Home February 2020 Real Issues. Real Answers. Batting a big competitor

Real Issues. Real Answers. Batting a big competitor

Real Issues. Real Answers. Batting a big competitor

Competition is nothing new. But in today’s environment with widespread consolidation, competitors are often much bigger, better funded, and more sophisticated than ever before. This can create a number of challenges, including pricing pressures and attempts to lure your top people away. The question is: what’s the best strategy when battling a big competitor.

This month’s question came from a dealer who’s facing a challenge from an especially formidable competitor who just entered his market. As we do each month, we built a very short survey around his question, and sent it to LBM pros who have opted in to receive our email communications. A big thank you to the 250-plus readers who took time to weigh in on this three-question survey.

All of the questions for the Real Issues surveys come from dealers like you. Each survey includes an opportunity to share the business challenge that you’re dealing with. If your challenge is selected for a Real Issues survey, you’ll receive an LBM Journal prize pack (golf shirt, cap, mug, pen, and more).

Question 1

First, we wanted to gauge the state of competition, so we asked, “In your view, is competition in your market growing, shrinking or staying the same?”

As the chart shows, the majority of respondents (52%) see competition as growing, and 44% believe it’s staying the same. The fact that just 4% report that competition is shrinking is very telling. When we talk about ours being a very competitive industry, these numbers hammer that reality home.

Question 2

How would you advise this dealer?

“A major competitor is expanding into our market, offering many of the same brands of building materials. This has created several issues, including losing some of our associates to the new competitor. As we see it, our big challenge is how to maintain and increase market share without major impact on our profit margins. How do others handle the disruption of a big competitor moving into their market?”

“Focus on what you do best: addressing the needs of your customers, especially in ways that a bigger competitor may not be able to or interested in doing.”

“Competition is a normal part of business. Competition will make your business better by making you focus on what you do best. Leverage your competitive advantage. You will also find out if you truly have a relationship with your customers.”

“Make sure that your people have the best products and equipment needed to do their job. Invest in them. Make sure that customer service is their number one priority.”

“Leverage the strong personal relationships you have with your customer base and the community.”

“Determine who your core customers are and snuggle closer to them by showing concern for their business and anticipating their needs. Better service and sincere appreciation should be helpful to keeping good customers.”

“Make sure you understand the competition’s weak spots, then leverage that knowledge to make their weaknesses your strengths. Stronger margins will follow.”

“Maintain great service and more importantly, great relationships with your customers. If any of these large competitors had everything from price, service, quality, figured out, they would have 100% market share. They’re not even close to that, and there are reasons why not. Your company should exploit those reasons to your benefit.”

“Remain faithful to, and expand upon, your unique company value proposition: Superior Service x Best Quality x Sensible Pricing x Dedicated Relationship Management = Success (and survival).”

“It takes a sales force that is positive and hard working. As an owner, I have to keep my employees happy and caring, especially the warehouse and delivery people. These employees deal directly with our customers much more than I do. They are the lifeblood of our company.”

“Depending which major competitor is coming into the market they will always beat you up with some loss leaders; however, when this happened to us last year, customers were quick to come back after 4 or 5 months because their customer service was non-existent.”

“First, take a look at your employee compensation and benefits and management effectiveness to determine why your associates left for the competition. In the meantime, stay in touch with those who left and make it known, assuming they were good employees, that they are welcome back if the grass wasn’t greener. Second, if this is a strong, well-financed competitor who has more to offer your customer base than just a lower price, then their push to gain a foothold in your market probably limits your ability to both increase share and maintain margins. It’s time, in the short run, to shore up relationships with your employees and customers and prepare to spend a little to fight off the challenge. It will be cheaper, in the long run, to keep your customers than to win them back. Finally, in the long run, seek to differentiate yourself from the new player. Competition is, after all, what makes us all better.”

“Identify what you do better than the competition and make sure your customers know what that is. If you don’t do anything better than your competition, find areas to concentrate on, become better in those areas and then let your customers know. Ask your existing customers why they buy from you. Ask customers that you’ve lost why they switched.”

“Ultimately, we’re more concerned with our team and our potential than with any one competitor. That being said, I think it comes down to your unique selling proposition. What makes you different. We’ve increased market share by diversifying products, adding value-added services like delivery, labor, new departments, and plan work. In our cases we’ve lost some customers initially with a new competitor, but we’ve stayed in contact, didn’t burn any bridges. We’ve gained back some. I’d encourage you to believe in your value.”

“We’ve battled them. If they go low, we match. Our overhead is small compared to theirs. They can’t survive on low margins forever. It is a battle of who can hold their breath underwater the longest.”

“Our prices are very much market based. I find that we can achieve acceptable margins by doing things the big guys don’t do. Like having consistent pricing. Job to job, our customers appreciate that we don’t creep margin. The big guys have much stricter margin requirements overall. They can be really aggressive but not for long. They end up with the transactional customers that only stay as long as the next lower price. Most of the large companies in our market are requiring their reps to increase margin while breaking into a tough market. Not the typical recipe for success. We target customers that are loyal, pay their bills and work hard to help them grow.”

