Things Your Grandpa Used to Say

"...There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper and the people who consider price only are this man's lawful prey." - John Ruskin "Philosopher"

There are few things more frustrating to the businessman than seeing his industry “race to zero” in the never ending search by uninformed consumers for a lower price. Note, I didn't say a better price, because lower isn't always better. That sounds like an odd concept, even to someone who believes that quality is always at least as important as price in any purchase. We are conditioned by the marketing around us that the lowest price is the best price and the best price is the best deal.

Our parents and grandparents grew up with and lived by the truth, “You get what you pay for”. That meant that every business transaction was based on mutual benefit, and value was traded for value. They built the strongest nation in history.

Somehow, in our enlightened age, we think we can turn that on its head and improve ourselves by taking from others, without giving equal value. I don't think this is a conscious effort to defraud anyone. I think it is caused by uninformed consumers who see little or no differentiation among products that look similar and are marketed similarly. We have all purchased something for our home or business wondering how a company could stay in business selling so cheaply. Of course, it usually doesn't take long to find out, as the stuff we buy rarely meets expectations, and often needs to be replaced long before we think it ought.

Anyone who has been in the fence industry for ten years knows that there can be enormous differences in quality and durability between two products that look identical. The trouble is that we have done a poor job of making the differences obvious. We haven't “trained” the consumer.

Consumers have been conditioned by the big box stores and Madison Avenue to believe that they can have what we have for a fraction of the cost. In response, we too often have agreed and lowered our prices, which meant we had to lower our standards and accept inferior quality components. After all, it was what the customer wanted, and the customer is always right, right?

There are companies that have refused to bend in their demands for top quality materials. Those companies are committed to providing the best product and service to their customers, even if it means they have to spend extra time educating their customers. These are the market builders.

Is the lowest priced alternative always the best deal for your customer? Then should it be the deciding factor when you purchase materials?

The Value of Not Sucking (At Sales)

Do you suck at sales? I mean, do your customers think, “Oh my God, not him again!” when they see your name on caller identification? If you can answer, “Yes” to that question, please pack your belongings and exit the office at the soonest opportunity. You are doing no one any good. Not your customer, not your company, and least of all, yourself. I realize that the idiom I used is offensive, I did it to make a point. If you are still with me, I'll assume you don't suck, or if you do, you want to change that.

As market builders, we hold to certain beliefs and principles about ourselves and about business. Among these is the idea that we exist within the market to bring value. Notice, I didn't say we exist to make sales. I didn't even say that we exist to serve our customers, although that is one of the ways we bring value to the market.

If our purpose is to bring value, we must have value to bring. Not valuable products. Value. That comes from within. You must recognize that the most important thing you have to offer your customer is yourself. Unless you are in a highly specialized industry, your customer can get whatever you are selling, or a reasonable substitute, from any of several vendors. Why should he pick you?

The market destroyer always heads straight for price when this question comes up. “He should buy from me because I'll give him the lowest price.” Great. So what happens when I have to offer prices lower than my cost in order to give him the lowest price? I either lower my cost by cheapening the product, or I go out of business.

That's why I have to know my true cost of doing business. Not, “How much did I pay for that?” That is only a part of the true cost of doing business. Everyone has overhead and other considerations to add to the price they pay for materials and labor to arrive at true cost. Even profit must be added to that price, or there is no value in the deal.

Back to the question, why should your customer buy from you? Because you go way back? That doesn't make sense either. Would you advise your daughter to stay in an abusive relationship because they've been together a long time? Of course not. And a business relationship should be no different. If your supplier is abusing you by charging too much, or by shaving quality off the product, move on to another supplier. The same goes for your customer. You have to offer the best value.

Remember, value includes price plus service, and the biggest component of service is what you bring to the table. The quality of your product, your knowledge of your product and the industry in which you work, and your willingness to put the needs of your customer ahead of everything else are the three most important factors the prevent you from sucking.

If you have a quality product, and you know your product well, and you understand the industry in which you work well, you will be able to improve your customers' standing in the industry by placing your product with them. As a customer service rep, or a salesperson, you will never be confronted with the question, “what should I talk to this guy about, he already has my catalog and knows what I sell?” Instead, you will find yourself trying to find ways to limit what you want to talk about, so you don't flood the customer with more information than they want.

Once we know our market and our product, the only thing missing is need. We must find out what our customers need, and match them up with the best solutions possible. In our case, that often means that we must teach them the difference between price and value, and what true cost involves. To understand true cost, we must include the potential cost to the customer of service call backs when they use inferior products, as well as the cost of losing dissatisfied customers, and the referrals a satisfied customer brings.

  We have to point out the value of customer service to them. If they are to thrive, they must serve their customer. If they buy inferior products, they not only do a disservice to their customers, they also expose themselves to poor customer service from their suppliers, who won't stand behind the inferior products.

