A near certainty in the component business is that your customers will, to some extent at least, shop your price against your competition. Depending on the relationship history you have with your client, you may have the opportunity to match a lower price, but your competition will still be used as a benchmark. Is this a reasonable arrangement? Is it a productive process? Is there anything that can be done to minimize this?
First, some thought about the positive and negative impact of lower component pricing for the builder. Obviously, if a builder can save 10% on the truss package for a house, then that has the potential to flow straight to the bottom line. But what about the risks for the builder? It could be that the package offered by your competition is missing some elements of the package the builder is accustomed to receiving from you – commonly this could be things like gable ladders, lay-in gables, or even valley sets. Having to build any of these components on site, especially if it hasn’t been planned for, can very quickly consume that 10% savings. If your competitor can’t deliver product to site when promised, the resulting delays can be very costly. And, if that new supplier happens to make a mistake that causes delays on site, it is likely to result in much or all of that savings evaporating.
So, there are risks involved in your client looking at a different supplier. Business can often be considered a risk/reward environment. What is the relative reward? To take a simple example, let’s look at a typical house that would sell in a market near me for $750,000. The truss package for that house might be $15,000, or 2% of the home’s market value. Saving 10%, or even 20%, on the truss package is a potential savings of $1,500 to $3,000, but it is less than ½ of 1% of the value of the house. I don’t know about you, but I can’t think of anything that I commonly buy in which my decision-making process would be significantly swayed by a savings of less than 0.5%.
Of course, the reality is that this is common in the component world. Your client receives your quote and that of your competitors, and their eyes lock on the number at the bottom of the page – lowest number equals better number.
What can you and your sales force do to combat this? I must start by assuming that your business model isn’t built solely on being the lowest cost provider, no matter what, and that you have worked hard to establish and maintain a level of product and service that adds value. If your service model is to provide as complete a package of components as possible, be sure to highlight this on your written quotations and have your salespeople emphasize it when presenting your bids, don’t assume that your client will notice. If on time delivery is a key part of your service, be sure that your customer knows that you understand how important the schedule is. And, if you are confident in your schedule reliability, you can offer a guarantee if you are late – say 10% off on deliveries beyond the agreed date. If you have your scheduling down properly, this should never be an issue. Is product quality and accuracy your key deliverable? Have a written policy in place that backs up how you will respond IF something goes wrong, and then stand behind it. Finally, if you really have your act together, you can confidently offer a full package, delivered on time, and a product the builder can depend on.
As a side note, I hope that you consider the same types of possibilities when evaluating who you choose to purchase from. Is a cheaper connector plate worth using inefficient software? Is a cheaper EWP supplier worth dealing with inconsistent supply? We should ask the same questions of ourselves as we hope our customers will consider.
What other techniques do you have to combat the price-only mentality? I’d love to hear them.