Set Your Sights On Price Cutters
Strategies To Keep Customers And Grow Profits
Some competitors are all-too-willing to lower their prices to close deals. Don't play their game. Here are strategies to keep customers, grow profit, and avoid a race to the bottom on prices.
John Booth, president of Quintain Marketing (asi/303131), has a very clear answer for certain customers. You know the types. They'll nickel-and-dime you. They'll bid out orders and then go to the vendor with the lowest price. They'll make every conversation about the lack of budget they have. Well, when talking to this kind of customer, Booth doesn't mince words.
"I found this product for 10 cents less online" is a common refrain customers use in the ad specialty industry these days, Booth says. But his response is a bit less conventional.
"I respond by saying something like, 'We're only 10 cents more? For those 10 cents you get an actual person to work with you as a project manager, to work with you through the entire process and be sure your order is delivered on time? I need to raise my prices,' " says Booth.
Interesting tactic, huh? Saying you should raise prices while a customer is threatening to walk to a different vendor who's offering lower prices may seem counterintuitive. But Booth's approach sends a clear message to his clients: The service I provide is as valuable as the product you're ordering.
It's also a message that other distributors should apply to their businesses today. Rather than fearing they might get caught with a higher price than a competitor, distributors have a number of ways to respond to price cutters without joining in a "race to the bottom." These include reframing the discussion, modifying sales terms, or focusing on other areas of their offerings' value.
By utilizing these strategies, distributors can stand behind their prices, even when – or, even because – they are higher than the competition.
Change the Criteria
Ultimately, distributors are being hit at several angles by the need for lower prices. The Counselor State of the Industry survey reports that a majority of distributors are increasingly concerned about competing websites that sell promotional products at low prices. In addition, distributors today know they're dealing with clients who simply have more information at their fingertips about the cost of promotional products – making it more difficult to maintain margins. And, finally, economic uncertainties have led customers to reevaluate their marketing budgets and demand definable return-on-investment numbers on their purchases.
These factors are leading distributors to feel the price pinch, and they are seeking alternatives to playing the commodity game that so many of their competitors are willing to play. Troy Harrison, president of consulting firm SalesForce Solutions, urges distributors to stop seeing themselves as "sellers of stuff."
"This is a business where the cost of entry is very little, so there are a lot of people out there selling promotional products out of the trunk of their car and don't need employees or service departments," says Harrison. "You have to be able to demonstrate why it's advantageous to buy from a company that does."
He emphasizes that business owners should review what it is they provide to clients beyond a low price – such as higher quality, faster turnaround or greater expertise. Harrison puts particular importance on this last point, urging distributors to frame the discussion about products in respect to the customer's long-term marketing goals.
In other words, think more like an ad agency: Discuss how branded products fit into the client's broader campaign, how the product itself could be designed to leave an impression with consumers, and where it could be distributed to ensure the greatest impact. This proactive approach puts the emphasis on how a customer can use the promotional product as a jumping-off point – the opposite of how a price-focused distributor would think.
Booth gives the example of a client who came to him asking to buy 1,000 pens for a trade show. Rather than simply fulfilling the order, Booth asked why the client thought he needed the pens, particularly when many other attendees would be giving out similar products. Instead, he suggested a range of different, more unusual products at a similar price point.
"Price cutters work on the back end, where a customer says, ‘I need 300 of these items; what can you do for that much?' " says Harrison. "The distributor should be working on the front end, asking, ‘How are you reaching your customer? What impression do you want to make?' "
Gabe Gerhardt, CEO of U.S. Flash & Technologies (asi/93131), believes that if distributors don't stay in front of prospects and customers, they risk having them searching for promotional products on the Internet.
"If you bring them ideas, they shouldn't have to go out there and shop online. They shouldn't feel the need to go out there and shop anymore," says Gerhardt. "If you sit and wait for their business to come in, you'll be competing with Google."
Make Selectivity a Secret Weapon
Advertising specialty companies that compete on price are more concerned with how large an order is than the profile of the buyer or how long they have been a customer. Quantity is the top goal for price cutters, as well as appealing to the widest possible customer base. This means that targeting prospects more selectively can effectively counteract price cutters.
Instead of lowering prices when the competition does, distributors should rethink their segmentation and portfolio in order to connect with new client segments, or focus more deeply on existing ones.
For example, by launching a website aimed specifically at health-care marketers or for sports uniforms, a distributor can actually gain more clients by taking a more limited approach to how they market themselves. In the process, it will raise their perceived expertise and ability to serve those markets.
Making a personal connection with customers and finding ways to deepen that relationship over time will distinguish a distributor from the various online suppliers that may tempt a prospect with low-price offers. This personal touch can be added through the order fulfillment process, as well as in follow-up after the products have been delivered.
"Get rid of the automatic telephone attendant and encourage phone calls rather than e-mails," says Richard Hayman, a CEO coach for small-business owners. "Small businesses must always keep it friendly, happy and very personal. Cost cutters do not think these things are important."
Casey Hart, president and chief marketing strategist at Informer Website Videos, a video marketing firm, who has worked in the marketing business for three decades, says the first step is to learn what you can about the customer's needs.
