A low-price competitor is promising to beat your prices by 10%, which is tough for your customers to refuse. What would you do?
As a second-generation LBM dealer, you’re very comfortable with how your company is positioned in your market. Builders and remodelers tend to favor you because you offer the services that save them time and money. You know you’re not the cheapest—and you don’t aspire to be. Instead, you’re known for delivering quality products and services at a fair price.
After nearly a decade of little to no activity, new construction in your market is on a tear. Your team is starting earlier in the morning and often working into the evening to meet demand, and to make sure deliveries are made on time and in full—something you’re known for. The fact that your trucks are all over town delivering material hasn’t gone unnoticed by local competitor, Cheapo Lumber.
Just as you’ve positioned your company as a high-quality and high-service provider, Cheapo is known for offering rock bottom prices on goods that are, shall we say, not always the very best available. You’ve prospered serving your market, and they’ve done very well serving theirs. After years of peacefully coexisting, you recently learned from one of your good customers that Cheapo Lumber has decided to take a serious run at your business—and your customers.
“I’ve been buying from you for a long time, and you and your team have given me no reason to seek out a new supplier. But,” he continued, “I took a meeting with the new outside sales guy for Cheapo Lumber, and they’re offering to match the quality of the products I get from you—and beat your prices by 10%. I’m not sure how they can do that and make a profit, but it’s tough for me to say no to a 10% discount on materials. I’m not asking you to match, but I am thinking of giving them a try on an upcoming project.”
A similar conversation with another customer went something like this: “Me and the other builders in town have believed for a long time that your prices are too high. We’ve bought from you because there was no real alternative. But the guys at Cheapo Lumber have assured us that the main difference between you and them is the 10% we get to keep. I just wanted to let you know why we won’t be buying our materials from you anymore.”
You can’t blame customers for wanting to save on their material purchases. But knowing how thin your margins are, how much you have to pay to buy quality products (as opposed to the products that Cheapo Lumber is known to carry), and the services that Cheapo Lumber doesn’t offer and your customers rely on (material takeoffs, design services, rooftop shingle delivery, etc.), you don’t see how this scenario will play out to be
anything but a disaster for your client.
What would you do?
|1. LET ‘EM GO. Cheapo Lumber can’t do all that you do, with the same quality products, for 10% less. When your customers come back—and they will be back—they’ll appreciate you more than ever.
2. SHARE NUMBERS. If your customers really think you’re earning grossly excessive profits, share the real bottom line—and explain that the rooftop shingle deliveries and design services cost real money.
3. COMPARE. Give your customers a list of the services you provide at N/C, and the grade of lumber you sell, to share with Cheapo. If they can match, they’ve earned the business.
4. DROP YOUR PRICE. As strong as the market is, you can’t afford to take the chance of losing some of your best customers. Offer to meet them halfway, and keep their business.