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Overcoming Margin Pressure

In today’s challenging marketplace, we continually find margins reduced on all profit centers to stay competitive. Additionally, customers with longstanding relationships are forced to change suppliers strictly on price in an effort to reduce their overhead. What suggestions could be made to help control the erosion of the bottom line? How do you protect longstanding relationships with customers when price—and price alone—becomes the issue?
– Jeff Hern, Vice President
                                                                                                             Detroit Forklift Inc. (Detroit, MI)

Duncan Murphy: First of all, position yourself and your team in front of a mirror and shout, “Price and price alone never is the issue!” Of course, the prices of your products and services are at the forefront because they are the easiest to compare. Read Jeffrey Gitomer’s newsletter, Issue 259 from October 24 at www.gitomer.com, called 29.5 Biggest Sales Whines, where you will find a long list you can use in answer to your question. If you have longstanding relationships, keep building them by providing your customer allies the ammunition they need to help fight your battle to maintain the account. Quantify their total cost. Find ways to reduce their transaction costs and help make your key customers more profitable. Show them it will cost them less to use you over the life of the product. Put it in writing and be factual. Only when you establish your value credentials can you retain customers and margin.

Jack Phelan: Years ago, a friend and mentor used to say, “Anyone can give it away.” Those who sell at margins resulting in an operating loss are not only giving it away, they are paying for their customer to take product off their hands. If you don’t differentiate yourself from the competition, customers have nothing to base their purchase decision on except price. When you hear that your price is too high, you haven’t given them a reason to spend more for your products. The customer needs to know what separates you and makes you special. It is called “Value Proposition,” and if you arm the person responsible for making the purchasing decisions with valid reasons for spending a premium, more often than not, they will. You hit on a key point in your question: What can your offering provide that will reduce your customers’ operating costs better than your competition? If you can answer that question for your customer, you can enjoy more profits. Your top priority should be to have a Value Proposition associated with your company and to make sure your sales staff lets your customers know exactly what it is.

Dave Griffith: What services do you provide that separate you from your competition? What do you do with service, financing, parts, consignment, site design, application design, response time, lease with maintenance, other products, terms, fleet management, aftermarket support, or specific unique product bundling and service that your customer assigns value to? Each of these provides an opportunity to command value and, hence, margin. The time to do this is not in the heat of a competitive battle but on a regularly scheduled basis with your decision-maker. Get their agreement on the value equation. You never want to have the lowest price, but rather be the low-cost provider. Review training, customer briefing and education as opportunities as well. Look at your product/service mix and rental fleet and make some decisions in these areas. These can drive significant margin if done correctly. Look very hard at your costs and what you are doing to drive annual productivity. What are your training, technology, process focus and investments? What are you doing with Workers’ Compensation, benefits, purchasing, sourcing, lost time and travel recovery? Are you best of breed? Margin has many sides to the equation.

Kevin Katona: Price is always an issue, but it is rarely the primary issue. Find uniqueness for your company in the marketplace. Deliver something that your competition does not. What product or service can you bring to your customers to help them accomplish their business goals? Great service not only can help to retain customers but also to gain customers. You can’t always be the low cost leader, but you can deliver the best value, and that value is based on your customer’s perception. People still buy emotionally and can rationalize just about anything. If their comfort level with you is high because they perceive you as more dependable, honest, smart or willing to go the extra mile, they will find a way to justify purchasing at higher prices. They can cost-justify those decisions if there is even the threat of things like delayed shipments, incorrect shipments, incorrect billing or equipment downtime. Any of these will drive costs up or production down.

Rex Mecham: If, in the buyer’s mind, he is buying a commodity with no perceived differences, then he needs to keep working on price until a bottom or lowest price is established. If every time he negotiates and asks for a better price, it gets lower, then his job isn’t done. If we don’t establish a pricing floor, eventually we will be paying the customer to take our products so we can have market share. As long as we focus only on price because the customer keeps asking for a lower price, we are doing ourselves, our customers and our market an egregious disservice. If all we provide is a product with a lower price, then direct the customer to the Internet and let him order there without any costs for local support. Focus on what you’re providing the customer and sell! Is the product available in your inventory? If so, calculate the value of quick delivery and sell! Do you have local parts and service available to reduce his downtime? If so, calculate what it costs the customer in actual downtime expense and sell. Can you guarantee a response time? Does your dealership offer anything of value? Spend time focusing on this and enumerate all the valuable things you provide the customer. Put a dollar value on it in terms of the customer’s operation and sell a package. Show a greater return on his investment and not just a lower price. We need to spend more time finding value in our product and dealership than we spend trying to chisel a lower price. We need to sell and not spend our effort scrambling for a lower price. Determine what the value is and be prepared to walk away from a deal. Let the customer know there is a floor to your price and show him a return on investment. We must stop trying to find ways to give our product away. If you want to preserve longstanding relationships with customers, show them a high return on investment. Let’s become salespeople, not order takers.

Dave Reder: We look for ways to differentiate the services we provide and add value for customers. This requires some out-of-the-box thinking. We also are looking internally at how we do business and trying to lower our operating costs through better processes and automation to help our profitability.

Stan Sewell: Protecting longstanding customer relationships when price becomes the central issue boils down to how well we differentiate our service levels to the customer. Well-trained employees providing better information, better diagnostics, faster response time and improved fleet uptime can be a good defense against low price. We have to quantify how this service provides value to the customer over the short term and long term. Protecting margins also means making sure your administrative and support costs are adding value to your own business. We invested in safety coordinators this past year to help our branches reduce accidents and lower Workers’ Compensation expenses. That investment has paid off for us and enabled us to get more of our hard-earned margin dollars to the bottom line.

Jerry Weidmann: The value of material handling equipment is dependent on many factors, including maneuverability, operator visibility and comfort, travel, lift and lower speeds, fuel efficiency, capacity, vibration and noise created during operation, etc. The value of equipment is also dependent on the quality and efficiency of dealer support services. If equipment is down, it does not move materials and provides no value to the owner.

Competitive pressures will increase the scrutiny of the value equation for all products and services that our customers buy. Price is the easiest to quantify. A decision that can be supported by the lowest acquisition price is the easiest to support in a decision-making process. It is our role as “value-added” suppliers to provide decision-making support to the key stakeholders of our customers on the value of our products and services. We must differentiate ourselves from our competition and identify key values that we provide to our customers. It is my belief that customers, provided with sufficient information on the values that are critical to their success, will select the products and services with the best price/value relationship, with price measured against value. It is incumbent on each of us to communicate the value of our equipment and services.

Chuck Frank: In dealing with our clients, ongoing communication is the key to success. We made a decision a few years ago to Tier 6 (fire) some of our existing clients. Regardless of our efforts, these clients always had their own justifications for going with low price supplier. In qualifying a prospect, we ask the question upfront, “Where do you stand on price?” If they tell us low price wins, the call is over. We thank them for their time and move on. With our number one objective established at Exceeding Client Expectations, we have been successful in selling value. If a long-term client informs us corporate culture has changed and price has become the number-one decision-making criterion, we engage upper-level management and conduct face-to-face meetings to discuss future transactions. If at the end of those sessions, we agree price wins, we have to make a difficult decision.

Material Handling Equipment Distributors Association

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