Competing in price is easy, differentiating is difficult, how is it done?
By Guitze Messina *
We always hear that "our market is a price market", the truth is that it is a price market because it is the easiest way to compete, if my competition sells to 10 I just have to sell to 9 and I am different.
The problem is that the margins have dropped to a level where it is not feasible to follow this path and many times we think that the fault lies with the manufacturer "that does not help me compete". The reality is that to differentiate ourselves we have to do different things, and we will see several examples with questions that will allow us to identify areas of opportunity.
1) When was the last time that your warehouse personnel, dresser sales, customer service, telephone sales, purchases, systems, etc., took a training that allowed you to be different, better, more skillful, fast or efficient?
2) When could the store manager or sales manager see and implement the most advanced techniques in the HVACR industry to catapult the results of their work?
3) What is the turnover of our employees in different areas?
To be different we have to start with our people, it is impossible to be the best soccer player without training constantly, the same goes for our employees. Staff turnover is a good indicator of how bad we are in different areas, if a specific area has a lot of employee turnover, we must find out what we can do to encourage these people to grow. Nobody stays where it does not grow.
1) Do you know your warehouse personnel about "Warehouse Management Systems" systems?
2) Are inventory rotations, orders not filled, lines ordered by operator per day, speed of delivery measured?
3) Do we have a classification of products A, B, C, D based on demand and margins?
It only improves what is measured, if we do not measure the key factors of inventory management and the failures that we have in sales and service because we do not handle it properly we can not differentiate ourselves in that aspect.
1) Can we deliver orders from any client in 2 hours?
2) Can we guarantee that the 98% of our orders are delivered the same day?
3) Can we deliver orders to the customer without error of parts and quantities 99% of the time?
4) Do we have a system that allows the client to do more services in a day?
In order to make this type of differentiation our operation has to be more efficient, faster, accurate, managed by systems and highly trained personnel, this is not easy to do, it takes work, training, effort and time, competing in price is much easier .
1) Have our margins increased or does the price war continue to reduce them?
2) Does our telephone sales staff know sales techniques by telephone?
3) Did we measure the% of the visits, calls or number of visitors to the store?
4) Do we train our staff to respond to sales objections?
5) Does our sales staff know how to handle price objections?
6) Do our sales and store managers know about the professional consultative sale?
No doubt the sales area needs a lot of support in the companies that we have visited, the dresser area has a very high level of turnover and little or no training for sale, most of it is technical training. It is difficult to train constantly, it is easier to compete on price.
Accounting, compensation and price management:
1) Does our staff know how to calculate discounts?
2) Does our staff know the impact to our earnings of an 1% discount?
3) Do we all know the impact to net profits of increasing the gross margin 1%?
4) Do we have a reward system for employees to increase margins?
The worst enemy of a businessman is to believe that he knows what he does not know. We conducted a survey where the 91% of companies did not know how to calculate discounts, much less the impact of discounts on their profits. This makes the competition in prices much worse because many do not know the consequences of their decisions and are taking the company to the precipice. Our people must know how to calculate discounts, margins and consequences to the profits of the discounts.
On reward systems, in administration there is a maxim: "tell me how you measure me and I will tell you how I will behave". If we do not reward employees and especially sellers for increasing margins, people will continue to do the easier, reduce prices. Being able to investigate what is important for a client and position our advantages, takes time, is difficult and must be rewarded so that it is done frequently.
1) Is there a strategy between marketing and sales to attack a target of customers?
2) Is there a strategy between manufacturer and distributor to attack a target of customers?
3) Is the strategy based on market research or on the opinions of managers?
4) Is the strategy based on "selling an incredible price of a product type"?
5) Are marketing and sales managers measured in the same way?
6) How do you manage both sales and marketing managers?
This is undoubtedly an area of great opportunity, what we have seen is that there is not much marketing in most companies, when there is no sales and certainly not measured by the same results. Worse yet there is no common strategy, what we see is a lot of price marketing, if we advertise price, that is our difference, that is the easiest thing.
The worst thing is that there are no market studies to decide strategies, for example, while we were at the AHR Expo in Mexico we did not see the Marketing managers enter the manufacturers' stands to listen to what their clients said. One of the complaints we heard the most was: "Where I get this product, because my distributor does not have it because it says it is very expensive". If we make decisions for clients without doing an analysis, we can never differentiate ourselves.
1) Are we getting at least 20% of our sales online?
2) Are we helping our customers to get sales online?
In an investigation that we conducted with Google analytics, in any city in Mexico with more than 500,000 people, every month on average more than 5,000 of them search the Internet for "Air Conditioning". How many of them call your business? Do you know why they do not call you? What are we doing to obtain a piece of that cake from 5,000 customers that will increase every day looking for solutions online?
1) Do we buy based on quantities for discount or based on system data and analytical sales behavior?
2) Are we measuring purchasing staff for discounts obtained or missing inventory?
3) Who buys is the owner and continues buying as he did before since he is who knows?
4) Are information systems used to assist in decision making or are opportunities sought?
Here we will notice where much of the competition aspect in price is born, because many times we buy more than necessary to "get a discount", however we lose sales because we do not have enough of another product. In order to comply with the 98% of the orders, we have to have a diversified inventory, our capital is finite and we must maximize it not only in discounts but in types of products according to sales. When there are shortages of inventory it is important to see how we reward purchases, the lack of inventories is a symptom of bad purchasing practices.
When we decide not to train our employees, not to measure our service, not to make strategies, not to use systems to make decisions, not to question what we do today, we are deciding to compete on price. Competing in price is easier, it does not take time and does not require investment, but it leads us to minimize our profits.
There is a lot of opportunity for those who start to differentiate themselves: delivering faster, helping their customers to sell more, giving guarantees of having the product, offering better training and customer orientation, with sales personnel that close more than the competition. Whoever manages to differentiate himself will be more profitable and will guarantee his future in the industry, who will continue competing in price, it will be better that he achieves operational efficiencies far above his competition or he will be out of the game.
We have proposed many of these questions here for a whole year in Mexico and Latin America, we begin to see that some companies are listening, there is still a lot to do and implement, changing dozens of years of misconceptions will take time. If you want to know more about how to implement these ideas and changes in your company, contact us at firstname.lastname@example.org or on our website: www.hardimex.org
* Guitze Messina. Executive Director, Mexico. Heating, Air-conditioning & Refrigeration Distributors International (HARDI.) For more information on best practices in the HVACR industry, visit www.hardimex.org or write to: email@example.com