Posts filed under 'Selling'
There’s always been a struggle between selling and marketing. It’s the pushmi-pullyu , rock-paper-scissors, chicken or the egg thing.
Now, with email spam, ads over saturating our senses, and the Web 2.0, it seems selling and marketing are in a World Wrestling Federation death match.
- Which one is more important, sales or marketing?
- Which one will produce more qualified prospects, favorable bids, and secured contracts?
- Which one should you bet the farm on?
There’s not one answer, but a combination. The same was true before YOU were named Time magazine’s Person of the Year .
But instead of trying to sort out how sales and marketing were supposed to work back in the day, I thought it’d be interesting to list a few positives (+) and negatives (-) about their use today.
SELLING
Selling as a push-strategy:
(+) The only way 1-to-1 personal relationships can be developed
(+) Enables unique info to be collected specific to a single customer
(+) Emotionally influences customers who later justify decisions with logic
(+) The only way to finalize the sale of a facility service contract
(+) Can be the fastest path to secure a contract
(-) Cold calls are an imposition to customers who have no need
(-) Cold calling is inefficient, lot’s of wasted time, effort & money
(-) Sales tactics of poorly trained salespeople damage a contractor’s reputation
(-) Managing salespeople can be as frustrating as herding cats
(-) Can’t easily, quickly, or cost-effectively do all the (+)s of Marketing
MARKETING
Marketing as a pull-strategy:
(+) Can easily reach many customers in a market
(+) Can establish a contractor’s brand and raise customers’ awareness
(+) Can efficiently move customers through buying stages
(+) Can deliver customers who are ready to buy & have a preference for a contractor
(+) Can break through customers’ info overload through permission marketing
(-) Can’t do all the (+)s of Selling
(-) Can be expensive: ads, direct mail, tradeshows, promotions, PR
(-) Can be difficult to tell if it worked
(-) Can take time to motivate customers into action
(-) Brand messages & positioning are often “me-too”, lack uniqueness
This is, of course, not an all-inclusive list. What would you add?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: branding, marketing, selling
June 28th, 2007
Learning more about communication is helpful in business. Doesn’t matter where you learn it.
Try marriage. I learned it doesn’t matter what I want to tell my wife if she isn’t listening. Even if “what” I’m saying is right, 100% true, accurate and correct. Doesn’t matter. Unless she can hear it.
Seems obvious I know, but marriage is a great teacher. Here’s another example:
Business Books that Connect
There are a million of them out there (Carnegie
, Ziglar, Gitomer) and they’re all saying very much the same thing.
The difference is they each say it in their distinct voice, style and personality (at least the good ones). And you either connect with it, or don’t.
Remember the last business book that inspired you? When you took those ideas into work and tried them?
That book, that author, connected with you. You were looking for an answer, and were open to receiving one. And you got it. It was meaningul, powerful and motivated you to take action.
Same is true for business communication.
Getting It
Business communication is the sending and receiving of messages. Sender - receiver - message.
Contractors communicate their message in proposals, brochures, and web sites.
The problem is most effort is spent on the message - that’s important too. But it’s only half the equation, only as important as the receiving.
If the receiver isn’t ready for, or open to the message, that message was worthless. You might as well as not have said it. Or, wrote it, or presented it, or advertised it.
Willingness to Receive
The sales goal is to facilitate customers’ willingness and acceptance of our messages.
That’s done by knowing what a particular customer (or market) wants. Almost all sales effort should be spent figuring out exactly what a customer is trying to solve.
The remaining sales effort should be spent creating solutions, and then communicating it in a manner that the customer can receive.
Your communication should tell the customer that:
A) You understand they’re trying to solve “x,y,z” -and-
B) Here’s a potential solution (your customized service offering)
For facility contractors, the solution is communicated in your responses to Request for Proposals (RFP), Quotes, Qualifications, etc.
Ideally, if you can work this ahead of the procurement curve, you can help customers avoid the RFP process altogether. Saves them time, money and headaches.
The Bottom Line of Communication
It’s about the receiving of messages by individual customers, messages that are important to them.
