Bishop & Associates’ 2011 Customer Survey of the
Electronic Distribution Industry

No Surprise — Pricing is Most Important to Customers
By Louis M. Lipomi, Bishop & Associates Inc. 

Bishop & Associates new 2011 Customer Survey of the Electronics Distribution Industry reveals, to no one's surprise, that pricing is one of the most important factors when choosing a distributor. It also reveals some preferences that were a surprise.

The survey analyzes input from more than 850 connector customers, including buyers, engineers, sales, and operations personnel at OEMs, CEMs, and cable assembly manufacturers. Every major market segment and geographic region is represented in the survey. While the survey focuses on the customers’ opinion of the operational functions of the distributors, it also includes several questions about the most important criteria considered when choosing which distributor to work with. The following graph displays the results of those questions:

Pricing is the clear choice as being most important, and that is not really a surprise — or is it? In last year’s survey, almost the same percentage of respondents, 18.4%, indicated that pricing was most important to them. The most important criteria in that survey, however, were product availability. Not only was it number one, but also, it won by a wide margin, with 30.6% of respondents choosing it first. So, what’s changed? The answer lies in the following two graphs.

The 2010 survey was taken during the second quarter of that year. At that time, the recovery from the recession of 2008 and 2009 was in full swing. As depicted in the area circled in red, sales grew at a rapid rate in each quarter, with strong, positive book-to-bill ratios throughout the period. The 2011 survey was taken in the second quarter of 2011. In the second quarter, sales were at the point of little-to-no growth, and book-to-bill ratios had been flat to negative for three quarters.

Inventory tells the second half of the story.

Once again, we see the differences in the business climates between 2010 and 2011. Distributors worked vigorously to adjust inventories down to a level commensurate with the depressed sales levels experienced in the 2008-2009 time frame. As sales began to recover, the reduced levels could not support the demand, so lead times and backlogs grew. Manufacturing capacity, which suppliers had reduced during the recession, compounded the problem.

By the third quarter of 2009, distributors averaged less than 40 days inventory on hand — a historic low. In real terms, inventory levels decreased by more than $1.9 billion between 1Q08 and 1Q09. Quarterly sales levels fell by more than $3.7 billion in the same period. By the fourth quarter of 2009, sales had not only recovered, but were running ahead of 1Q08 level. Inventories, however, remained at or near the 1Q09 levels. The rapidity of the cycle, which lasted only six to seven quarters, exacerbated the situation. Distributors were forced to take drastic measures to reduce their inventories quickly. Typically, they decreased the reorder levels of top-selling items. There is little that can be done, however, with slow-moving products. In this scenario, statistics tend to understate the actual severity of the problem 

So, given the market conditions, it is not really surprising that pricing is once again the most important criteria considered when choosing a distributor. But which distributors did the customers feel were the most competitively priced? Given the importance of this factor, the survey addressed it in two different ways. Question six of the survey asked: “What is your level of satisfaction with the price competitiveness?” for each distributor being evaluated. Responders were given six options, ranging from “extremely dissatisfied” to “extremely satisfied.” Numerical values ranging from one to six were then assigned to these evaluations. The largest connector distributors, Heilind, TTI, Avnet, and Arrow, scored highest on this question.

The following table displays the complete results for this question:

Question 6:  What is your level of satisfaction with the price competitiveness of this distributor?

Question 17 also addressed the pricing issue. In this question, the customers were asked, “Which distributor, in your opinion, is most consistently price competitive?” They were given the opportunity to choose the name of any one of the 40 distributors included in the survey.

The same distributors ranked highly in the responses to this question. Of note, however, four of the top 10 companies named, Digi-Key, Mouser, Newark, and Allied, are primarily considered catalog distributors and typically compete on product availability and not price. All four scored below the industry average on Question #6, in regard to customers’ satisfaction with the price competitiveness of the distributor. The difference can best be explained by the subtle differences in the two questions. In the first, customers were asked to evaluate 16 different aspects of a distributor’s performance. Each of these distributors ranked higher in the overall results than they did on Question #6. The conclusion is that while they value the services provided by the catalog distributors, they don’t consider price to be one of their strengths. Question #17, however, allowed them to name one distributor that met their service needs at a competitive price. Apparently, in the customer’s appraisal, the catalog distributors do a good job of that, even if both common wisdom and the responses to Question #6 disagree.

So in 2011, pricing is king. The survey shows, however, that customers can be and are fickle. The difference in results from year to year tells us that pricing is king as long as product is readily available. The responses to the two different price-related questions in the survey tells us that even though pricing may not be considered as very competitive in an overall evaluation of a particular distributor, the ability to get a part — when and in the quantity you need — can make that distributor very competitive, indeed.

The message is clear: The importance of pricing varies with the market and is relative to a customer’s needs. Service, however, is an absolute. Distributors can’t sell parts they don’t have. And they won’t sell them if their target customers don’t have easy access to them. A customer who takes a long-term view and understands the potential pricing fluctuations in this most volatile of markets should also heed the message: Get the best price you can, relative to the market and your specific needs, but don’t lose sight of the fact that you absolutely need to get the products your company needs to be successful.

We’ll continue to review the results of the 2011 survey in upcoming issues of Connector Supplier.

For more information regarding this survey, contact Lou Lipomi or click here. 


No part of this article may be used without the permission of Bishop & Associates Inc.

Lou Lipomi, Bishop & Associates Inc., Managing Director – Distribution Research Lou Lipomi joined Bishop & Associates Inc. in 2010. As the managing director, he is establishing a new division for Bishop & Associates focused on the connector distribution channel. Lou has more than 25 years of sales and marketing experience in the interconnect industry. He began his career as a salesperson for a local electronics distributor in Cleveland, Ohio, then moved on to manage sales and marketing organizations for Amphenol, Burndy, Berg, and FCI. He has had direct responsibility for distribution programs at the local, regional, national, and global levels. Lou can be reached at llipomi@bishopinc.com.