SOI 2012 - Purchasing Habits: Price Matters
Here's How Some Are Adapting
Jody Ferrer recently refused to service an account worth up to $200,000 a year. In a distributorship where her orders often top out at $5,000, that's a lot of cash to walk away from.
But the headache, she says, just wasn't worth it. Each time he requested a product, the client put out a bid to other vendors, often with Ferrer's ideas and hard work in hand. With Ferrer, he demanded lower and lower prices on products that she wasn't willing to drop her margins on. Finally, says Ferrer, president of The Perfect Promotion (asi/293518), in West Hartford, CT, she told the client she simply couldn't do business with him anymore.
It's an increasing problem, distributors say – clients who insist they offer rock-bottom product pricing. According to the State of the Industry survey, 64% of distributors agree with the following statement: Clients shop for products primarily based on price. In fact, since 2005 that number has doubled. Yes, 100% growth in the number of distributors that say price is their clients' top concern when buying promotional items. And, it's a business model that's simply not sustainable, they insist.
More and more distributors are taking Ferrer's approach. "We fire clients," says Paul Scivetti, chief idea officer for Dassel, MN-based Synergen Inc. (asi/397417). "I don't accept clients solely focused on price. I just won't work with them."
For the most part, distributors, even those who used to jump through hoops to undercut competitors, say they can't remain profitable if they do that in today's market. Jen Lyles, "lead ignitor" for Atlanta-based Firesign Inc. (asi/522741), says it took her seven years to realize that price-gouging clients were hurting her business more than they were helping. "Sometimes it's best to walk away," she says.
How to deal with customers who insist on a nine-cent pen? Besides outright refusing the business, Rama Beerfas, owner of Lev Promotions in San Diego, says she tries to explain the value that her pricing model brings to clients, mostly a level of service and quality that deeply discounted online vendors can't promise.
Another approach that Beerfas takes has to do with the perceived value of promotional products. She suggests clients opt for alternative products that will meet their price point, and still retain a perception of high quality. Indeed, while some distributors take the hard-line approach of firing price-conscious clients, others like Beerfas believe that budget constraints can be met if the client is willing to explore different product options.
Still, others try to turn a losing business proposition into a money-making venture. Laurie Woodward Garcia, president of Miami-based Kaylin Printing and Promotional Products (asi/239483), recently met with a part-time buyer for a floral accessories company. Garcia presented her consultative pitch and listened to the woman's request for high-end products at a low-end price point. "She's showing me these custom notebooks," Garcia says. "They're gorgeous, but I can tell right away, this is not going to happen" at the requested price point.
After the client finally agreed on a lower-priced item, Garcia sent her a quote, only to receive a message in return that she'd found a coffee mug for $1.50 cheaper. "I said, ‘OK, I can't compete with that,'" Garcia recalls.
Communication with the client fizzled out shortly after. "I've invested a lot of time, resources and samples, and have driven to her office three or four times dropping stuff off," Garcia says. At this point, "I have skin in the game." So, rather than losing out on a potential customer, Garcia is taking the samples, price quotes and information she's gathered and contacting the client's competitors instead. "I'm still continuing a warm relationship" with the client, Garcia says, "but I'm going to her competitors because she went to mine."
Remaining competitive in any way they can is one way to fight the constant demand to cut prices, distributors say. Another is to cut prices by increasing order sizes. More times than not, Tom Souza, CEO of Personalized Experts (asi/294295), a distributor in Boca Raton, FL, says he can convince a client to buy more product in order to reach the individual price point he's looking for. For other clients, Souza says, he makes up for lower margins with freight fees, charging customers, for example, the standard UPS rate, even though Souza has a discount with the shipping company. Taking these and other steps allows him to accept every client, but still keep his gross margins near 50% for promotional products.
Still, for others, figuring out ways to squeeze more money out of cheaper orders will never be worth it. For that reason, they simply avoid that kind of business. "I outright fire them and tell them to go somewhere else because they're wasting my time," says Doug Kincaid, president of d'Oro Creations (asi/182395), a distributor based in Mississauga, Ontario. "I tell them, ‘I have to make a profit.'"