A Service Business

When I was in college, I worked during the summers at Philmont Scout Ranch in northern New Mexico. Living in the Sangre de Christo Mountains was a pure joy. The only thing that spoiled it was that after a few days of staff training, we would be rudely interrupted by the arrival of the campers. It is amazing how pesky Boy Scouts can be.

I think the same experience is true for custom builders. Building the house is a true joy, but it seems to be rudely interrupted by the clients. Today's homebuyers are more informed, have higher expectations and are very demanding. No longer are they content with just quality construction; they also demand exceptional service.

Fortunately, custom builders are finding allies in a new place — their suppliers. A few short years ago, the residential construction industry seemed to be focused on removing what they thought were unnecessary costs from the supply chain. The impulse was being driven by the national builders, who were trying to leverage their buying power to create economies of scale.

They have been very successful. According to research presented at a conference at the Joint Center for Housing Studies at Harvard University, over the last several years large dealers serving the professional market have been moving more and more of their business to national builders. At the same time they have been reducing business for smaller builders. From 1997 to 2003, the share of business going to builders closing more than 500 homes increased 70.7 percent. During that same period, the share for builders closing fewer than 25 homes decreased 25.9 percent.

Oddly, that movement has provided a opportunity for smaller suppliers and custom builders to forge relationships that more closely match their needs. Local and regional suppliers have to compete with the large distributors in the same way custom builders have to compete with the nationals. That common ground is allowing builders and suppliers to create relationships that are not based on price.

A linchpin to that relationship is that custom builders recognize they need the service suppliers provide. They want the warranty response, the customer support and the ability to deliver the oddball product request that seems to crop up in the custom builder environment. They want a partnership with their suppliers who will help them make happy customers happier.

In exchange for that level of service, custom builders are less likely to shop price. They recognize service comes with a cost and are willing to pay for it. After a custom builder finds a supplier who delivers the kind of service the builder needs, he or she will remain loyal. That loyalty provides strong incentive for the supplier to continue to serve the builder. In addition, the supplier is more likely to invest in new ways to improve service.

The builder and supplier relationship is no longer a zero-sum game with a loser and a winner. Both win. But the homebuyer wins even bigger.

630/288-8190, paul.deffenbaugh@reedbusiness.com