As the building industry evolves, suppliers and retailers must understand the latest trends to meet customer demands. To this aim, the latest Building Products Customer Guide (BPCG) report provides an in-depth look at how builders, remodelers, and general contractors use different shopping and purchase channels and the common problems they encounter on projects.
Our market research team at The Farnsworth Group surveyed Builders, Remodelers & General Contractors across the United States to compare continuity to shifts in how Pros research, find, select, and purchase building materials and home improvement products.
By understanding these trends highlighted in the BPCG report, manufacturers and suppliers will be better equipped and informed to understand the nuances of different Pro customers in order to inform go-to-market strategies and increase building material sales.
A handful of key market variables are contributing to purchase drivers among this customer segment:
- Existing home supply is short
- Price sensitivity is increasing
- Product availability is still a challenge
- Pros are looking for value over brand
Existing Home Supply is Still Short
According to our analysis of the data from the U.S. Census Bureau, both multi-family and single family residential construction starts are still less than what is necessary to keep up with demand for housing.
Supply of new residential construction remains high, with 8 months worth of new construction supply as of December 2023. Existing home supply is short, at 3 months supply, creating pricing pressure on new construction inventory available for sale. For builders and developers operating in low- and mid-tier new construction, this is a troubling reality. Remodelers still have project demand from homeowners as home equities remain elevated and homeowner mobility remains low.
Housing affordability, as measured by the National Association of Realtors Housing Affordability Index is still hovering at it's lowest point in over 20 years, due mostly to high home prices combined with high mortgage rates. Simply put, high rates reduce mobility and contribute to lower home prices and lower affordability metrics. For residential builders especially, the smaller pool of home buyers means that they need to find ways to increase the affordability of each floor plan and each individual build.
In order to keep completed inventory moving, residential builders have been offering an increasing number of incentives to make the sale among a smaller pool of buyers. Large, public builders largely introduced interest rate buy-down options to their sales playbook in 2023 in order to keep inventory moving, especially because existing home supply is so limited and home values are so elevated. Stability in rates will promote buying activity and we've seen a rate of ~6% stimulates buying activity.
Recent research conducted for members of The Home Improvement Research Institute indicates that the majority of existing homeowners need a rate below 6% to consider moving.
Builders and Remodelers are Increasingly Price Sensitive to Material Costs
In 2024, building material pricing will remain critical to winning and retaining customers for businesses across all industries. Builders, remodelers, and general contractors are being pinched by high material prices and increasing pricing pressures from homeowners and home buyers. While in 2020 through 2022 builders and remodelers knew they had negotiating margin on project costs and sale price of projects, that advantage has shifted on the field as demand has decreased throughout 2023.
Builders are no longer operating within a red hot market, but supply and demand are still out of alignment, and more housing supply is needed to meet market demand and to supply for the increasing number of households being formed.
According to findings by the Home Improvement Research Institute, 75% of contractors have positive or neutral sentiments about the financial health of their organization in 2023 compared to 2022 and 78% are looking positively at their financials for 2024. Remodelers are still getting bid requests, but they are having to compete with others, and are facing demands from prospects to find ways to decrease overall project costs to secure the project.
Price remains a top challenge but the severity has lessened over 2022. Like other Trades and DIYers, those increased product costs are impacting overall project costs. The portion of construction professionals who stated their average project costs "increased a lot" in 2023 over 2022 are:
- 15% of Home Builders
- 31% of Residential Remodelers/GCs
- 28% of Commercial Builders/GCs
Since labor costs remain high as labor availability and access to quality labor remains low, material prices continue to be volatile, and lending rates are increasing, Pros are continuing a behavior they started in 2023, which is to reduce material costs where they can.
Pros have still been increasing project costs charged to homeowners and home buyers throughout 2023, but to a lesser degree than in 2022. Overall, we can see that Builders are highly resistant to increase their prices by much if they can avoid it, whereas both residential and commercial remodelers have been more willing to continue increasing their prices due continued resilience of the home repair and remodeling market.
Remodelers Seek Pricing Information Online More Than Builders Do
Remodelers and general contractors are more price sensitive than residential and commercial builders.
69% of remodelers go online for pricing information compared to 51% of commercial and 50% of residential builders.
This is likely due to their need to quickly assess material costs while drafting project bids, especially in the current environment where material costs are fluctuating. Manufacturers and suppliers must ensure that their websites have all the necessary product information, including pricing, in a prominent area to meet the expectations of remodelers.
By neglecting to include pricing information, you drastically increase the odds of losing potential leads and sales to competitors who do offer transparent pricing.
Alternatives to transparent pricing include enhancing your website with a "Get a Quote" form for customers looking to purchase products from local retail stores, or create gated pricing information sheets and gather contact info from prospects for a sales representative to share one-to-one pricing in a timely manner. Doing so can help you drive more sales while gaining valuable leads simultaneously!