“We have not had a major LBM competitor move in but have had several specialty players. Siding, roofing, drywall, window and door suppliers. These new competitors have made us look very closely at our sales personnel and inventory demands for these areas. We have not chosen to exit any of these but instead it has made us work harder in each with better trained teams and, in some cases, a broader inventory to compete. This has also made us look at the delivery process and improve efficacy to compete more effectively.”

“Step back and assess what makes you better and different than the competitor, then educate and communicate to internal and external customers about the differences as much as possible. If there aren’t discernible, valuable differences, look to long-term vendor relationships to assist with pricing/terms/turns to minimize the bottom-line damage as you find yourself having to lower some prices in the short-term. Long-term, figure out why and how you’re better and different…and quickly!”

“Contractor incentives, better service, trying to meet some of the contractor and customer needs that the large competitor does not.”

“Stay focused on out-performing them, and don’t fall prey to price-only quoting.”

“Try to differentiate yourself from the big competitor and champion your strengths, knowledgeable staff, better customer service, etc.”

“Go at them head-on.”

“It can be a very hard thing to contend with. The big competitor comes to town, makes a big splash, hires away help, buys business to gain immediate impact and market share, and you suffer in the short term. Fast forward a year and it can be a very different story. Big competitors have high corporate overhead, shiny new equipment to pay for, and generous compensation for all the ‘stolen employees’. They will be suffering from some pretty serious P&L pains when the honeymoon is over. Then they will raise prices, cut hours, cut pay, reduce previously ‘free’ services or start charging for them, and cut their bloated grand opening inventory to something more manageable. This can take 12-18 months to occur, and history has shown that more often than not it does occur. You need to stay positive in the face of this new competition, take care of the employees that you have, focus on taking care of your customers, and don’t be tempted to cut prices and margins to the bone to get business.”

“The only way to fight fire is with fire. Let your customers know that dealing with a smaller operation has many more advantages than dealing with the big box operation where you are nothing more than a number.”

“1. Review your compensation package, then identify your ‘must keep’ players on your team and make sure you are in line (or slightly higher) versus the competitor. 2. Highlight your services where you can outperform the new competitor: delivery equipment? special cutting? special order turn- around? Make sure you and your team are well-versed in things you can do that the competition can’t.”

“Don’t try to play their game. Be open with your customers and ask what else you could do for them. Do what you do and do it well.”

“Focus on customer service and quality, and margins will take care of themselves.”

“Simple. Provide better service throughout our operations.”

“Differentiate your business from the competitor. Promote those differences, tell them what you will do, how you will do it and when you will do it. Then do it!”

“Stay close to your customers. Loyalty has brought them to you, be honest with them and ask for honest feedback from them. What can we do better to keep them happy and content with us? Are you staying up with the market, with trends and education? What do you do that separates you from the rest? Price should not have to be sacrificed if you are truly doing your customer a service.”

“It might be too late for you. They’re already established, they’ve attracted your associates, they’re calling on your customers, and business is shifting in their direction. Others see the trend and will follow suit. In today’s ultra-competitive marketplace, your organization needs to be #1 before the competition moves in. #1 in all areas such as products offered, services offered, employee compensation, work environment, etc. If you are doing this, your customers are happy, and your employees are happy, you’ll continue to operate a sustainable business.”

“Concentrate on relationship, and focus on customers who understand and value your services. If you are losing team members, you need to address how you are taking care of your team. Some ship-jumpers leaving actually helps the team. Like anything else you need to know your place in the market and have a clear strategy on how you will grow and prosper.”

“By providing the level of service only a locally owned company can do. Know and take care of each of your customers and targets better than anyone else. Be there for them when they need you. Most importantly: do not start a price war that you cannot win.”

“The key differentiating factor is service. Specifically, today’s contractors are inundated with product options and overwhelmed by new building codes and practices. Factor in the labor shortage of experienced and skilled workers, contractors have had to defer more of their needs to the supplier. In order to earn and keep their business, a supplier must have a responsive and knowledgeable sales and operations staff and management that empowers employees to deliver exceptional customer service. If the aforementioned is attained, profit margins can be maintained and/or improved, provided that errors and redundancy are reduced and efficiency is increased.”

“Differentiate your products and services. If you don’t already, consider offering installed sales and other turnkey offerings.”

“First do the discovery needed to learn why your people are leaving you for the new competitor. Are they your top performers or bottom quartile? Depending on what you learn, decide whether you have the sales force, and other strategic assets that are necessary to maintain or increase market share.”

“While the competition will definitely impact business in the onset, most large scale competitors do not offer several key components our customers have come to appreciate such as, in-house charge accounts, diversity of product and sources, no cost to the customer delivery options, already competitive pricing structures and, most of all, real expertise from staff when ordering products. It would be foolish to think that you will not lose some market share, but ramping up your customer service will mitigate the impact.”

“You can do nothing about competition, it will always be there. The only thing you can manage is how you let it impact you.”

“We live to our mission: offering better wage/benefits (including that we are an ESOP) and the ability to make change on much more local level.”

