SOI 2013 - The Competitor You Can't See

Here's How To Combat Websites That Sell Low

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E-commerceDistributors say they're getting beaten up on price because of websites that sell at the lowest possible margins. Here's how to combat them.

A repeat customer recently called Goldleaf Promotional Products (asi/209675) to buy some imprinted bags. But instead of turning into what should have been a routine order, the request began slipping away after the client asked Goldleaf to beat a quote they'd received online.

"We couldn't match the price," says Shelby Goldblatt, the Indianapolis-based company's owner.

Usually Goldblatt's customer service offerings, consultative selling skills and rapport with clients are enough to fend off the appeal of price gouging offered by Web-based companies. But this time it wasn't. "I've been in this industry for 23 years and quite honestly, I think that when the Internet started becoming a factor and started taking over in a commerce sense, every distributor kind of shuddered a little bit," Goldblatt says.

Indeed, the biggest threat distributors may face in making a profit is online sellers slashing prices. A full 41% of distributors responding to the State of the Industry survey said that websites selling promotional products are their biggest competitive threat in business today. It was far and away the type of competitor cited the most, with only 13% of distributors naming other local distributors and 9% citing large distributors selling in their territories as their biggest competition right now.

"I find that websites selling promotional items are a thorn in my side," says Michael Levitt, president of The MRL Group (asi/258137), a distributor based in Ft. Lauderdale, FL.

Too often, Levitt says, customers call wondering why the exact same $.69 pen they've found on his website is selling for $.49 on another site. "You have to be swift with your rebuttals, or you have to find a way to turn the conversation around," Levitt says. "Sometimes we do. Sometimes we don't."

Either way, the fact that MRL's Web-based competitors are operating at margins as little as 10% means companies like his can't match those price points. Depending on the size of your distributorship, Levitt says, that can mean making it in the industry or not. And yet, this competitor that you can't see is only becoming more prevalent in the marketplace.

Type "promotional products" into Google and more than 81 million results pop up. Certainly many of them are industry veterans. But parsing out the Web-based fly-by-nights from those invested in consultative selling and face-to-face pitches can be tough. For marketers looking to fill orders quickly for less, online sellers present a resource for rapidly placing orders at cheap price points.

But, as many distributors are slowly realizing, there's an upside to all of this online selling. And, oddly, it's even helping some distributors become more competitive. "It's driving our business to a healthier place," insists Brad Akers, president and owner of Chicago-based Tip Top Branding (asi/344851). "It's forcing us to really look in the mirror and define who we want to be in this marketplace."

Refusing to operate on declining margins, Akers says, battling for business against online vendors has driven his company to rework its website, for example, so that products featured there are driven by client requests and interests rather than by Tip Top's marketing department.

In such a tight marketplace Akers and others suggest that it's better to take a proactive approach with clients and push distributorship offerings rather than try to attack a competitor's weaknesses. Tout your own strengths; don't bad-mouth the competition. "You don't want to be the guy who says, ‘I'm good and they're bad,'" Akers says. "Every product has a story behind it and that story consists of quality controls, stock availability, location, production time and other factors. When price shines brighter than all of that, it's hard to get that story out." In other words: Don't make selling products about price; make it about ideas and marketing concepts that clients can benefit from.

Operating in an expanding economy may help distributors on that front. Certainly online sellers are tougher to beat when marketing execs are under the gun to save every penny they can. But as revenues rise and business swells, corporate marketers are more likely to turn toward distributors who they feel more comfortable ordering from, and from whom they're used to soliciting marketing ideas, even if it costs them a few dollars more.

And marketers are still convinced that "boots-on-the-ground selling" is more productive for their branding and marketing campaigns, Goldblatt says – providing a customer service level that online retailers simply can't offer.

"I'm not putting down the service that might exist with online sellers," Goldblatt says, "but there's no comparison between having somebody you can rely on where you have direct contact over the phone, you see face-to-face and you sit down with. That comfort level has always been what will help distributors continue to flourish."

For some companies, like Halo Branded Solutions (asi/356000), based in Sterling, IL, it makes sense to offer both options – online ordering as well as consultative selling. By creating an online presence, www.halo.com, the company decided it would "draw those customers that order online and convert them into sales leads for our sales force," says Marc Simon, the company's CEO.

Rather than trying "to compete against online providers of promotional merchandise, our online strategy falls under a corporate philosophy to be able to support our customers and prospective customers' needs wherever they are. If a customer would like to place an order online, we are there. If they would like to take advantage of the creative and high service benefits of using their account executive, we are there," Simon says.

But aside from offering up a competitive service model, distributors might want to rethink doing business at all with customers who don't need consultation or hand holding, says David Goldsmith, a consultant with Goldsmith Organization LLC, a business consultancy based in Manlius, NY. In fact, Goldsmith says, for some companies, particularly small, local business owners who know what they want, brainstorming and idea generation may not be what they need. Goldsmith cites a local hair dresser as an example. "He calls a distributor and says, 'I want to buy 144 coffee mugs to hand out to clients.' If I say, 'I have ideas and I want to charge you for those ideas,' the guy's going to say, 'are you kidding me? It's 144 mugs!'"

And Goldsmith may have a point. For customers who are already convinced of what they need, particularly on small orders, it might be in a distributor's best interest to pass them off to an online vendor selling at the lowest possible price.

Goldblatt agrees, but insists that the consultative sales model is far from waning in the ad specialty marketplace. "You have customers who order and know exactly what they want," Goldblatt says. "But a large majority of customers are looking for creative ideas."

And though Goldblatt and others admit the industry has certainly been commoditized in recent years from a slow economy and online vendors, many believe there's plenty of room for both types of sales approaches. Goldblatt believes the tenor swings toward consulting. "I believe that 90% of the people who are buying products want to feel they have an actual rep they're dealing with because of the nature of the product."

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