  I know a salesman in the fence industry that ran into this problem. He was a rep for a company that was selling a cut-rate line of hardware. One day when he called on a customer he was handed a gate latch in several pieces. Like any reputable sales rep, he immediately offered a replacement. The customer was not satisfied with that answer. The customer wanted to be compensated for the loss of his expensive dog that escaped when the latch failed. Among the other hidden costs of using inferior products is the fact that many companies do not carry product liability insurance.

What would a market builder do? Market builders offer quality products and exceptional service, and they stand behind what they sell. A market builder would be insured against problems that resulted from failure of his product.

Every sales seminar around today is centered around one key principle: differentiation. If you want to differentiate yourself from the competition, offer something they can't. Offer you. Be excellent at what you do, then do it. Recognize that the most valuable commodity that you have to offer your customer is you. Once your customer realizes that, you will become his first thought whenever he wonders what product to use, because he knows that if you don't offer it, you know someone who does, and he will trust your input into his business, and will ask for it.

Of course, this all assumes that you don't actually suck. By that I mean, you must actually have something of value to offer. What might that be? Excellent product knowledge, an understanding manner, extensive contacts in the industry, solid understanding of your customers' challenges; these and others are all valuable commodities that we must develop within ourselves in order to develop our value.

The Price of Tea in China

We've been told that the economic problems we are experiencing are caused, in part, by the advent of the “new global economy”. While there is some truth to the idea that economies in other parts of the world are doing better than they have in the recent past, and that ours is doing worse, the idea that somehow the “global economy” is new and is the cause of these phenomena is simply misleading.

The global economy goes back at least to the days of the Colombian Exchange, in which Europeans shipped plants, seeds, tobacco, cotton, wood, produce, and lots and lots of gold back to Europe and left behind horses and smallpox and syphilis. The claim that this is a new phenomenon is an attempt to ignore the serious deficiencies in our own understanding of simple economics.

The growth seen in countries other than the U.S. is a direct reflection of the decline of American manufacturing, and is tied to our cultural addiction to constantly lower prices. I am not advocating that anyone overpay for anything. I am stating, hopefully with some clarity, that it is impossible to underpay for anything. At least not for long. The price one pays for something is tied to its value. If we pay less, the object is worth less. If this were not true, the person selling the object could not afford to sell it for less, again, he might, but not for long.

The fact that we demand lower and ever lower prices simply forces suppliers to constantly reduce the quality of their product. From the post WWII era until the late 1970's, this was not the case. Prices on many consumer goods tumbled as industries added efficiency, automating production lines, computerized everything, and, with the deregulation of the trucking industry, reduced inventories. These new innovations allowed producers to make better and safer cars that cost less, (as a percentage of the average wage), than cars had previously cost. Once it became less expensive to export the labor than it was to increase efficiency, the only corner left to cut was quality.

It may simply be a function of growing older for me to say “When I was a kid...”, but there is a difference between how we look at consumer goods now and how they were viewed just twenty or thirty years ago. We have become comfortable with disposable items. This allows manufacturers to reduce the quality of their goods, thereby making a little more money per unit sold. Then they sell us a replacement every few years and make much more money on volume sold.

This may be a good business model if it is sustainable. But there is a concept in economics called “externality”, that refers to the unintended consequences of policy decisions made within an economy.

We are just now experiencing externalities that have resulted from the changes made through the eighties and nineties. By shipping jobs offshore, we have effectively reduced the total buying power of the United States, which results in greater demand for lower prices. In addition, the cost of shipping raw materials and recyclables overseas for processing and manufacture, then back as finished goods artificially raises the cost of production on these goods, forcing the overseas manufacturer to reduce quality even more.

Our demand for lower prices has driven down prices, quality, net earnings for American workers, and has resulted in a global economy that is on the brink of collapse because we insist on getting less for our money.

How do we fix it? By buying value, not price. The fact that we are obsessed with price and ignore value is proven every time we opt for a lower price without considering the consequences. Where do you find value? Find someone who is determined to build markets rather than destroy them. Find someone who is offering the best possible product, (and that someone is probably in your area). Buy from that person. You may pay a little more “up front” than you did for the cheaper substitute, but it will be cheaper in the long run. The products you buy from a market builder will be superior in every way.

They will fit your purpose better, because they are made with you in mind, not the lowest common denominator, "everyman" customer that the market destroyer is selling to. You will not be paying hidden transportation costs in the form of reduced quality. You will support a local businessman who does business in your area, and may even be your customer in your work.

We need to come to the realization that you get what you pay for. If we stayed with that premise, and demanded that what we paid for be worth the price, quality would increase. When quality increases relative to price, value rises. By building value into every step, we lift the entire market for everyone.