Does Product Availability Still Matter?
The 2024 Building Products Customer report suggests that the influence of product availability in a Pro’s purchase decision will continue to vary based on product type, project needs, and seasonality.
Availability challenges have decreased among builders, with 37% experiencing few to no issues in 2023, compared to 26% in the previous year. Only 29% of builders face frequent availability issues, with larger, more commercially oriented contractors encountering more challenges in this regard.
Further, here’s what you can expect various buyers to do when a product is unavailable:
- Half go to a different retailer or supplier
- A quarter place an order or wait for the product to arrive
- A quarter purchase a different brand or product
Very few will opt to not make the purchase at all. This stems from the fact that these material purchases are genuine purchase needs so Pros can complete jobs.
Despite existing challenges, building product manufacturers and suppliers can achieve strong, top-line sales deep into 2024 as long as they anticipate changing customer needs and understand their customer base and the evolving housing market.
Expanding partner networks, stocking in-demand products, and proactively forecasting product needs will ensure that customers can access necessary materials, building trust between supplier and customer.
Pros Conduct Research to Varying Degrees Before Making a Purchase
Overall, Pros are looking to strike the right balance between quality and cost, sticking to what they know and taking strategic risks with new options, and all in all seeking to attain the right value exchange as their profit margins are facing market pressures. Enter, product shopping and project research behaviors.
Online and in-store research is equally important for builders and GCs. The amount of research depends on whether the products are low-cost consumables or high-cost durables. Be mindful that adding to the number of sources used during research can lead to confusion, so manufacturers must focus on producing a singular message that addresses core problems and solutions.
In categories such as Smart Home Automation, Major Appliances, and Outdoor Living Products & Furniture Pros tend to conduct 3 to 5 searches online and an additional 2 in-store searches before making a purchase. With a potential for 7 or more marketing and sales touch points along the buyer’s journey for these categories, manufacturers have a strong opportunity to educate buyers and incentivize channel partners to win the sale.
Retailers and manufacturers who realize that shoppers don't view the research process as a linear progression but tend to bounce between online and in-store resources will continue to win market share in 2023 and beyond.
To maximize your online presence and in-store success, creating unique content tailored for each platform is essential.
Think outside the box - consider informative video tutorials, amping up efforts to collect positive customer reviews, providing transparent pricing information, enhancing accessibility to certified installers and creating ease of delivery for bulky items.
Digital Marketing Channels Increasingly Influence Pros’ Path to Purchase
An increasing number of builders and contractors are turning to online sources for product information, with 82% of remodelers and general contractors visiting websites such as HomeDepot.com for information, compared to only 74% of residential builders.
Social media and design sites are also becoming popular resources for commercial builders, with 30% of commercial builders using these platforms to find desired product information compared to only 13% of home builders and 5% of general contractors.
Social media platforms like Instagram and Pinterest can boost brand recognition and provide additional opportunities to convert customers who don't regularly use a predetermined set of products.
Pros’ Perceived Risk of Switching Brands Has Decreased, as Has Brand Loyalty
Commercial builders are 2-3 times more likely to try new brands for plumbing fixtures, paint, windows, insulation, drywall, and flooring than are residential builders and remodelers.
Further, younger Pros and larger companies are more likely to try new brands; those under 40 are more inclined to purchase a new brand than those over 40.
Even though both commercial and residential Pros identified availability and cost as motivators for trying a new supplier, price is now the primary factor for builders, remodelers, and contractors when seeking new vendors.
Of the 45% of commercial builders who tried a new supplier, the price was the top reason at 58%, followed by availability at 44%.
Of the 36% of residential builders who tried new suppliers, 66% reported price as their primary consideration, and 60% cited availability. For remodelers and general contractors, 46% stressed price, and 51% noted availability.
As we have studied this question since the 2020 edition of the Building Products Customer Guide, of those who tried a new brand, the vast majority were “extremely satisfied” or at least “somewhat satisfied” and this trend has continued year over year. 9 in 10 Pros have been satisfied when they switched brands over the last couple of years. We will continue monitoring this trend as price becomes of greater impetus and availability concerns change.
Finally, manufacturers should strive to be trusted partners so customers are confident in the reliability and quality of their products. Brand recognition is still essential for securing strategic channel partnerships and maintaining shelf space during PLRs.
Working to be a trusted partner stretches beyond channel partnerships with retailers, though. Enable marketing and sales teams to foster a partnership mentality directly with Pros. Manufacturers and suppliers may consider offering or refining contractor discount programs to ensure they are easy to understand, simple to track discounts earned, and create value to contractors. By doing so, manufacturers will encourage loyalty among existing customers and to increase market share among “not-yet” customers.
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