The price sensitivity of industrial buyers to softwood lumber product and service quality: an investigation of the U.S. wood treating industry

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Virginia Tech

The value-based approach to defining quality was used to investigate the value perceptions of softwood lumber treaters in the United States. Conjoint measurement techniques were used to estimate the trade-offs treaters make between quality enhancing attributes and price. Five intrinsic lumber attributes and five service attributes were chosen for inclusion in the study based on Hansen (1994) and personal interviews with treaters. Price was represented in the study relative to the current market price. Data were gathered in two stages through mail surveys of softwood lumber buyers at treating plants located in the United States. In the first stage, value ratings of 20 hypothetical combinations of lumber attributes and 20 hypothetical combinations of service attributes were obtained along with demographic information. In the second stage, value ratings of 20 hypothetical total products (combinations of both lumber and service attributes) were obtained.

Utility functions for lumber value and service value were determined using ordinary least squares regression. Treaters gave the most importance to wane when evaluating the value of lumber packs. Price emerged as the second most important attribute in influencing treaters' perceptions of lumber value. Respondents considered the importance of the remaining lumber attributes in the following order: accuracy of grading, damage to lumber pack, and lumber straightness. A model to estimate the value of any combination of the attributes included in the study was developed. Simulation results suggest that treaters are willing to sacrifice $15.00 more per a thousand board feet for wane free lumber versus lumber with the maximum allowable wane. In the same fashion, respondents’ price sensitivity to other lumber attributes was determined.

A service value utility function was developed based on the perceived value ratings. Price was the most important attribute in determining service value perceptions. Among all service attributes, lumber availability emerged as the most important. The second most important attribute in the determination of service value was reputation of the supplier. Respondents considered the supplier's ability to deliver lumber when promised as the third most important service attribute. The attributes, Supplier's ability to handle problems professionally and the ease with which supplier can be contacted by phone played a minor role in influencing service value.

Based on the lumber value and service value analyses, lumber and service attributes were chosen for the final stage of data collection. Using a mail survey, perceived value ratings for hypothetical total products (lumber and service attributes) were obtained from the same respondents who provided data for the first stage of the analysis. Respondents in general, gave more importance to lumber quality than to service quality. Wane emerged as the most important attribute in influencing total product value. Price was considered to be the second most important attribute in the determination of perceived total product value. Respondents gave more importance to lumber availability than to reputation of the supplier while evaluating overall value. Accuracy of grading was considered to be the least important total product attribute.

The results show that softwood lumber firms can differentiate themselves by providing wane free lumber and providing at least average service quality to their customers. The improved understanding of treaters’' needs and trade-offs should enable softwood lumber companies to plan the marketing strategies to achieve short- and long-term objectives while providing the most value to treaters.