor
Percentage Change
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
Other
Online
Big Box Retailer
Two Stepper/Specialty Independent
One Stepper/Specialty Chain
Broadline Distributor
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
0
20
40
60
80
100
2015F
(1.5) 0.0
(1.8) 0.2
3.0 (0.8)
1.6 1.0
(0.2) 0.1
(1.2) (0.5)
2006-12 12-15F
2010 2011 20122006*
Figure 3Contractor Average: Purchase
Frequency By Channel (2006-2015F)
Figure 3Contractor Average: Purchase Frequency By Channel (2006-2015F)
Percentage Change
15%
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
16%
14%
12%
15%
11%
22%
22%
22%
39%
42%
44%
46%
43%
40%
48%
48%
53%
49%
41%
47%
2011 Survey2012 Survey2013 Survey
OtherOnlineBig Box Retailer
Two Stepper/Specialty IndependentOne Stepper/Specialty ChainBroadline Distributor
Figure 1Contractor Response to Price Pressure
Percent of Contractors Rating 6 or 7
Source: 2013 L.E.K. Contractor Behavior Survey
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
Source: 2013 L.E.K. Contractor Behavior SurveyNote: * Based on contractor responses for their top two job types; **Based on company set for which usage rate is greater than 10%
0 1008040 6020
0
20
40
60
80
100
2015F
(1.5)
(0.8)
3.0
1.6(0.2)
1.2
2006-12
0.0
0.2
(0.8)
1.00.1
0.5
12-15F
2010 2011 20122006*
Purchasing same brand at lessexpensive retailers and distributors
Performing extra services on each job
Working on those fewer jobsthat are priced more appropriately
Taking lower margins on jobs
Purchasing less expensive brands
Purchasing same brands butlower-grade products
No response categorized as important
Figure 2Contractor Product Purchase Criteria Importance
Percent of Contractors Rating 6 or 7
Figure 4Highest-Performing Manufacturers*
Percent of Contractors
Source: 2013 L.E.K. Contractor Behavior Survey
0 1008040 6020
72%Durability
69%Price
67%In stock for immediate delivery
66%Reputation
63%Aesthetics / visual appeal
63%Manufacturer guarantee / warranty
63%Available at preferred retailer / distributor
57%Energy efficiency of products
50%Quality of relationship w/ manufacturer
50%Request of owner / specifier
49%Level of customer support
43%Sustainable attributes / water efficient /recycled/ waste reducing
42%Complete system solution
34%Research product online
32%Recommendation of distributor
Percentage Change
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
Other
Online
Big Box Retailer
Two Stepper/Specialty Independent
One Stepper/Specialty Chain
Broadline Distributor
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
0
20
40
60
80
100
2015F
(1.5) 0.0
(1.8) 0.2
3.0 (0.8)
1.6 1.0
(0.2) 0.1
(1.2) (0.5)
2006-12 12-15F
2010 2011 20122006*
EXECUTIVE INSIGHTS
L E K . C O ML.E.K. Consulting / Executive Insights
box stores appears to have plateaued and is expected to decline
slightly (stated -0.8% decrease) in projected purchasing frequen-
cy during the next three years (see Figure 3).
Pro channels are seen as providing faster, more reliable delivery
and also have other attributes such as contractor services and
knowledgeable staff. This shift is expected to benefit the one-
steppers the most. One- and two-steppers are outperforming big
box stores in areas including delivery speed and on-time guaran-
tees, contractor services and knowledgeable staff.
The online channel remains small, but has been growing consis-
tently. Contractors are increasingly using the Internet to gather
product information (particularly on manufacturers’ sites) as well
as pricing information on channel sites.
Ranking the Highest-Performing Manufacturers Across 14 Categories
Contractors also cast their votes for the highest-performing
manufacturers across 14 separate product categories (see Figure
4). Using the contractors’ responses, L.E.K. then rated companies
based on an aggregate score of the following four attributes:
product breadth, quality, price and service level.
Because contractors are loyal to durable brands with strong
reputations, earning high performance scores is critical to product
manufacturers.