Figuring out how they receive information they’re open to. Information they’re more willing to accept and do something about. Like sign a contract, return your call, accept your appointment.
This means the presentation and timing of that message is AS important as the message itself.
Great message + mediocre presentation = zero (no reception by the recipient, no change, no action)
Great message + good presentation + bad timing = same zero
Great message + good presentation + good timing = returned call, appointment, contract
How are your business communications received?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: buying, messaging, RFPs
June 21st, 2007
Humans have organized into silos since cavemen hunted in groups. Henry Ford’s assembly line standardized work, then squeezed out inefficiencies. Voila! Higher productivity at lower cost.
That’s why businesses organize in silos. They specialize work (finance, operations, etc.), increase accountability and crank up production.
So what’s the problem?
Silo Agendas
It’s a huge challenge for service contractors to sell to a team of decision-makers from different silos (aka cross-functional, decision-making teams).
Cross-functional decision-making teams are common on large contract bids. And they bring conflicting agendas.
For example, a finance analyst, a buyer, an HR rep, and a plant manager sit down to review your proposal. What do they each want in a contractor?
As contractors, are we to believe these decision-makers magically remove their silo-based agendas and attempt to choose a contractor for the good of their company? I don’t think so, not entirely anyway.
Individual Agendas
There is always a customer-manager, our contact person, who is responsible for the service once the decision is made.
However, in large contracts there are other spoons stirring the decision. And it’s these varying agendas that make selling contract services complex.
They all want something different. Their bonuses are calculated differently. Their job security comes from achieving different goals.
We’ve all heard about personal agendas being played out. About the decision-makers who try and make a name for themselves by raising unrealistic questions or concerns during a selection process.
And we’re all familiar with decision-makers who try to improve their organization using outsourced partners. Those who understand and are capable of team building and creating a shared vision, even including contractors.
Sales Goal for Agendas
Our sales goal is to fully understand as many of the business agendas as possible, such as:
- Customer’s company agenda
- Decision-makers’ departmental agendas
- Agendas of the decision-makers themselves
By understanding these various agendas we can be more creative in the design of our service solution. We can configure our service delivery to serve multiple agendas.
And when our customized solution helps multiple decision-makers get what they want, they’ll select us.
It’s All About Preparation
Preparing for a large contract bid begins long before the RFP comes out. Because once it’s out, the cone of silence descends on the decision-making team, imposed by procurement.
So the time to prepare is weeks and months before the RFP is expected. Here are some things to try and find out:
- Who will be the members of the decision-making team & their titles?
- What departments do they represent?
- What internal initiatives are in progress, completed, or planned? How successful were they?
- What is the internal political climate - whose star is rising & whose is falling?
How successful are you addressing multiple customer agendas?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: buying, RFPs, proposals, agendas
June 6th, 2007
Ever hear of customers’ customers? Sure you have. Once they were called “employees”, or “tenants”, or “students”. Now everyone’s a “customer”.
The customers’ customer model provides facility contractors an opportunity to increase their value to existing customers. It also makes it less likely customers will switch to another contractor. But first…
Who’s the Customer?
Typically, the facility service customer, our contact, is a manager of a function or structure (security director, plant manager, campus administrator, etc.)
They include contracted services as part of a safe, secure, clean and productive workplace.
They serve the facility needs of their customers, i.e. employees, tenants, etc. - these are our customers’ customers.
Customers’ Customers Choose to Participate -or- Not
There are facility programs where our customers’ customers choose to participate, or not.
Obviously this isn’t true all the time. Some policies and procedures are not optional. Either the benefits or penalties are too big to ignore, and so they’re followed.
But for some facility programs,there are areas where customers determine their participation.
2 Examples: Recycling Programs & Security Practices
Recycling program success is directly dependent on enlisting customers’ participation. They have to change their behavior, do things differently, for programs to work.
Contract security services can’t be everywhere all the time. Protecting the workplace is largely dependent on customers following security practices. Think about confidential information on laptops. Or, after-hours in a parking garage.
