Long-time readers of Electrical Wholesaling are familiar with the magazine's Electrical Pyramid, which the magazine's editors developed to help readers analyze the channels of distribution in the electrical wholesaling industry. We are going to switch it up with this article and build a different but related electrical pyramid — Electrical Wholesaling's Customer Pyramid. The concept is similar to the original electrical pyramid, except that each level of the pyramid will focus on a broad category of customers and specific customers or buying influences are called out in the different bricks. You can use Electrical Wholesaling's Customer Pyramid to train new employees and to remind company veterans about all the various customers in your local market area.
Electrical contractors. Let's take it from the top. First pencil in the biggest customer group for many electrical distributors — electrical contractors. Electrical Wholesaling estimates that electrical contractors easily account for 36 percent to 40 percent of the typical distributor's annual sales.
While analyzing the electrical contractors in your market, be sure to note if they are union or non-union contractors. In heavily unionized markets like Chicago or New York, membership in the local chapter of the International Brotherhood of Electrical Workers (IBEW) is most common, if not an outright must. IBEW contractors tend to be members of the National Electrical Contractors Association (NECA), Bethesda, Md., while many nonunionized electrical contractors are members of the Independent Electrical Contractors (IEC) association, Alexandria, Va. As with other trade unions, IBEW membership in the electrical construction market is declining. In the 1970s, IBEW had approximately one million members but today its membership has dropped to an estimated 725,000 members.
Contractors from related trades
Next are contractors from related trades, including those that focus on the voice-data-video (or VDV) market; custom home cabling for home theaters; security and other higher end applications; lighting maintenance contractors that focus on lamp replacement for stores and other retail applications; and solar contractors. You may also want to add in energy service companies, or ESCOs. While they aren't contractors in the traditional sense, they buy electrical products when they replace lighting and other electrical system components. They may also be an important buying influence if they subcontract the actual retrofit work to contractors. Can you think of any other contractors from other trades? Add them to your Customer Pyramid. Electrical Wholesaling estimated that contractors from related trades account for 4.2 percent of sales through electrical distributors.
Construction market customer and buying influences
Let's now move down to the next level — customers and buying influences in the construction market, which represents a huge chunk of business for many electrical distributors. There will obviously be some overlap with electrical contractors and contractors from related trades. But for the purposes of the EW Customer Pyramid, in this level let's pencil in homebuilders and general contractors. And while you won't be selling electrical products to electrical inspectors or architects, they are important buying influences in the construction market and certainly influence the sales of electrical products.
We covered this level of the EW Customer Pyramid in a July 2011 EW article entitled “Industrial Market 101,” which is part of the Electrical Marketer's Survival Guide, a training resource for distributors, reps and manufactures that will be republished soon. The two largest types of industrial customers are the on-site maintenance personnel for factories and other facilities, which is considered MRO business, and the original equipment manufacturers (or OEMs) that buy electrical products and assemble them into other products. Electrical Wholesaling pegs MRO business at about nine percent of distributors' sales and OEM sales at six percent of sales.
You may also do business with industrial automation specialists that either integrate electrical products into the systems they design and install, and other industrially oriented contractors. Don't forget to pencil in national account business for industrial products. If your company goes after national accounts, it may be a member of a national procurement group like SupplyForce, Vantage Group or Vanguard National Alliance (VNA), which were also discussed in that Industrial Market 101 article.
You should also pencil in a level for electric utilities, which typically account about five percent of sales, but can account for substantially more for those electrical distributors that specialize in this market niche. If your company is into the utility market, sketch in bricks for investor-owned utilities, rural electric coops and municipally owned utilities, the three types of utilities that produce most of the power in the United States. EW covered utility market basics in its August issue.
The next level on the Electrical Wholesaling's Customer Pyramid is for institutional customers, which on a national level account for 3.5 percent of all products sold through electrical distributors. You can break down this level into separate bricks for schools from kindergarten through 12th grade; colleges and universities; hospitals and health-care facilities; local, county and state governments; and the federal government. Electrical Wholesaling covered the healthcare market in its September issue and has an article on the school and universities market on page 33.
You may also want to consider building in a level for retail business, which accounts for 3.4 percent of distributor sales, according to Electrical Wholesaling's data. Include bricks for homeowners, Main Street shops, hardware stores, and possibly home centers or big-box retail stores, if your company has regional or national supply contracts with either of these two types of retail customers.
Other key customer segments and buying influences
The bottom level of Electrical Wholesaling's Customer Pyramid focuses on some of the smaller niche customers like companies involved in the mining or export business; distributors from other trades that buy some electrical products from your company; farmers; and other smaller customers.
Four Ways You Can Use the Customer Pyramid
Now comes the hard part. You have identified the customers and buying influences in your market area, but you need to put that information to work and customize some go-to-market strategies to increase sales. Here are four ideas to get you started.
Stretch your definition of a customer
Challenge your new salespeople and industry veterans to scour your local market for other potential customers for your products and services.
Customize your sales and marketing strategies
Start thinking about the best sales, marketing and promotional strategies to reach your various customer groups, or customers within a group. What works for one type of customer may not work for another.
Estimate sales potential
See the sidebar on page 19 to learn how to use Electrical Wholesaling's customer multipliers to figure out how much business a customer may represent.
Identify key buying influences in your market area
Customers can be pretty easy to spot, but distributors don't always have relationships with some people behind the scenes who influence which electrical products are installed on construction projects in your market area. Do you know the electrical inspectors, architects, engineering firms and other buying influences in your market area?
Judging from the popularity of the Electrical Pyramid, EW's editors think this Customer Pyramid will be a big hit with readers. Use it as a template and customize it to your own customer base. It's not intended to be engraved in stone, as no two distributors have the same customer mix. If you have any suggestions for how EW's editors can improve the customer pyramid, please contact Jim Lucy at [email protected].
Estimating the Sales Potential of Your Customers
Once you have identified the customers in your market area, you will want to get a handle on the sales potential they offer. Electrical Wholesaling's 2011 Market Planning Guide published in Nov. 2010 (and the 2012 version coming up next month) is a great resource to help you do this, with its national multipliers, local market employment data, and other information in its Regional Factbook.
We will use electrical contractors as an example because it's the most important customer group for so many electrical distributors. But as you will see in EW's Market Planning Guide, you can use the multipliers and employment data for other types of customers including utilities, industrial MRO, OEM, factory automation and government. The Market Planning Guide says each employee at an electrical contracting firm represents $39,510 in buying power, and that each electrician represents $49,787.
Let's run through two examples to show you how this works. First, let's use the multiplier with the national numbers. By multiplying the EW Multiplier ($39,510) with the BLS data for the total number of electrical contractor employees, you get $29.6 billion in national buying potential for electrical contractors. Now let's do a local estimate for a local market using Market Planning Guide data. Let's use the Orlando-Kissimmee, Fla., Metropolitan Statistical Area (MSA). BLS' most recent local market data for this MSA says there were 3,740 electricians employed in this area in May 2010. Using EW's electrician multiplier of $49,787 gives you a sales potential with electricians in the Orlando-Kissimmee MSA of approximately $186.2 million.
Electrical Contractors by the Numbers
- The 2007 U.S. Economic Census says there are 72,431 electrical contracting firms in the United States.
- The Bureau of Labor Statistics (BLS) says electrical contractors had 751,400 employees in July.
- The International Bureau of Electrical Workers (IBEW) had an estimated 725,000 members in 2010.