SOI 2013 - Price Conscious
Stand Your Ground On Low-Price Requests
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It's time for distributors to stand their ground on low-price requests from clients.
Most distributors – even those that are new to the industry – are aware that there are generally two types of prospective clients: those that value paying a little extra for quality products and service, and those that seek discounts at every turn.
"Each client is different and has needs of its own. Some look at promotional products as a commodity and treat it as such," says Michael Londe, director of sales for Summit Marketing (asi/339116). "The clients we try to focus on view us as partners. If we make our clients look good internally, we have provided value to them personally in addition to the value we added to their company."
Fortunately, there are plenty of strategies for earning business without sacrificing too much on price and taking time away from customers who will actually enhance your bottom line.
Heed Suppliers' Advice
When you're initially trying to price your items, Heidi Thorne, owner of Thorne Communications (asi/344244) and author of Business Competitive Advantage, suggests sticking with your supplier's suggested retail price.
"I wish I would have done so in the beginning, but I gave discounts off retail and offered on-sale prices to customers for years," she says. "Other profit centers in my business could absorb the hit, and I figured it was a good way to get customers used to buying from me."
For a while, Thorne says, that approach actually worked, and she still has a few of them buying from her many years later. But, she knew it wasn't a sustainable strategy. "The recession began to take hold, and I became painfully aware of how my customer discount incentive strategy was killing my profit margins and my business," Thorne says. "When funds got tight for my customers, they were now expecting to receive even further discounts off the discounts they had gotten in the past. I had effectively set an unrealistic pricing expectation for them and for me."
Thorne has since learned that the industry's best suppliers have a good sense of what items should cost on the distributor's end. "They are not setting prices without running the numbers and research. So, that's why I rarely, if ever, look at distributor competitors' pricing," she says.
After her initial pricing misstep, Thorne slowly began to increase her retail prices. "New or smaller promotional distributors have to remember that the big guys may be buying in huge volumes and gaining additional discounts for that. Trying to compete with those operations on price is a losing battle," she says. "They also need to remember that their smaller or same-size competitors may not be as business savvy and may be quoting low to win a job no matter what, even if they take a hit."
Rid Yourself of Unprofitable Services
In her early years, Thorne did all graphic design work for her clients – including logo cleanups and four-color designs for mailers – for free. "I figured it was a good way to demonstrate my marketing expertise," she says. Then, a nightmare project came along, which changed this forever.
"As a result, I located a terrific design group through networking that now does all of this type of work for me, and the client is billed for the work, sometimes through me or to the client direct," she says. "I've also hooked up with a different design company that does all my logo cleanup work for cheaper than I could do it myself and with better results. If received artwork does not comply, customers are advised of the additional fee involved for cleanup."
Distributors have to be careful about giving services like these away for free, or else they'll consistently be cutting into their profit margins and creating unsustainable client expectations. Another popular added service that distributors often get stuck providing for free, according to Thorne, is product selection and search. "A lot of us get the ‘I'm looking for something like' or ‘Do you have any ideas for' requests. These are jobs that hover between doing the order and doing consulting. This path, too, has been strewn with disasters," she says. "As a result, today I stick with offering only what's on my websites, which have hundreds and hundreds of selections.
Search services are only offered to my best consulting-level clients whose loyalty and premium pricing cover my search costs."
Add Value Without Sacrificing Price
Thorne says having a sharp-looking, easy-to-navigate website is an easy way to add value to clients without yielding price or time. "It doesn't have to be anything fancy – just functional and showing a good cross section of the products offered," she says. "These days, people feel comfortable looking for information on the Internet before even calling a salesperson."
Another inexpensive way to serve clients without cutting prices is specifically addressing the needs of buyers in niche markets. "The more specific you can make it, the better," she says. "Become the go-to expert source for that niche." Nonprofits, auto dealers and colleges are all examples of niche markets.
"Have all products and your website address the needs of that niche," she says. "If you address several niches, have a site dedicated to each. This is a strategy that has and continues to work for me. The key is that you need to be very familiar with that niche's needs and have experience in it. If not, you'll be seen as a poser, and this strategy will work against you."
Another key to keeping profit margins up is to determine which clients are shopping for the lowest price and which ones actually value promotional items and the ROI they provide for their marketing campaigns. One surefire way to waste your time – and sacrifice your profit margin in the process – is by trying to appease a prospective client who cares about the prices of your products above all else.
"One way you can tell a value buyer from a price buyer is that when you get a call from a price buyer, typically the first question out of their mouth is, ‘What do you charge?' They want to know what the price is before they ask what you can do or what the product can do for them," says Dale Furtwengler, author of Pricing for Profit. "A value buyer wants to know what you can do and what your product is going to do for them before they get interested in what the price is going to be."
That doesn't mean you should shut the door on potential customers whose first inquiry is about price. "Normally, my response to that is, ‘I'm not trying to be evasive, but it's really hard to tell you what the price of my service is going to be until I know what it is you're trying to accomplish,'" Furtwengler says. "But if they keep going back to the price and they don't want to talk about that, I know I'm wasting my time."
Know When to Walk Away
In many situations, you can talk to potential clients until you're blue in the face about the value that your company adds – but the bottom line is that some just won't care.
"Of course, there are times where price is the only factor," Londe says. "We still provide value to our clients beyond placing the orders, but when the situation demands, we analyze the opportunity to ensure it makes sense for the client, our company and ourselves. There have been times that we've told our clients that they had a great price from a competitor and that they should go for it. And there are times that clients have come back after the fact seeking our help because the low price they received elsewhere didn't work out."
Furtwengler urges distributors to make as few price concessions as possible, as holding firm will actually lend you credibility and can lead to future business. "The key is you've got to be willing to walk away from business when it doesn't make sense, and the prospect needs to know you're willing to walk away from business when it doesn't make sense, because what it does is it elevates you in their eyes," Furtwengler says.
"One of the things I say to my clients is that if you have a choice between having somebody walk away and not do business with you, would you rather have them say, ‘Gee, I wonder if they're any good because they don't charge very much,' or, 'I wish I could afford them?'"