The Net's Future
"Other than physically picking up an order, just about every other transaction that now requires a personal visit, a phone call or fax can be replicated on the Internet - and done with much less time wasted waiting for answers, oftentimes very simple answers," says Kevin Price, the director of the American Supply Association's Center for Advancing Technology.
The center was started two years ago to increase plumbing wholesalers' awareness of technology, with e-commerce being the latest advancement. Price says he's witnessed a dramatic increase in e-commerce interest among wholesalers in the past six months.
To find out more on where contractors stand on the matter, we recently sent out a special survey to 1,000 PM subscribers to analyze online order activity and other buying habits between wholesalers and contractors. We received an impressive 28 percent response rate.
According to our survey, almost 67 percent of our readers choose wholesalers to make their online purchases. But considering the relative novelty of conducting business this way, it's not surprising to find few plumbing contractors overall currently taking advantage of this trend. Only 12 percent of our survey respondents had purchased plumbing and heating material over the Internet.
Obviously, online buyers need online sellers to connect with. On its face, our survey suggests there are plenty of buying opportunities for contractors. Almost 38 percent of our respondents said wholesalers they currently do business with have online purchasing capabilities. We honestly couldn't confirm this high percentage in the marketplace. We spoke to a number of PHC wholesalers, including some of the largest operations in the country, and they were just as surprised by the large number as we were. Most surmised that our respondents may have lumped the more common (but still not commonplace) EDI capabilities with their answer.
More PerspectiveAlthough not specifically on e-commerce, another recent PM survey helps add perspective to our current findings. According to the survey on Internet usage completed last June, half of our respondents had access to the Internet for business-related purposes, and half didn't. In other words, it's an even money bet one of our readers hasn't surfed the Net yet - at least not for business purposes.
Of the half that did, 53 percent had made some type of product purchase for their businesses via the Internet. But the percentage of online purchases measured against total purchases was measly: A quarter said it was 1-2 percent; 21 percent indicated 3-5 percent; 6 percent said 6-10 percent; and 1 percent put the total at more than 10 percent.
Granted, when it comes to the growth of the Internet, statistics from last June don't tell the current story. We imagine more of our readers are online now. Regardless, the future looks much better for e-commerce: By 2001, 83 percent indicated that they expected those percentages to increase.
But by how much is anyone's guess. This combination of tepid interest for now with inevitable growth for tomorrow is what most wholesalers are banking on.
"There is a major use right now for the Internet in general," says
Patrick O'Neil, who runs H20.com, an electronic offshoot of New England wholesaler Blake Equipment. "Most contractors rely on it a great deal for information. A minority of people are actually making online purchases, but that number will only continue to grow as everyone gets more comfortable with the process."
Considering the wholesaling industry's constricting margins, increasing competition from home centers and the unrelenting demands for quicker and better service, e-commerce offers the latest way to cope.
"We're not talking about using a Web site to corner the global market for toilets," says the ASA's Price. "But a site does allow wholesalers to raise the bar on customer service, penetrate their existing markets deeper and expand somewhat beyond the traditional geographic boundaries of this industry. It's an evolution, not a revolution."
O'Neil agrees with this contention. "The Web site gives us a national reach," he adds. More than 85 percent of contractors who have registered to use the site are outside of Blake's geographic market.
New SiteLater this summer, Texas-based Coburn Supply Co. will go online with the first e-commerce Web site developed by ASA's tech center.
The term "e-commerce" doesn't go far enough to describe the site, says Jim Fuller, director of sales and marketing. He prefers to use "e-business" since the Coburn Web site will allow for much more than simply ordering product.
"Contractors will be able to check the status of current and back orders, study their purchasing history, review their invoices and statements, prepare project submittals, and download product specifications," explains Fuller.
In addition, Coburn's "Data Warehouse" will feature information on 121,000 SKUs. That compares with the relatively paltry 50,000 SKUs stocked in Coburn's "real" warehouses.
"The Web site will give our customers access to product and other business information 24 hours a day, seven days a week," Fuller adds. "What's more, the data will all be presented in real time - accurate to the most recent transaction."
