Bringing Digital Disruption to Building Materials

Bringing Digital Disruption to Building Materials

          
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Bringing Digital Disruption to Building Materials

Reinventing the Customer Journey
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    A building contractor we’ll call Bob meets with a client to discuss ideas for a bathroom renovation. Rather than visiting a distributor’s showroom, Bob uses his iPad to display a 3-D visualization of the client’s bathroom. Bob and the client experiment with options for the colors of tiles, fittings, and sanitary ceramics. Bob uses a smartphone app provided by the producer of these materials to calculate his final price on the basis of the client’s selections. The selections are made within the visualization and automatically transferred to a cloud-based building-information modeling (BIM) platform. The BIM platform places the order with the producer and creates the design plan for using the materials. The producer uses logistics services provided by a major e-commerce company to fulfill and deliver the order. Bob uses the producer’s smartphone app for real-time tracking of his order, which arrives on schedule within the one-hour delivery window he selected. The producer uses the app to send Bob a video that demonstrates the right way to apply the materials. The producer also recommends other building materials on the basis of Bob’s past purchases and current location. Looking beyond today’s purchase, the producer uses the data about Bob’s buying behavior as one of many inputs to refine its commercial strategy.

    Although much of the technology already exists to make this vision of digitally enabled direct distribution a reality, few building-materials producers have embraced the technology as a means to reinvent the customer journey. Distribution remains rooted in the traditional indirect model in which producers sell building materials to the wholesale and retail distributors that have a direct relationship with contractors and other end customers or decision makers. (See Exhibit 1.) These distributors select the assortment of products offered and provide credit services to customers. In most cases, the distributors are also responsible for delivering products. But, as has happened in other industries that have been disrupted by the digital revolution, this indirect model will inevitably give way to a model in which building materials producers bypass traditional distributors. In this digitally enabled model, manufacturers will sell their products directly to end customers and use third-party logistics services for fulfillment and delivery.

    exhibit

    In our view, it is a question of when, not if, this transformation of the distribution model will occur in the building materials industry. And the experience of other industries has shown that a digital disruption can arrive with startling speed. Indeed, top building-materials wholesalers and retailers have already launched digital distribution initiatives to counter the threat of direct distribution by traditional manufacturers in or new entrants to the industry. The early results indicate that businesses and other end customers are interested in purchasing building materials directly through the Web and mobile apps, just as they do other products. This is especially true in some emerging markets, such as Indonesia, where the rate of Internet usage on mobile devices is high among businesses and end customers. Building materials producers should not let distributors capture all of the value arising from this opportunity. Higher margins are only one of the benefits of establishing direct relationships with end customers. Producers would also gain access to a trove of customer data that allows them to develop targeted sales-and-marketing efforts, refine their product offerings, and enhance on-site and off-site support. These applications of data promise to increase customer loyalty and unlock significant growth opportunities.

    Building materials producers should take action now to adapt their strategies and capabilities, before the full effects of the digital revolution alter the industry landscape. The first producers to become first movers and successfully adopt a digitally enabled direct-distribution model will gain major competitive advantages. These advantages will arise not only from stronger customer relationships but also from alliances with technology and logistics companies that provide the infrastructure and support for e-commerce and direct distribution. Early movers are likely to benefit from a strong lock-in effect with customers and business partners, which could ultimately threaten the survival of producers that take a wait-and-see attitude.

    To help producers capture this opportunity, The Boston Consulting Group has explored the current state of digital adoption in the building materials industry and the important trends that are reshaping the distribution model. Our research included discussions with executives at 20 of the top building-materials producers and distributors and a comprehensive Web survey of more than 100 building-materials purchasers in the U.S. We focused our research on the application of digital technology to the customer-facing stages of the building materials value chain (marketing, sales, and logistics), giving less emphasis to sourcing and production. By applying our findings to develop strategies and capabilities, producers can emerge as the winners in their industry’s new environment.

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