Educating the Competition on Pricing

Here's one potential downside, if you want to call it that, to adjusting your pricing strategy: It makes it more difficult to sell against competitors who may not have taken that route. One of the comments that stuck out in my interviews for the recent pricing article in the Aug. 10, 2008, issue of MDM, Pricing for Profitability, was that poor pricing practices can cause not only an erosion of margins at a single company but in an entire market.

As Robert Graham, president of Engine Warehouse, Houston, TX, told me: "We don't have exclusivity on every line we sell. We have exclusivity on some, but on other product lines, we have competitors selling the same product and offering similar services, and they are discounters. So as we try to move around on pricing, that will be our biggest challenge. … It can boil down to price on many items. If you're a penny or two higher the customer may go in the other direction, so we really have to watch that."
 
Some of the distributors I spoke with suggested that it would be OK if competitors were educated on better pricing models.

"It's more difficult to sell against a competitor who is misinformed about his true cost to serve the customer," says Paul Sommerfeld, director of applications and training for Communications Supply Corp., a WESCO International company. "If you think about it -when a competitor does something poorly it usually helps your business. If I have a competitor who is not good at marketing it will help my business. If he's not good at inventory management it helps my business. But if he's not good at pricing it's going to draw business from me -at least in the short term. He's going to get that business unless we clearly communicate the value we provide and the reason for that higher price. In the long term he might not sustain his business model -but in the short term it could still hurt us."
 
Sommerfeld goes on to emphasize the importance of selling yourself to your customers: "We're not selling a product -our product is the service we provide to our customers. They have the same product in the same box we do, but that's not the product we specialize in. Our product is distribution and understanding customers' needs and meeting those needs effectively. If we allow the discourse to boil down to simply a comparison of products there is no difference. So we need to educate our customers on the differences between ourselves and our competitors."
 
Click here to read the Pricing for Profitability feature.
See the Current Issue here.
 
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