Our Customers Seek Their Customers Buy-In
Forcing customers to do things they don’t want to do just doesn’t work. A Stalag 17 mentality creates more escape tunnels than Swiss cheese.
When you no longer can demand, you must enlist. Our customers are now faced with gaining their customers’ participation in doing things the “right way”. And this requires our customers to market their programs.
Contractors’ Opportunities
Contractors can help with the burden of marketing to our customers’ customers.
Who knows more than service providers about the value of recycling? Or importance of security? Or whatever? That’d be you - the contractor!
By working closely with customers, contractors can first understand, then design, and potentially implement efforts to increase participation in facility programs.
Here’s how contractors might help:
1) Provide information such as case studies & success stories highlighting benefits of participation
2) Develop communication plans with creative ways of raising customers’ customers awareness
3) Produce awareness-raising promotional items -costs may be shared, or picked up by contractors or customers
4) Promote participation - contractors personnel doing the marketing work, i.e. “meet & greets”, group emails, seminars, etc.
Success Requirements
Obviously, contractors can’t try to enlist participation on their own. Here are several needs:
1) Customers must allow contractors to help - obvious, yes
2) Customers will allow greater participation if trust & integrity are present with their contractors
3) Contractors must invest the time & effort to understand customers’ programs, culture, goals & limitations
4) All contractors’ promotion efforts must be authorized - again, obvious
Contractors’ Benefit Loop
This is a great self-perpetuating loop to get into with customers. By marketing to your customers’ customers, contractors gain:
1) Greater integration with customers -> increases your value to them, less likely to switch
2) Increased understanding of customers - leverage to create new, customized service offerings
3) Offer new customized services -> increased revenue & profit -> leads back to #1
What Programs Do You Market to Customers’ Customers?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: marketing, janitorial, security
June 1st, 2007
This week I spent several days training a contractor’s sales staff. Inevitably during training, the primal, fearful scream of low price comes up.
And it usually sounds like this: “Customers only buy low price - how can we compete?”
My response to that scream has three parts to it:
1) Price is meaningless…without value
2) Communicating value is the contractor’s burden
3) Customers only pay within their market’s price range
1) Price is meaningless…without value
It’s true. Price only matters when customers know what they’re getting.
Think about this: “Does low price win every time”? Of course not. Because if it did, then only low price contractors would exist.
Let’s put it another way. Imagine a janitorial market where the average price per square foot is $1.10 per year.
In this hypothetical scenario, LazyBoy Cleaning (my made-up company) comes in to town and starts pricing janitorial bids at $0.25 per square foot, per year.
Any poor customer who hires LazyBoy Cleaning will be sorely surprised to find that for our $0.25 my brother and I only come into their building twice per month and empty one trash can each. And that’s all.
The moral of LazyBoy Cleaning is that customers expect something in return - for whatever they’re paying. Their money in exchange for value. Now customers may not pay much, but they’re still expecting something in return.
Separating value from price makes price meaningless. It’s what customers get for their money that matters to them.
2) Communicating value is the contractor’s burden
Customers often have a hard time figuring out the value contractors will provide.
As contractors we’d like to imagine that customers look into our souls and select us every time because we’re nice people and darn it, we deserve more business.
So much for fantasy.
Since customers have the money, it’s the contractors’ responsibility to communicate what customers get in exchange for that money.
If contractors don’t communicate value, customers have an easy out. They use price to choose. Who can blame them? It’s right there in front of them. All the contractors provide pricing. It’s numerical. Low number wins.
So, like it or not, contractors have the responsibility of value communication. That’s what contractors’ proposals are for.
3) Customers only pay within their market’s price range
Customers buy services in a marketplace made up of a range of prices. That range comes from contractors’ pricing to a specific bid. A customer looks at those prices, and voila! They have their market price range - top, middle and bottom.
No matter how wonderful a contractor’s service is, customers won’t pay outside that market range. Customers, constrained by budgets, use that market range for what they should, could or might pay.
The good news for contractors
Each market range has a top end. And if a contractor can successfully communicate their value to a customer, they’re in position to win the contract at the premium end of the pricing range.