"What's most important to them? What has disappointed them in the past? What hasn't worked when they purchased the product before?" he says. "Come up with a list of all the things your customer needs to know to make the right choice: There are lots of things most of us don't realize are important when we buy something … so educate your customer about it."
Distributors that are focused on price above everything may neglect to find out what exactly the customer is even asking for, instead becoming too concerned with what price they will offer in order to get the sale.
"Whenever you're in negotiations, the main thing is to never compromise with yourself," says Ryan Moor, president of Ryonet (asi/528500). "Some distributors might start making concessions before they even meet with the customers, thinking, ‘The competitor will be here, so I should be here.' You end up compromising with yourself and don't even give the customer what they want."
Make Less into More
Selectivity in the number of products offered can be an effective weapon against price cutting as well. Unlimited choices can actually be a burden for customers short on time, giving a distributor who presents a more limited selection a chance to outshine the tsunami of options available online.
"The person doing a Google search for ‘trade show promotional giveaways' gets hundreds of thousands of results," says Booth. "The customer doesn't want to search through 2,500 websites. They will say, 'Give me five good ideas that are going to resonate with my audience.' "
Booth says distributors should position themselves as curators, helping to save customers time by offering a limited but well-selected catalog of products and suggestions for how to use them. This can be provided through samples or a print catalog with the product information and details, but to set themselves apart from the competition even further, distributors might come up with something more creative or practical.
"Consider giving away a free guide to buying ad specialty products," suggests Hart. "Explain all the most important information a buyer should have, especially about product attributes where you beat your competition."
A humorous, illustrated brochure of promotional ideas to avoid, or a straightforward primer on marketing dos and don'ts in the client's specific industry are also things that could help demonstrate the advantages a more personal distributor has over the impersonal competitor. Ultimately, the key is to show clients that your company can help them achieve their marketing goals and that you're not simply a commodity provider.
As they learn about their customers, distributors should also learn what they can about their price-cutting competitors and specific areas where they provide superior goods or services. No price tag can be reduced substantially without impacting the value offering, and it is worthwhile for a distributor to do some detective work to learn a few specific ways that the competition's product is lacking or leaves customers dissatisfied.
Gerald Bricker, principal of Aadvise Consulting, gives the example of a colleague who learned from customers in the area that while they were getting a better price from a competitor, the rival company had a habit of showing up late or not at all to appointments. When it became a choice between reliability and unpredictability, rather than just a higher and lower price, the extra cost mattered less to the customer.
"When the small-business owner understands the entire offering of the price cutter and creates a higher value offering, they can win business away from the price cutter," says Bricker.
Minimize Price Pain
High prices can actually hurt a customer. A joint study from Carnegie Mellon, Stanford and MIT found that thinking about losing money led the areas of the brain associated with pain reception to light up on MRI scans. The feeling of losing money literally registers as pain in people's minds, so it is incumbent on distributors to avoid activating these receptors.
One effective way to do this is to bundle fees into one overall item on an invoice, thereby avoiding a long list of individual costs. If a client is curious about a specific cost, it can be broken out for them, but by keeping them focused on your services as an overall offering, rather than piecemeal items, the distributor helps alleviate some of the associated price pain.
Moor suggests distributors take themselves out of the price fight by avoiding apples-to-apples comparisons where possible.
"If they want a basic pen with a one-color logo, you might recommend a higher-quality pen with a two-color logo, and back it up with customer testimonials like, ‘Our customers are happier with these higher-cost ones than the basic ones, which broke on them,' " says Moor.
Rather than playing around with the unit price, a distributor should consider ways to offer more value at the same price. Providing better service terms or throwing in a free item or additional service can save the client money without requiring a distributor to enter the price-cut trap.
Embrace the Higher Price
As Booth demonstrates to customers when he acts surprised that his cost is "only 10 cents higher" than his competition, business owners should be comfortable drawing the line when a customer wants to keep the conversation focused on price. There are many other aspects of an order that clients need to be familiar with and concerned about, and it's up to the distributor to make these an important part of the buying process for their customers.
"If people ask me if I'm the least expensive option, I say ‘No, and if I am, it's an accident,' " says Harrison. "If you have done things to earn that higher price, be proud of that higher price."
Jeff Goldberg, a sales expert and principal of consultancy Jeff Goldberg & Associates, agrees, adding that distributors will want to have a clear limit to how low they are willing to go. If a prospect attempts to move the price below a level where it ceases to offer a fair profit to the distributor, he or she should be willing to walk away from the deal – politely but decisively.
"Let them know that while you very much want to do business with them, at the rate the competition is quoting them you won't be able to offer them the product or service and still maintain the high level of professional customer service," says Goldberg.
By turning down a prospect on these terms, even if they do decide to go with the competition, in the future when they have a higher budget or find themselves dissatisfied with the price-cutter's quality, they are likely to give you a call back. Also, integrity of price helps to maintain the perception of quality for a distributor company's brand. Those that are willing to cut prices when asked by clients will ultimately be viewed as commodity providers.
"People make non-price decisions every day in their personal lives and business," says Harrison. "If you're getting a steak at Ruth's Chris instead of Applebee's, you're making a non-price decision – people are accustomed to paying more if the quality is worth it."
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