A New Class of Buyers - The Graduation of the Wise Industrial Buyer

As any homeowner knows, the demographics of the “trades” are changing, with an older generation of master tradespeople retiring. Consumers experience this as a lack of qualified service providers. As investors, there is another aspect to this trend that is more important to track – it represents a quiet changing of the guard among industrial customers.

From welders to plumbers and HVAC technicians, we see in our recent Commercial Due Diligence, a trend that extends beyond the trades into an entire class of mechanical-engineering-driven occupations that includes project, site or plant managers who buy an enormous range of industrial goods and services. Here’s a quick summary of a few common discoveries:

  • Project managers (buyers) seem increasingly motivated to simplify purchases by looking for more turnkey offerings and more systems packages. The desire to micro-manage sourcing and construct a best-of-breed offering (that used to be a source of pride for this type of buyer) is eroding. While “one-stop shop” is a hackneyed phrase in industrial goods, many buyers seem increasingly to seek logical bundles designed for compatibility. Channels and suppliers that once served more as technical advisors are finding it more lucrative to sell wholesale projects, guaranteeing both product volumes and searching for (often elusive) labor margins on new project execution responsibilities. Customers report this is largely driven by the younger generation of buyers’ relative lack of deep project experience as their tenured colleagues retire.
  • Longstanding brand loyalties are being challenged in markets where that seemed impossible in the past. Consumers are aware of the red (Coke) vs. blue (Pepsi) debate – but you may not know that a similar red vs. blue battle exists in welding equipment as Lincoln (red) and Miller (blue) battle for market share. It used to be the case that you picked a side (obviously, Coke is the better cola) and stuck to it. That type of deep brand loyalty appears to be fraying in multiple areas. For investors leveraging brand loyalty in industrial products, it is increasingly important to invest in securing that loyalty with real technical differentiation. Customers report this is largely driven by a willingness to challenge the inherited “way things are done” mentality that is prevalent in this younger generation of buyers.
  • But this new generation doesn’t guarantee tech-forward innovation will succeed. The most common application of IoT in industry is status and performance monitoring, often tied to promises of preventive maintenance. In process applications, this is a no-brainer investment: avoiding unplanned downtime is clearly valuable. However, I see a lot of companies pushing these solutions in areas where either the monitoring is largely redundant or where the product’s failure would not take down a process – and these applications need to be evaluated critically. A generation that grew up on technology takes the existence of technology for granted, and they will be wowed by its utility, not simply its appearance.

Many industrial products enjoy strong domestic manufacturer preference – thanks to variety of factors from service requirements to “buy domestic” attitudes – that make them phenomenal investment opportunities. But be wary of taking long-standing buyer attitudes as a given, as a new class of buyers increasingly comes into power – a trend that is only certain to increase in prominence throughout your hold period. Diligencing this change usually means careful segmentation of results by generation. It also means mapping influence patterns: a lot of “young techs [or welders, etc.]” report that “no one hears them,” while their managers and executives admit that they listen carefully to their top young techs and often (without telling them) pivot over time to follow their advice. So, make sure you have a view of not only who makes decisions but how (and by whom) they’re being influenced.

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