And it’s a rare and wonderful day when a contractor is the sole bidder. It does happen, I’ve heard.
In the final analysis
Contractors win or lose bids on their ability to communicate value in the bid process.
The first step is to figure out what customers value. Then what price customers are willing to pay for it.
How well do you communicate value?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: selling, proposals, low price
May 24th, 2007
Winning facility service contracts involves two cycles: the buying cycle and the selling cycle.
“The Revenue Monkey & Sales Stages” outlines the sales cycle, but there’s another side of the story, the buying cycle.
Both the buying and selling cycles are about exchanging value and money.
Customers want results in exchange for their money. Contractors, money for their service results.
Contemporary sales training focuses on the buying cycle. The logic goes something like this: “Customers want to buy, they need to buy - so help them buy and get out of their way”.
Traditional sales training focuses on the selling cycle. The rationale is that contractors “have to take action to create sales - So, what are we doing?”
Which to Follow: The Buying or Selling Cycle?
Both. And that’s where it may get a little confusing. So here’s an easy analogy, it’s a piece of cake.
Actually, that’s the analogy, it’s a cake. A two layer cake, with a top and bottom. Cycles are layers and they align, but not exactly, and not everywhere all the time. Just like the buying and selling cycles.
Contractors are operational creatures of habit. While they must work a process to generate sales, success depends on serving customers in their buying cycle. It’s walking and chewing gum.
In case you were wondering, the frosting holding the cake layers together is information, understanding and creativity.
The Customer’s Buying Cycle
Here’s my take on the facility service customer’s buying cycle. It’s about customers’ awareness and motivation to/from problems and goals.
1) Oblivious Stage
In this stage customers aren’t aware of any problems. Or goals they want to achieve.
It’s as if they say “Pebble in my shoe? What pebble? What shoe?”
They’re clueless, or inexperienced, or way too busy to be tuned in to the facility service they’re supposed to be managing.
2) Aware Stage
Customers in this stage have become aware of a problem, a real pain. Or recognize they’re not achieving the goals they want, or should achieve.
But right now it’s not worth their effort to change. It’s just not a high enough priority.
They know they have a pebble in their shoe but aren’t doing anything about it.
3) Motivated Stage
Now customers know they have a pebble in their shoe and are doing something about it. And in the facility service industry, they’re doing one of two things:
a) They’re working with their current contractor to problem solve or achieve the goal
-or-
b) They’re in some stage of going out to bid (RFP preparation, pre-qualifying vendors, or in RFI/RFQ/RFP)
Sales Stages of The Revenue Monkey
Contractors must stack the customer’s buying stages on top of its selling stages. Like a layer cake. Sales stages described in “The Revenue Monkey & Sales Stages” include:
1) Pre-Approach
2) Initial Contact
3) Follow Up Campaign
4) Bid Opportunity
5) Bid Submittal
The layered cake looks like this.
What It All Means
Do the work required by the selling stages, but (and there’s always a “but”) do it focusing on the customers’ behavior and motivation - based on their stage of the buying cycle.
Easily said, not done. And the devil’s in the details.
How are You Working the Buying & Selling Cycles?
~~~~~~
Chris Arlen
President, Service Performance
http://www.serviceperformance.com/
Technorati tags: buying, selling, service contracts
April 16th, 2007
You know what a reverse auction is. Leaving the light, moving into the darkness, and finally oblivion. From a contractor’s perspective anyway.
I don’t like reverse auctions. They’ve been called zero-sum, power-based bargaining. Meaning customers have all the power, and through coercion, extract savings from contractors’ profits. Not my idea of a partnership.
Did You Know?
Reverse Auction Defined
Wikipedia defines reverse auction as a b2b procurement tool where “…sellers compete to obtain business.”
Reverse auction is found 407,000 times on Google. And a lot of those are about sellers’ (contractors) bad experiences. Here’s what I’ve learned from you and Google .
At one time reverse auctions were thought to cover 10-50% of corporate purchases. However, over the years that’s shrunk down to 1-5% of total spend, because reverse auctions didn’t live up to the hype.