“There is no way to keep competition from entering your market. When it does it is like the new girl on the block, all the guys are going to check her out. The best thing you can do is business as usual. Your loyal customers that you have taken care of for years are still going to shop with you. If you feel you need to look at your pricing strategy and service offerings, then do so. If not, leave it be. Make sure you haven’t become complacent.”

“Key in on your strengths with a positive attitude.”

“Stay true to who you are. Most big competitors have only one tool in their toolbox: pricing. Do not under any circumstance drop your prices to meet the competition or your customers will assume you have been overcharging them all along. Your pricing is reflective of your service and your margins are fair. In the short run, you will lose some sales but your customers will return.”

“Sit down with your staff and make a list of all of your strengths and then promote those strengths before and after the new competitor opens. Sometimes competition is good, by making you take a hard look at what you’re doing and how you’re doing it. Where and how can you improve what you buy and what you sell it for? Next study your competitor for weaknesses, then make sure you do those things better.”

“Focus your time and effort on solidifying key relationships with key internal team members as well as key builder partners. Don’t over-complicate things. People still buy from people. Those with the relationships will win the business.”

“Increase customer contact and emphasize your flexibility and ability to meet special needs.”

“Better customer service is the key. The big boys in our market are very dysfunctional and we can run circles around them when it comes to special orders, timely deliveries and dealing with general customer service issues.”

“Push vendors to make sure the new, bigger competitor isn’t buying better than you. With a level playing field, you can win this.”

“The major plan that this dealer must implement is to make sure that everyone in the organization, from the top down, knows and focuses on your company’s strengths. ‘Sell the difference’ between your company and its new competitor. The areas where your company excels (over the competitor) are varied and can encompass many different features and benefits to your customer, (i.e) price points, quicker deliveries, knowledge and service offered by your company’s customer service desk, etc. From gaining information on your competitor, which comes almost immediately after they enter any market, make yourself aware of their strengths and weaknesses. Adjust your game plan on how to compete accordingly. We’ve all faced this problem at one time or another. The percentage of those of us who’ve overcome this bump in the road and survived is staggering. Have confidence in yourself and your organization, and sell the difference.”

“Know who you are, and trust it. If you have been successful, push that envelope. It’s for the competition new to the market to exhaust assets to try to gain market share. Concentrate on your core customers and the products that make you the most return on investment. Service wins most battles.”

“Focus on being excellent at the small things, or builder segments that others do not want. This will result in higher margin opportunities with more dedicated customer retention.”

From wholesale distributors:

“Analyze the effect of who you lost. Were they the 20% of salespeople that gave you 80% of your sales and profits, or ‘C & D’ salespeople who gave you 80% of your bad debt sales and losses? If it’s the top 20%, you need to consider a profit-sharing arrangement to hold onto such sales professionals. Regarding the product lines, also do a 20/80 Paretto analysis there, to see if this competition is really hurting you in your core inventory. If they are, get new manufacturers who will ‘partner’ with you. Start a ‘points’ reward system for customers who stay with you.”

“We try not to show fear and avoid the price war that is inevitable. We emphasize our long relationship and years of helping the customer with their profitable business. With that being said, we lose (usually short-term) customers who will try out the 800 lb. gorilla, only to realize they are just a number as opposed to a customer. There will be short-term pain. It can’t be avoided unless you get into a price war, then there is also long-term pain as your margins no longer support your business.”

“Adapt and differentiate. Find new products to sell and approach your personnel situation the same way. Competition can make you better.”

From manufacturers and service providers:

“Expect and plan to lose some market share in the short term. Take an in depth look at your company. What does it do/offer that sets it apart? Better service? Wider selection of items, both specialty and commodity? Better pricing? Longer hours? Sales and support staff that offer solutions and solve problems for your customers? If your customers are buying based on price alone, you’ll lose some. That is one weapon the big competitors have, and they tend to wield it mercilessly to grab market share. Analyze all systems and processes. Look for ways to decrease your costs. Look for additional or unique product lines your customers need and perhaps the competitor isn’t carrying. For the short term, it’s going to hurt. You recognize this already and that’s why you’re asking the question. Now it’s a matter of surviving through the short term and the market adjustment with the minimum amount of drama. Don’t give your existing customers a reason to test the waters. Focus on what you do better, faster, different than your new competition. Make this a company issue, down to the very last employee. Don’t discount what drivers, forklift operators, and clean up crews have to offer. Don’t pretend it’s not going to affect you. Be honest with employees about making changes to improve your efficiencies. Adjust your budgets and plan accordingly based on this new market dynamic.”

“All competitive situations are unique. Whether it is price, product, or service, one thing remains the same…the customer! My advice would be to focus all your efforts on the customer and less focus on what your competition is doing. It is important that you highlight all of the ‘extra’ things you do for the customer. Like the time you delivered one sheet of OSB 40 miles away to help them complete their job on time. We do these ‘extra’ things because we love the industry and our customers.”

“Remember the image of Red Coats marching in a line and American sharp shooters hiding in the woods. George Washington didn’t have to win a single battle. He only had to survive and keep his army together. Know what built you to this point. Get rid of anything not in that core business.”

Hundreds of readers share their insights for this every-issue feature. Have a Real Issue? Contact Rick@LBMJournal.com.