While receiving the highest performance score in each category is
notable, these categories remain very competitive. One-third of the
categories have leaders that only hold a slightly higher score than
the category average – including framing, HVAC, insulation, light-
ing & electrical and paint.
Planning for Growth
Renewed confidence in the building and construction market has
contractors thinking beyond just price and cost containment, and
focusing more strategically about efficiency and productivity.
Product manufacturers have the potential to gain share by pro-
viding quality products at a premium that demonstrate energy
efficiency or sustainability. Successful product strategies also require
original equipment manufacturers (OEMs) to clearly understand
the product requirements and pricing thresholds of their primary
customer segments.
Category Highest-Performing Manufacturer** Highest Performer Score** Difference to Avg. Overall Score**
Carpentry American Woodmark 5.7 0.4
Concrete/Foundation Lafarge 5.8 0.4
Drywall USG Corporation 6.0 0.3
Electrical/Lighting GE 5.5 0.2
Flooring Anderson Hardwood 5.4 0.4
Framing Georgia-Pacific 5.4 0.2
HVAC Trane 5.3 0.2
Insulation Owens Corning 5.6 0.2
Paint Sherwin-Williams 5.6 0.2
Plumbing Toto 6.0 0.7
Roofing Owens Corning 5.9 0.3
Siding James Hardie 5.6 0.3
Tile Dal-Tile 5.5 0.3
Windows/Doors Andersen 6.0 0.6
Figure 3Contractor Average: Purchase
Frequency By Channel (2006-2015F)
Figure 3Contractor Average: Purchase Frequency By Channel (2006-2015F)
Percentage Change
15%
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
16%
14%
12%
15%
11%
22%
22%
22%
39%
42%
44%
46%
43%
40%
48%
48%
53%
49%
41%
47%
2011 Survey2012 Survey2013 Survey
OtherOnlineBig Box Retailer
Two Stepper/Specialty IndependentOne Stepper/Specialty ChainBroadline Distributor
Figure 1Contractor Response to Price Pressure
Percent of Contractors Rating 6 or 7
Source: 2013 L.E.K. Contractor Behavior Survey
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
Source: 2013 L.E.K. Contractor Behavior SurveyNote: * Based on contractor responses for their top two job types; **Based on company set for which usage rate is greater than 10%
0 1008040 6020
0
20
40
60
80
100
2015F
(1.5)
(0.8)
3.0
1.6(0.2)
1.2
2006-12
0.0
0.2
(0.8)
1.00.1
0.5
12-15F
2010 2011 20122006*
Purchasing same brand at lessexpensive retailers and distributors
Performing extra services on each job
Working on those fewer jobsthat are priced more appropriately
Taking lower margins on jobs
Purchasing less expensive brands
Purchasing same brands butlower-grade products
No response categorized as important
Figure 2Contractor Product Purchase Criteria Importance
Percent of Contractors Rating 6 or 7
Figure 4Highest-Performing Manufacturers*
Percent of Contractors
Source: 2013 L.E.K. Contractor Behavior Survey
0 1008040 6020
72%Durability
69%Price
67%In stock for immediate delivery
66%Reputation
63%Aesthetics / visual appeal
63%Manufacturer guarantee / warranty
63%Available at preferred retailer / distributor
57%Energy efficiency of products
50%Quality of relationship w/ manufacturer
50%Request of owner / specifier
49%Level of customer support
43%Sustainable attributes / water efficient /recycled/ waste reducing
42%Complete system solution
34%Research product online
32%Recommendation of distributor
Percentage Change
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
Other
Online
Big Box Retailer
Two Stepper/Specialty Independent
One Stepper/Specialty Chain
Broadline Distributor
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
0
20
40
60
80
100
2015F
(1.5) 0.0
(1.8) 0.2
3.0 (0.8)
1.6 1.0
(0.2) 0.1
(1.2) (0.5)
2006-12 12-15F
2010 2011 20122006*
Figure 3Contractor Average: Purchase
Frequency By Channel (2006-2015F)
Figure 3Contractor Average: Purchase Frequency By Channel (2006-2015F)
Percentage Change
15%
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
16%
14%
12%
15%
11%
22%
22%
22%
39%
42%
44%
46%
43%
40%
48%
48%
53%
49%
41%
47%
2011 Survey2012 Survey2013 Survey
OtherOnlineBig Box Retailer