My guess is reverse auctions are held for about 1-2% of facility service contracts (security, janitorial, grounds, etc).
Reverse auctions seem to be used on large volume, facility service contracts rather than small ones. Probably because of the reverse auctions’ expense.
Also, reverse auctions are held primarily by customers who produce products. Maybe it’s their “economies of scale” mindset. They know it works for tangible things - they think it should work equally well for services. Bid out a large dollar contract and they’ll get huge savings, right?
No one’s told them the larger the contract - the smaller the contractor margin.
Sad Story Both Ways
One facility contractor told me he was in a reverse auction against only one other bidder. He suspected it was the customer using the reverse auction to drive down his incumbent price.
Don’t laugh. It happens. Here’s a few other areas where customers get sideways with reverse auctions:
- Not intending to switch contractors, just checking market pricing
- Intentionally including unqualified contractors to drive pricing down
- Providing incomplete or inaccurate specifications
Don’t get me wrong. There are unethical contractors out there too. And they’ll do dumb or ignorant things in reverse auctions, such as:
- Bidding without intending to honor their pricing
- Knowing they can’t meet contract terms & conditions, but bidding anyway
- Buying business at low pricing, then charging high prices for “extras” and/or renegotiating scope after the auction
Over the years, unethical, and illegal, behavior has happened so often that voluntary guidelines and codes of conduct have been developed. For customers (buyers) and contractors (sellers). In industries such as the U.S. auto industry, Canadian general contractors, and British aerospace companies.
However, voluntary codes are ineffective and reverse auction abuse remains common.
Success Stories Sell
You’ll come across stories from reverse auction providers touting millions they’ve saved customers, see Ariba. That’s what sells their next job.
Customers also praise reverse auctions, see U.S. State Department.
It’s understandable. Customers have already spent money on the reverse auction’s pilot program. Their professional credibility is on the line and it must be protected. Kind of like “I chose this; therefore I’ll find the short-term evidence to prove I’m right. I’ll ignore long-term results because they don’t support my position”.
Why Net Savings are Misleading
Net savings are held up at the end of an auction as proof of success.
The formal measurement is Purchase Price Variation (PPV). For facility service contracts it’s the difference between the customer’s last purchased price and the lowest, winning bid price.
Why Gross Savings aren’t Shown
What’s not shown in net savings are costs associated with delivery, quality or implementation.
Why? Because those costs aren’t available at the end of the auction. Only when customers take delivery.
And for facility service contracts, implementation happens over months and years.
Even when it occurs, it’s difficult to quantify facility services’ impact on most customers’ businesses.
Does anyone measure customers’ productivity when employees work in a dirty office? Or how much free overtime customers lose when employees don’t feel safe working after hours?
It’s easier with manufacturing and production lines. The line stops. It costs the customer. That’s the performance penalty the facility service contractor may have to pay. Same in a cleanroom environment. Contaminated product, contractors pay.
Those are the implementation costs that affect gross savings. But they don’t show up in net savings at the end of the auction.
Why Reverse Auctions Don’t Work for Facility Service Contracts
- Focus is on price - not reducing cost, problem solving, or service delivery
- Damages supplier (contractor) relationships
- May encourage imprudent bidding (not you of course)
- Focuses people on short-term, instead of long-term results
- Promotes customers’ zero-sum, power-based bargaining
- Difficult to define service intangibles in specifications
- Supplier relationship crucial to delivery of service value
What Can You Do About Reverse Auctions?
1) Work to Avoid Reverse Auctions
>>> Educate Customers
- Help them understand why reverse auctions don’t work for facility services
- Send them a link to this blog posting & see links at end of this post
- Try this pre-auction decision analysis tool, it’s a downloadable Excel file from Lee S. Crane. a buyer with the U.S. Postal Service
>>> Build Stronger Relationships
- First, understand how your service impacts customers’ businesses
- Then strengthen what you do to better serve customers’ business needs
>>> Continually Increase Value
- Bake more value into your basic offering
- Not as an add-on service - but as an integrated solution so customers can’t deconstruct it
- You’ll be increasing your service above perceived commodity status
2) Boycott Reverse Auctions
Why not? The Cabletelevision Advertising Bureau is boycotting online auctions.
