This winter has been really tough on almost all the companies I know in this industry. With very few exceptions, business is down, and pressure to lower prices is much higher. Competitors are going to ridiculous lengths to win work. But I wouldn’t exactly call it winning. Margins have been stripped to the bone, and many companies are just barely covering actual operating costs. The logic is driven by desperation: If they can just hold out until spring, things will get better. With all the indicators, that may be an optimistic hope.
Watching the industry forums, the discussion is all about pricing and how low it’s going. There’s plenty of talk of commodity pricing and the lack of differentiation in the marketplace. Customers just don’t seem to get it. All they want is cheap, cheap, cheap. I’ve read many arguments, but found few substantive suggestions concerning pricing. The most common ones center on the old quality/service/price formula. The saying goes, “You can have two out of the three. Take your pick.” Sadly, if you expect to have any chance, you need all three and then some.
This month I would like to take a serious look at what you can do to increase your business and maintain your price—all the while keeping your clients happy and satisfied. How is this possible? The key lies in how you look at the market and your customer base. The majority of pricing-related problems come from looking at the situation from the wrong perspective.
While your customers think they want the absolute rock-bottom price, they really don’t. Their main concern is really about reliability and performance within their use of your products. Their efforts to have it all are more of an expected behavior than a reality. Now, I’m sure such a statement is raising the eyebrows of many of you right now. I can almost hear the phone ringing off the hook with printers protesting: “You don’t know what it’s like out there right now,” and such. Believe me, I do.
Let’s step back from this for a minute. We practically expect this kind of behavior because we’ve become so accustomed to this type of price-shopping consumer. When a new prospect calls or comes in and starts off with, “What’s your best price on…” you need to be prepared to defuse it once and for all. This type of question sets a defensive stage from which few recover.
The old buy-low, sell-high mentality is still with us. When times get tough, it gets even worse because neither the buyer nor the seller knows how to create a better alternative. For any economic transaction to work, both parties have to be satisfied. Buyers want the most for the least. Sellers want to deliver with the least amount of cost and effort for the highest possible selling price. The objectives of both oppose each other. But it does not have to be that way.
Where printers get into trouble is the itemization of each part and parcel of the job. When you break out every item, you enable buyers to negotiate for each and every one, and they will. The seller feels nit picked to death and comes away defeated and demoralized. The vendor wants the job, but by the time they’ve given in on each of the itemized points, there’s nothing left. The result is working for nothing.
Change your point of view
Some very powerful techniques can allow you to regain control of the situation and your margin, while at the same time satisfying the client. I learned this technique from a close friend of mine who built a $30-million business selling to WalMart and, in the process, learned a thing or two the average company does not.
To begin, this company offered three distinct price levels for their products. The first was the very basic, low end, entry level. Very, very low margin, but high volume—essentially a commodity. We’ve heard all that before. There was nothing special here, except they established the bottom of their product offering. There was very little difference between their product and that of their competitors. It was branded, but other than that, it was pretty much the same.
Their midlevel product was several dollars more expensive and compared more favorably to the same product from competitors. In other words, it was a better deal for the price. Their product offered more features and benefits for pretty much the same price set by the competitor.
Finally, their upper-tier product was markedly better than the competitor’s for the same price. For both the mid level and higher end, the margins were much, much better. The strategy was to move the customer to the higher value product because of the increased value for the money compared to the competitor. At the low end, the value was the same, so they would lose sales to the competitor at about the same rate as the won sales.
For the mid level, they would win about 35%-50% more often. And at the upper end, they would win the sale 75% or more of the time. It wasn’t that the customer wanted the more expensive product, it was that it represented such a great value compared to the competitor’s product. They did not want to risk missing out on this great value. I guess this played on the human greed factor.
Here is the really tricky part of all this. Through careful engineering, the actual cost difference to manufacture these products was about 25 cents between the low end and the high end. Yet the perceived difference was more than $5.00, and this resulted in a selling price almost 50% higher. It offered the opportunity to give WalMart more margin points, and they sold more product at this higher price than the stripped down version at the lower price. Both buyer and seller made more money, and the consu-mer was really happy with the great deal they got.
This didn’t happen by accident. It was carefully designed to work this way. Since the competitors were so focused on cutting, cutting, and cutting, they had no room to create greater value. A change in point of view enabled my friend to define new value points that were layered on top of each other to create something truly special in the consumer’s eye. It was so apparent which was the greater value that the sale was almost automatic, especially for the price shopper who compared based on price point only.
So how do we apply this to our situation? The answer lies in how we see our product in use. It is a value proposition. Traditionally quality, service, and price were the three value propositions. Today we need to define new value well beyond these three. This is where you have a real opportunity. Your competitors will not get it. The idea is to find elements that add value to the overall transaction but do not add cost. Currently everyone is focused on price. Our job is to keep that price at rock bottom—but to then show a mid-level and upper-level program with substantial value added. An example of these price points for a T-shirt program might be something like this: low end $4.00, mid level $7.00, and high end $12.00. Want to set these kinds of price points? Take a look at the following list and see what you can layer on the middle and high end:
• associated products and services that could be bundled (bagging, tagging, relabeling, water-based green ink)
• delivery (packaging, tracking, expediting, special handling)
• order turnaround (in hours or days, faster is better)
• job-scheduling flexibility
• production availability
• customer and technical support
• satisfaction guarantees (expectations clearly defined in advance, risk reversal)
• your resources and contacts for out-sourced services and products
• convenience of your location
• any product life or performance warrantee (clearly defined)
• your established standard operating procedures (SOPs)
• billing or credit terms (this is huge today with the tight credit market)
• definition of quality (everyone claims
to have it, define what it means)
• perceived value and status element
• power of association (with any other events, people, and companies—especially valuable if they are big names)
• trading on your reputation (who you are in the area or industry)
• reputation of the clients you have (you want to be the only place to go)
• ownership experience (think Mercedes vs. college beater car)
• total business experience (environment, people, professionalism, involve- ment, cooperation, friction free, and so forth)
• client education (keeping them in the loop and informed on trends and styles as to what’s new and better)
So here we have 20 potential value points that you can monetize. You will come up with even more when you sit down and define your experience. My personal list is approaching 30 items now. Some of these do not cost you anything, but they have clear value to the client. The more you can make the business transaction an experience, the more you can charge. Look at what Disney did for theme parks and Cirque du Soleil did for the circus. You can do the same if you just give it some thought.
You can clearly see it’s easy to define and include an extensive list of items that separate you from the bottom feeders. If you offer the stripped down, super-cheap version, but then include the two higher offerings, you’ll find most of your customers will settle into the middle offering and 20% or so will go for the high end.
The effect on your profit will be enormous. If you were to break even on the low end, selecting the mid level would deliver a profit of at least 30% on sales, and the profit on the high end could be as much as 67% of sales. As more and more of your customers migrate to the mid and upper levels, your ability to offer a superior quality total experience and exceptional service also rises. Before you know it, you’ll have the reputation of being exceptional, and new customers will seek you out not for price, but for all the other defined value you bring.
Mark A. Coudray is president of Coudray Graphic Technologies, San Luis Obispo, CA. He has served as a director of the Specialty Graphic Imaging Assocation Int'l and as chairman of the Academy of Screen Printing Technology. Coudray has authored more than 250 papers and articles, and he received the SGIA's Swormstedt Award in 1992 and 1994.
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