Two Stepper/Specialty IndependentOne Stepper/Specialty ChainBroadline Distributor
Figure 1Contractor Response to Price Pressure
Percent of Contractors Rating 6 or 7
Source: 2013 L.E.K. Contractor Behavior Survey
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
Source: 2013 L.E.K. Contractor Behavior SurveyNote: * Based on contractor responses for their top two job types; **Based on company set for which usage rate is greater than 10%
0 1008040 6020
0
20
40
60
80
100
2015F
(1.5)
(0.8)
3.0
1.6(0.2)
1.2
2006-12
0.0
0.2
(0.8)
1.00.1
0.5
12-15F
2010 2011 20122006*
Purchasing same brand at lessexpensive retailers and distributors
Performing extra services on each job
Working on those fewer jobsthat are priced more appropriately
Taking lower margins on jobs
Purchasing less expensive brands
Purchasing same brands butlower-grade products
No response categorized as important
Figure 2Contractor Product Purchase Criteria Importance
Percent of Contractors Rating 6 or 7
Figure 4Highest-Performing Manufacturers*
Percent of Contractors
Source: 2013 L.E.K. Contractor Behavior Survey
0 1008040 6020
72%Durability
69%Price
67%In stock for immediate delivery
66%Reputation
63%Aesthetics / visual appeal
63%Manufacturer guarantee / warranty
63%Available at preferred retailer / distributor
57%Energy efficiency of products
50%Quality of relationship w/ manufacturer
50%Request of owner / specifier
49%Level of customer support
43%Sustainable attributes / water efficient /recycled/ waste reducing
42%Complete system solution
34%Research product online
32%Recommendation of distributor
Percentage Change
20% 20% 19% 19% 19%
32% 32% 31% 31% 31%
26% 28% 29% 29% 29%
7%
1% 2% 3% 3% 4%
6% 7% 7% 7%
13% 12%12% 11% 11%
Other
Online
Big Box Retailer
Two Stepper/Specialty Independent
One Stepper/Specialty Chain
Broadline Distributor
Source: 2013 L.E.K. Contractor Behavior SurveyNote: *2006 data from 2010 survey adjusted to reflect change in view of 2010 market
0
20
40
60
80
100
2015F
(1.5) 0.0
(1.8) 0.2
3.0 (0.8)
1.6 1.0
(0.2) 0.1
(1.2) (0.5)
2006-12 12-15F
2010 2011 20122006*
EXECUTIVE INSIGHTS
L E K . C O MPage 4 L.E.K. Consulting / Executive Insights Vol. XIV, Issue 25
As part of this customer segmentation, OEMs must revisit their
channel strategies to ensure that they are providing the right
products through distinct big box and pro channels. Manufac-
turers typically trade low margins for high volumes via big box
stores, and companies that remain overly committed to this
price-sensitive channel may struggle to increase their revenues.
To extract sufficient value from their intellectual property, OEMs
should strongly consider selling new and premium products
through pro channels where profits are traditionally higher and
the differentiation is sustainable.
For this strategy to succeed, however, OEMs must have clear pricing
strategies among channels and establish programs to support their
distribution partners. And they must also understand the right mix of
innovation, quality and price that attracts contractors to their prod-
ucts instead of the alternatives next to them on store shelves.
Manufacturers that can develop and position targeted products
across key segments of the channel (and provide product and
“how-to” information online) will be well-positioned to capture
added share as demand continues to grow.
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and analytical rigor to help clients solve their most critical business problems. Founded nearly 30 years ago, L.E.K. employs more than 1,000 professionals in 20 offices across Europe, the Americas and Asia-Pacific. L.E.K. advises and supports global companies that are leaders in their industries – including the largest private and public sector organi-zations, private equity firms and emerging entrepreneurial businesses. L.E.K. helps busi-ness leaders consistently make better deci-sions, deliver improved business performance and create greater shareholder returns.
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