They say selling advertising is not a commodity. They’re putting together custom packages and providing added-value.
So instead of selling price alone in an online auction, their members are boycotting the eBay developed auction.
3) Participate in Reverse Auctions
Your choice. There’s a lot of research and info on games theory. Couple of interesting things were:
- Winner’s Curse - which says the winning bidder will tend to overpay for actual value - for reverse auctions it means contractors have to figure out how to deliver service at their winning bid pricing. Yikes!
- Entrapment Game - really interesting exercise showing illogical, but typical auction behavior
Information Links
- Dr. M.L. “Bob” Emiliani, website with numerous articles,
“REVERSE AUCTIONS, A Ten Year Research Project Investigating the
Effectiveness of B2B Reverse Auctions“
- AGC of America: Reverse Auctions Resource Center white paper
- US Army Corp of Engineers on Reverse Auctions
- Mohanbir Sawhney, “Reverse Auctions Cutting Costs“, June 01,
2003, CIO.com
- Karen Prema, “SRM + E-AUCTIONS: Tools in the toolbox“,
Purchasing, April 6, 2006
- David Hubler, “Reverse auctions become a diplomatic tool:
State Department stretches its budget with online buys“, Federal
Computer Week, Aug. 14, 2006
- Ariba success stories on their web site
How Are You Handling Reverse Auctions?
~~~~~~
Chris Arlen
President & Senior Consultant / Service Performance
http://www.serviceperformance.com/
Technorati tags: reverse auctions, pricing, facility services
April 10th, 2007
We know things exist, even if we’ve never seen them. We feel their effects. That’s how market pricing works.
If we understand forces that weigh on us, we can use tactical pricing towards our business strategy.
When customers buy services in a market they soon get a feel for what the going rate is.
Smart customers use market pricing as a guideline. A point from which to move their expectations up or down to match their situation. Market pricing’s gravity pulls customers expectations in line.
The rub is that customers’ market pricing comes -(drum roll)- from contractors.
We Are Not Alone
A contractor’s pricing is in a marketplace with competitors’ pricing. We fling our pricing into the RFP hat when a bid goes out. We change it from bid to bid to fit the opportunity, the facility, the customer, the geographic market - and our needs.
To make matters worse not all contractors price by the same rules. Remember falling down in disbelief when you heard a contracted price and you knew it was below labor costs? Ah, that’s another story.
Defining Market Pricing
In every marketplace there’s a range of prices that customers have bought. Customers don’t buy the same service at the same price from different contractors. There’s always variation.
It’s Variation in Pricing that Counts
There are always customers buying services at the high-end of the price range. Typically, this isn’t a large crowd.
And there are always customers buying at the low end. This is a bigger crowd.
But by far the biggest crowd is made up of customers buying services in the middle price range.
This bell-curve distribution of customers’ purchase prices is “market pricing”. Gravity is strongest here.
In some markets, there may only be cents separating the high from the middle from the low. Customers know this. That’s what counts.
Customers Don’t Buy Outside the Market
Contractors’ pricing can’t be double the market. No service differentiators justify customers paying that high a premium. At least no one’s found one to date. If they had, it would be copied immediately. And then become the norm.
Since contractors’ pricing must be in the market range, where in the range should it be?
Eating at the Premium End
There are (+) and (-) for eating at the premium end. It makes sense contractors want the high end, the (+) are very tempting. Here are a few (+)s & (-)s:
(+) Higher Profit Margins:
* Allows paying higher wages for better skills, training & more service
* Put more $s in contractors’ pockets at the end of the day
(+) Customers are:
* More likely to value your service - they’ll spend more to get more
* Less likely to bid out on a whim - your service is important to their business
* More demanding in a good way - force innovations, which can be used with other customers
* Great potential references - deliver first & they’ll sell for you
(-) Fewer customers buy at the top end - not enough revenue for contractors to live
(-) Greater sales effort needed to win - customers buy value solutions
Living in the Middle
The benefits in the middle aren’t as exciting as at the premium end. But they can make a sound business strategy into a solid business.
