Experience is the product you are actually selling: What 5,000-plus customer responses reveal

By Brian Hopkins, Chief Operations Officer, Distribution Strategy Group, Jonathan Bein

Workers in Warehouse — Image source: SDI Productions

Walk into any plumbing and HVAC wholesale branch and you'll find similar brands, comparable pricing, overlapping inventory. There are fewer and fewer “hard-to-find” products because distributors have rapidly expanded their assortments, and the Internet has made it easier to locate products.

One distribution executive responding to a recent industry survey put it bluntly, "In today's market where we all sell essentially the same products, how we sell and support our customers has become our most powerful competitive advantage."

Analysis of 5,063 customer responses from 10 MEP distributors confirms what many suspected but few have quantified — customer experience has become the primary differentiator in wholesale distribution. Companies prioritizing experience demonstrate higher retention rates, greater wallet share, and reduced cost-to-serve.

The question is whether you're measuring customer experience correctly. And more importantly, whether you’ve moved beyond the data to actionable insights.

The state of customer satisfaction

The overall satisfaction as measured by Net Promoter Score (NPS) for the 5,000-plus MEP customers of distributors who took the survey through Distribution Strategy Group’s proprietary software, Customer Experience RX, was 45, or “Good.” This result means there is opportunity for high-performing distributors to outperform competitors and win and retain customers through offering superior customer experiences (see Chart 1).

Chart 1. Chart courtesy of ASA, click to enlarge.

NPS is one of several approaches to measure overall customer satisfaction and is currently in use by more than two/thirds of Fortune 500 companies. Its popularity makes it essentially a de facto standard.

To understand NPS ratings, you need to know what the numbers mean. Customers are asked, “On a scale of 0 to 10, how likely are you to recommend the company to a colleague or friend?” Customers responding with a 9 or 10 are considered “Promoters.” Those rating a 7 or 8 are considered “Passive,” and anyone giving a rating from 1 to 6 is deemed a “Detractor.” To get an NPS Score, you remove the passive responses, then subtract the % of detractors from the % of promotors.

NPS reports the score without the % sign. Since negative numbers are mathematically possible using this system, the NPS range goes from -100 to +100. The benchmarks for performance are:

Poor NPS: 29 or below
Good NPS: 30 to 49
Very Good NPS: 50 to 69
Excellent NPS: 70 or higher

Deep dive: Understanding customer MEP customer satisfaction

Most approaches to measuring customer satisfaction suffer from two limitations:

They only provide an overall score and some verbatim comments. They do not offer detailed, statistically valid data on the underlying drivers for the customer’s level of satisfaction.
They treat all areas of performance as equal. In other words, the scoring for something essential such as “Customer Service” is given the same weight as an area of service that is often less important to customers, such as “Proximity.”

To solve these problems, you must ask customers about performance in key aspects of your business, and the importance of each item to them.

So, a low score on “Proximity” won’t affect an NPS score as much as a low score on “Customer Service.” This information can be presented in an “Importance” vs. “Satisfaction” matrix that is unique to each distributor and can be redrawn by segment, job function, geographic area, business unit and more. Chart 2 is aggregated from data provided by 11 MEP distributors.

Chart 2. Chart courtesy of ASA, click to enlarge.

What to actually do about it

Good sounds acceptable until you realize what it means. The gap between good and excellent represents the difference between customers who are satisfied but vulnerable to competitive offers, vs. customers who actively promote you to others. That gap translates directly to retention rates, wallet share and growth.

More revealing than the aggregate score is what customers said about where distributors excel and where they fall short. MEP customers rated their distributors highest on professional sales reps, customer service, technical expertise, and delivery performance. Those are the strengths worth protecting.

The problem areas? Inventory availability scores lowest in satisfaction despite ranking highest in importance. Customers also dinged distributors on product assortment and competitive pricing, though price complaints require interpretation since customers always have incentive to push suppliers toward lower prices.

According to Distribution Strategy Group data, generally, you can expect customers to be less satisfied with inventory availability. In practice, you can analyze by geography or branch to see if satisfaction for a particular location’s inventory is notably below others. You can also identify problem locations that can improve will-call/counter and delivery by digging into the data.

This benchmark data is helpful to understand where you should be and what potential areas you can differentiate against the competition. What’s more important is understanding how your customer base rates you on a variety of dimensions and then taking action to improve customer experience. Taking action is where most distributors fail.

The distributors winning in MEP markets aren't necessarily the ones with the lowest prices or the biggest warehouses. They're the ones who understand their customers better than anyone else, execute flawlessly on what matters, and continuously improve based on real feedback rather than assumptions.

ASA partner Distribution Strategy Group offers strategic guidance for distributors in the face of disruption, including insights, consulting and analytics. For more information, visit distributionstrategy.com.