Despite an investment Fuller simply describes as "major," he figures that only 3 percent of his 8,000 customers will use it right off the bat. "There's a lot of 'probably' and 'expected to' when you talk about this for our industry," Fuller explains. "There's always going to be customers who prefer to stop by, enjoy a cup of coffee and then pick up their orders - that's a contractor's world. But any survey you read shows the Internet will be an additional way of doing business in the future. If we can make our Web site easier to use than picking up the phone or sending a fax, then more and more contractors will eventually use it."
Fuller's modest prediction didn't surprise other wholesalers we talked to on the matter. Oregon-based Consolidated Supply has much of the potential e-business capabilities Fuller expects up and running right now.
"It's gone from a clumsy tool," says Rodney Sanders, manager, information systems, "to one of the most functional, powerful e-commerce sites available."
Still, Sanders says 25 customers out of 3,000 use it, and he'd be happy to increase that to 100 by the end of the year. "There's no pressing demand, but we're definitely seeing an increase about it lately."
Convenience Is KingConvenience is clearly the biggest reason our survey respondents gave for making a purchase on the Internet - some 70 percent cited convenience as the reason for making an online purchase. Seen with the 20/20 vision of hindsight, the emphasis on convenience and service reflects the ongoing trends evident in the overall survey.
While the phenomenon of e-commerce is clearly new, not much else has changed in the two years since we last conducted the wholesaler/contractor relations survey. Key trends that emerged in 1998 continued to make incremental advances, though. Convenience reigns: product availability and service ranked as the most important factors to consider for contractors making PHC purchases.
Seen in this light, the emergence of e-commerce is just the latest outgrowth of this trend. In the harried, time-sensitive world of plumbing contractors, getting what you want when you need it has never been more vital. Service and availability eclipsed price as the most important purchasing factor in the 1998 survey, and emphasis on convenience continues to increase, while price becomes less and less important.
Fourteen years ago, price was king. Our original 1986 survey respondents listed the most important factors that led them to purchase from a given wholesaler in this order:
2.Availability of Materials
In the 1998 survey, when asked to rate various factors from "extremely important" to "not at all important," the top three responses in the "extremely important" category were:
- 1.Availability of Materials
3.Loyalty to the Trade
- 1.Availability of Materials
The increased importance of knowledgeable salespeople can be seen as just another facet of ever-increasing demand for great service, while the drop in trade loyalty seems just another concession to the expediency of convenience.
Home CentersThe emphasis on convenience is ironic news for the home centers. Although many PM readers aren't happy to see home center advertisements in these pages, some 61 percent of respondents admitted to buying products from a home center such as Lowe's or Home Depot - up slightly from 57 percent in 1998. While a vast majority (74 percent) of those who made purchases at a home center said they did so "only when the home center is near a job I'm on and I need something immediately," 42 percent also bought their tools there. Several respondents wrote in to stipulate that late hours and weekend availability were the reasons that they sought out the home centers - another nod to convenience and availability.
In other survey findings, annual purchases of PHC products increased slightly across the board in 2000, according to the survey, but the percentage of purchases made from PHC wholesalers dropped slightly. When asked what percentage of their annual purchases were from PHC wholesalers, 68 percent of respondents answered "90 percent or more," down from 76 percent two years ago.
On the plus side, 75 percent of those responding to the 2000 survey stated that they had a good working relationship with their wholesaler - up from 71 percent in 1998.
When asked what would make them more loyal to a single wholesaler, availability and price became the most important considerations for contractors, with "complete inventory" and "competitive pricing" both getting 74 percent of respondents' tallies. In what must be a particularly nettlesome response for wholesalers, price only seems to matter when contractors compare wholesalers to one another. Yet, while price was clearly the most important factor in 1998, chosen by 81 percent of respondents, it dropped into a tie with product availability as the most important consideration.
Whether it's shelf space or cyberspace, our readers make it clear that convenience is their top priority when making PHC purchases. In today's economy, availability trumps price, and more than ever the key to keeping your customers' business is great service.