(+) Many opportunities for revenue growth
(+) Higher revenues lowers % of fixed G&A costs - new revenue doesn’t add G&A
(+) Easier to replace than premium end - securing replacements isn’t life threatening
(-) Sales effort can be as great as premimum-end
At the Bottom
It’s not risky to have some, but too many eats away stomach lining.
(+) Easier & faster sale - customers willing to overlook contractors’ shortcomings
(+) Large volume available - customers in survival mode are easy pickings for aggressive contractors
(-) If you’re not lowest, you’re out - 2nd lowest doesn’t get it (think WalMart)
(-) No room for costing mistakes - get it right, or pay the customer to serve them
(-) Customers turnover frequently - your contacts & contracts replaced for lowest price
How Does Your Market Pricing’s Gravity Feel?
You weighed down by gravity defying pricing? Share your stories about market pricing. Especially ones that defy gravity. Post your stories here.
February 1st, 2007
Sometimes I forget why we’re here. In a business, contractors’ sense. Here’s a brief history. Helps remind me that “Oh yeah! That’s what it’s all about. Read on:
1) Human beings consume things to live >> they are consumers
2) Consumers need things to consume >> companies provide things
3) Other companies provide the same things >> consumers can choose
4) Companies must produce things better, faster, cheaper >> or else
5) Companies hire employees & provide facilities to produce things
6) Companies tell their employees to produce things better, faster, cheaper >> or else
7) Companies use fewer employees >> those employed are stretched
Employees want/need help to produce things better, faster, cheaper
9) Employees contract with companies to help (this is you) >> employees become customers
10) Other contractors provide the same help as you >> customers can choose
11) Customers choose contractors who they believe help them produce things better, faster, cheaper
12) If contractors don’t >> next contractor
QUESTION >> How are you persuading customers that your help is more valuable than other contractors?
January 22nd, 2007
After a business dinner recently a vendor I’m working with said security guard service is a commodity - the only difference is price. To be honest, that torqued me a little.
I’ve heard the “commodity” label so many times over the past years I’d stopped listening. The vendor’s comment reminded me why I DON’T think our services are commodities. Not guard services, not janitorial services, and not any facility service business.
Here’s how Merriam-Webster defines commodity: a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price.
Yes - facility contract services ARE widely available AND have smaller profit margins.
Yes - price is a distinguishing factor. But it isn’t the only one. Otherwise, if only price mattered, low price would win each time, every time - and it doesn’t.
So, while facility services have some things in common with commodities, it’s Webster’s “diminishes the importance of factors” that reminds me our services are not commodities.
Why? Because of variability.
Think about it. A commodity can’t be distinguished from one another, from one provider to the next, right?
Yet everyone, even the person on the street, recognizes the fact that a service varies. Has to. Services are performed by people - the most variable things on the planet. Can’t do it the same way each time, each day, at each location.
And if the people who provide services vary, think about the variances in how supervisors supervise, managers manage, and owners own companies. It’s a world of difference.
I think the “commodity” label gets attached to us for 2 reasons:
We’ve Done a Poor Job Distinguishing Ourselves
As facility contractors we’ve done a poor job distinguishing ourselves from each other. Customers have a hard time choosing when we’re all saying the same thing. We’ve made ourselves look like each other.
- Who doesn’t have a Quality Control/Assurance program?
- Who doesn’t train their employees?
- Who doesn’t use technology in some manner?
We can’t blame customers who believe they’re buying commodities instead of facility services. We’ve taught them. The good news is we can do a better job distinguishing ourselves to customers. Hey, that’s my career.
Expecting Higher Margins
When someone says a facility service is a commodity, they’re talking about margins. They don’t think our margins are normal, that they’re too low. And they’re right. Our margins can be thought of as low…when compared to software companies. But compared to supermarket companies (1-2% net) - our margins can look pretty good.
Is Your Service a Commodity?
What are your thoughts? Is your business a commodity, or not? What are you doing to distinguish yourself as not being a commodity? Post your comments here.
January 10th, 2007
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