What if it really is all about price?

Sales consultants and trainers make their livings insisting that no matter how tight the market  salespeople must turn the conversation from price to value. That’s why the mechanical contractors being questioned kept getting peppered with queries along the lines of: “Isn’t there value in quality and service?”

Most responses boiled down to: Sure there is. We expect quality and service, but at the lowest price.

So it went at a revealing panel discussion featuring four mechanical contractors, held June 7 at the annual convention of the North Central Wholesalers Association. Moderated by manufacturers rep Pete Lewnes, the session aimed to find out what contractors look for in deciding who to buy from. Price, price, price was a monotonous drumbeat in reply. Typical comments:
  • “I know this is not what you want to hear, but these days it’s all about price.”
  • “I’m a relationship guy, but the reality is, we need the right price.”
  • “If it’s a commodity like cast iron, price is everything.”
Only one of the four panelists, Bruce McCartney of Lucas Plumbing & Heating in Lorain, OH, consistently voiced sentiments like “time may be more valuable to us than saving 2% on PVC fittings.” Yet when pressed he agreed that while price may not be top of mind with him, it’s crowding all the other considerations. He told of jobs being bid so tight that in some cases he’s eliminated a customary charge for consumables - things like putty, fasteners, etc.

From the audience, distributor Scott Robertson posed a hypothetical question asking whether a 2.5% price differential on a materials quote would make a difference, even if the higher-priced distributor offered better service and quality. One response: “We understand the value you give, but if we have to go cheap to stay competitive in the market, we’ll do it.”

Later, Robertson told me he purposely used the 2.5% example knowing that if he had proposed a 5% differential, the contractors would’ve jerked their knees out of joint opting for the lower price. I remember an era when 10% was considered “in the ballpark.” This is what the times have come to.

Moderator Lewnes asked the panelists how long they expect a distributor to guarantee prices. The contractors expressed sympathy with the dilemma faced by distributors when 60-90 days pass between quotes and submittals, but McCartney told of a price relief conversation with one of his customers that concluded with: “Tough. That’s what you bid.” The same message was passed along by the contractor panelists to their distributors.

Don’t bother cussing the messengers. The contractors on the panel all had longstanding distributor relationships and made thoughtful comments about the value of top-notch suppliers. They all said they understood why supply houses don’t carry as much inventory as they used to. It’s just that they described operating in an environment where some projects have as many as 10-12 bidders, so everyone is hammering everyone else over nickels and dimes. One said he has sought out as many as 10 distributor quotes in the quest for a viable bid price.

Fess up. Aren’t you distributors banging on your vendors just as hard? Manufacturers, aren’t you squeezing your MRO and OEM suppliers? And don’t they torque their suppliers to the max?

Intense price competition throughout the supply chain is the sign of a new economy brought about by this miserable recession. People are recoiling from the excesses that caused it and embracing frugality in both household and business budgets. Another speaker at the NCWA Conference, Moen’s Vice President & General Manager of U.S. Wholesale, Todd Teter, drew attention to a contemporary trend toward “remodeling light,” with lavish baths and kitchens giving way to simple changeouts.

This miserly economy looks to be with us for a long time. Teter predicted it will take about five years for consumer confidence to return to the point where people stop pinching pennies, and about four years before single-family housing returns to its normal level of about 1.4 million units a year.

An extended cheapskate era will compel everyone to continue to squeeze hard on the buying end. This means the only way for businesses to keep survivable margins is to relentlessly pursue operational efficiencies and productivity. So keep those knives sharp.

Of course, households and businesses that rein in spending serve to delay recovery. We can only hope and pray for something unforeseen to trigger a breakout.