Deal or no deal

How to maintain your margins when battling low-ball competition

by Rich Vurva

Even a rookie salesperson can close a deal by offering a lower price. But unless your company has better buying power than all of your competitors, or you’re prepared to accept dramatically lower margins on every sale, competing on price alone is a losing proposition.

Suppliers and distributors agree that distributor salespeople must be able to demonstrate what additional value their companies offer to justify a higher price. If not, they’ll likely lose the price war every time.

“I learned years ago, when you compete on price alone, it only takes a competitor to reduce his price one penny and he can take away all your business. You’ve got to have something else to talk about,” says Lee Carrier, vice president of sales for Daido Corporation of America, a manufacturer of roller chain with U.S. headquarters in Portland, Tenn.

Sometimes, salespeople can draw attention away from product price by focusing on total overall cost. For example, a higher priced roller chain might provider longer wear life, which translates into less downtime, fewer repairs and lower maintenance costs.

“If you find people who understand the cost of uptime vs. downtime, then you can explain your product’s benefits and features that will extend their wear life,” says Carrier.

That approach can work if the primary decision-maker is involved in maintenance, production or plant management. But if your only choice is to deal with a buyer who is trained to focus on purchase price, it’s a tougher sell.

“The buyer is only responsible for doing one thing: procuring the product. But the plant manager may later have to keep replacing the chain because they bought on price, not on value. You have to sell those benefits and features,” Carrier says.

It’s often easier to convince someone in production or engineering to focus on total cost compared to a corporate purchasing executive, says Tom Miller, executive vice president and chief operating officer of Motion Industries, the power transmission distributor headquartered in Birmingham, Ala. Customers at the plant level understand the ramifications of unscheduled downtime.

“When the caster goes down in a steel mill at 2 o’clock in the morning, you better have the parts to get it back up and running,” Miller says.

If you can’t state your case to the right person in a plant, you might have to walk away from the sale, adds Rick Glauthier, CEO of Cunningham Supply Company, a cutting tools distributor in Akron, Ohio.

“We’ve made a conscious decision to not call on certain customers because they don’t care what kind of value we bring. All they care about is price,” he says.

Selling value rather than price requires a more sophisticated approach than simply demonstrating a product’s features and benefits. Salespeople must be able to explain the added value they bring the customer, such as access to new products and technology from leading suppliers, or the importance of a dependable, experienced supply chain with applications expertise.

Cunningham Supply maintains “customer value files” that document all of the value-added services the company provides to specific customers. For instance, a file might document how Cunningham helped a machine shop shave 30 seconds in cycle time from a specific production process.

If a buyer later raises a question about price, the salesperson can bring out the value file to show how much Cunningham has benefited the customer.

“Price buyers usually come back with the question, ‘Is that the best you can do?’ We say yes, that’s the best we can do. And we don’t talk about it anymore,” says Glauthier.

Two-pronged approach
Some distributors and manufacturers fight low-ball competitors by going to market with a two-pronged product approach. They carry high-quality, higher priced brands to satisfy customers who understand total cost and appreciate value-added benefits such as engineering expertise, inventory management and specialized services. They also offer a secondary, lower-priced product to target price buyers. For this strategy to work, however, salespeople must know when it’s appropriate to bundle the products and services the customer is willing to pay for.

“You’ve got to understand your market and where you play in that market. You can’t be everything to everybody,” Carrier says.

Distributors that offer a value-added service such as assembling hoses and couplings can demand a higher price than a company that sells bulk hose to a customer who wants to assemble the product himself, Miller says. In that case, it’s the salesperson’s responsibility to make sure the customer understands he’s paying more for the service, not the product.

“There are times when a salesperson loses an order because someone has a better price, but all too often, that becomes an excuse when he simply got outsold,” Miller says.

Glauthier says a strong relationship is the salesperson’s best defense against getting trapped in a price war.

“When you have a good relationship with an account, and they know you, trust you and believe you, chances are they’re going to accept your price and not try to beat you up over it,” he says.

Glauthier says it’s critical for distributors to align themselves with the best suppliers. Suppliers that provide training and field support for distributor salespeople, and that continually introduce new products and technology, can help them compete successfully against low-priced competition.

“A new product can help insulate you from a price situation. If you switch out a product with a new one, it makes it harder for someone else to compete against you. The new product is something he hasn’t seen,” Glauthier says.

Selling commodities
Some customers also mistakenly believe all products are alike if they meet an industry standard. For example, Daido Corp’s Carrier says customers sometimes assume if a No. 50 roller chain meets standards established by the American National Standards Institute (ANSI), then it’s a commodity item.

“Just meeting the ANSI standard is only meeting the minimum. It says nothing about quality. ANSI is the lowest minimum standard that all chains must meet. It doesn’t say if the chain is heat-treated, pre-loaded, lubricated or anything else,” Carrier says.

The salesperson’s job is to explain to the customer how his product exceeds the standard, and why it carries a higher price.

Many salespeople feel they’re in a commodity business and therefore must sell on price, according to Bill Brooks, a sales trainer and author. “Selling a commodity doesn’t mean you automatically must sell on price,” he says.

By definition, a commodity is any item that cannot be easily distinguished from others in the marketplace and is in direct competition with a large number of other extremely similar products or services, Brooks says. But products and services are seldom, if ever, really equal. What if the customer doesn’t like the salesperson? What if the vendor only has eight and the customer needs 12? What if vendor A can’t ship the product until next month but vendor B carries it in stock?

“The product or service may be identical to others in the marketplace, but all the things involved in getting the product or service to the customer differentiate one vendor from all the others,” says Brooks.

It’s the salesperson’s job to make sure the customer knows all of the details that make one option different from another. Salespeople who can’t make a convincing argument establishing the value they bring to the market will continually find themselves losing deals to low-priced competitors.

This article originally appeared in the March/April 2007 issue of Progressive Distributor. Copyright 2007.

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