The constant pressure to cut prices in order to compete in the distribution industry today is real. A study by Simon-Kucher & Partners found that 46 percent of companies believe they are in a price war; with over 80 percent of those companies pointing to their competitors as the instigators.
This is especially true for distributors due to changes in other areas of the supply chain. An article on the PROS website explained this trend: “The information age is driving price transparency at an increasing pace, and manufacturers are getting better at differentiating their products from the competition. As a result, most distributors’ pricing power is fading away.”
In order to compete with manufacturers selling directly to customers, it can be tempting for distribution sales managers to cut prices as a means of standing out. Before you go and diminish your own margins, however, Brent Grover of Evergreen Consulting suggests that you ask yourself: Why do our customers buy from us rather than a different supplier?
That simple question can get you moving toward these three steps to stop competing on price and start winning business that will make you more profitable:
- Define your unique value proposition – No matter how great you think your service is, in the eyes of your customer, it is probably comparable to most of your competitors. The goal here is to find the defining element that makes indispensable to the extent your customers could never leave you for a competitor with lower prices. Whether it’s the depth or breadth of your inventory, the convenience of your locations, the excellence of your technical support, or the quickness of your delivery – you need to be able to define something other than low prices and good service as the primary value that you deliver.
- Move from customer relationships to customer intimacy – Because the odds are pretty good that you’ll share some customer relationships with your competition, you need to set your organization apart by fostering customer intimacy. This means that you not only know them on a personal level, but that you understand their business and what is important to them, that you can help them diagnose and solve problems and are willing to go the extra mile for them.
- Know your type and play to your strengths – If you are a highly specialized local distributor, then you have a unique opportunity to build your business in your niche. You have a customer intimacy advantage thanks to your powerful market presence and you should translate that intimacy into your supplier relationships as well in order to truly excel.
If you are a regional wholesale distributor, you have the benefit of having critical mass while still retaining some of the entrepreneurial spirit of smaller enterprises. As long as your organizational leadership commits to the culture of customer intimacy, your organization can become a thriving business that doesn’t need to stoop to price slashing.
If you are a national distributor, customer intimacy is most likely unattainable. However, you can focus your value proposition on operational excellence and logistics in order to differentiate your organization without starting a pricing war.
For more ideas on how to grow your distribution business without competing on price, get a complimentary copy of our white paper: 12 Revolutionary Ideas to Fuel Distributor Profits