Outpriced ourselves?

Discussion in 'Growing and Managing a Business' started by mvh, Jun 21, 2011.

  1. mvh

    mvh
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    Hi All,

    A good customer of ours placed an order with a competitor.

    Two other suppliers apparently; a total price of 150k less than us, each.
    I know both the competitors and don't believe that this is such a huge gap.

    The price at which they sold the total package was basically our raw material costs (ex labour/overheads).

    They only have two other machines that we don't have and we need to subcontract subsequently. Procuring the machines for ourselves is not feasible as we need to buy the machines/hire the needed skills and need to move to larger premises.

    I personally oversaw the sales quote and there was no error. We have already switched to the best suppliers we could find; price/service wise.

    The client is looking for best prices at the moment; as their company made some costly errors last year with their contracts/customers. So supplier loyalty to us is a bit low at the moment.

    We have lost three or four order from them to our competition based on prices, but we still have some jobs that we are busy with; from the customer.

    Any advice that you can offer or some objectivity?

    Thank you,
    MvH
     
  2. whaturmuva

    whaturmuva
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    Did you see the competitors quote? They could be bluffing and trying to get you to drop your price. I do this pretty often and got a fence installed for more than half off.
     
  3. mvh

    mvh
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    Hi Whaturmuva,

    I didn't see the competitors quote. When our lady that does the sales quote; did some follow ups on quotes sent out, the customer said that he already placed the order somewhere else. When she asked why (which she is required to do - to supply a reason why we lost the tender) he said that we where more and that they where about 150k less than us...

    I don't think that he is bluffing since the tender is closed and the order placed somewhere else...
     
  4. sigma

    sigma
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    As per your mentioned, your competitor package price is same as your raw material cost, then it is a big question overhere before talking about your outsource. In this case, you first need to review on your raw material cost, is it too expensive compare to others or your raw material is over quality? Although you are doing the best on your process cost and outsource cost, you still can't beat your competitor in term of the price.

    If this case happen to me, I will contact the customer and provide him/her some sample for comparison. I will first look for another supplier that supply cheap raw material which can beat the competitor in price, produce the goods with this cheap material, compare the goods between this two material. Then, send some sample made with current material and cheap material together with the comparison report to your customer for review, let them know why your quote is high and you can also produce the cheap product if they accept the goods made by the cheap material.

    This report also will help you in future to let other customer know about the different
     
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  5. Fergal

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    I know a few businesses in Ireland who have faced the same problem in recent times. Their competitors are suffering due to the recession and in order to stay in business they will reduce their prices to cost level or even below cost in some instances, just so that they can get the work and stay in business. These are difficult times to be in business and it is important to focus on costs and keep them to a minimum. Look for ways to cut costs within your own business and negotiate as hard as possible with your suppliers. You need to be getting reduced prices from them so that you can pass the savings on to your customers.

    If your competitors are doing more of the production process themselves perhaps you need to look at other ways you can compete with them. For example, perhaps you can offer a better service to your customers or maybe provide a more comprehensive warranty. Look to your product and service offering, try to find ways that you can be better than your competitors and emphasise these benefits to your customers.

    Would it be possible for you target a different sector of the market, that your competitors would find it difficult to serve? I don't know your market but maybe you could target clients in a particular industry or maybe you could provide a better service to smaller / larger customers than your competitors could.

    Does any of this help?
     
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  6. mvh

    mvh
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    Thanks Fergal/Sigma,

    I also wondered if the competitors sold the package at small margins or at a loss.
    I will look at reducing costs and negotiating again (*cough*) with suppliers and seeing if we can offer a VAS to make the packages more attractive.

    Cheers,
    MvH
     
  7. Fergal

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    Good luck with it MvH, please do post back if you have any further questions and to let us know how it works out.
     
  8. sigma

    sigma
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    Well, if your competitor is selling at superb low margin ot loss, they wouldn't stay for long. As long as you are doing your part in best and provide the best to your customer, then sure you will get back the customer.
     
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  9. mybusinez.com

    mybusinez.com
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    Hi MvH,
    I think selling at very low margins or at a loss is a bad idea. As Sigma said; "if your competitor is selling at superb low margin ot loss, they wouldn't stay for long". This is true and if you do it I think you will be in the same situation. I think a better way to cut costs on your part would be to look for look for lower cost materials. You should spend some time looking around for better priced suppliers. Haggle, bluff and look abroad if you have to. Desperate times call for desperate measures.

    How do you know that your competitors haven't done the same and won in the process. Business is tough and it will be from now on so to survive you will have to develop, change and become even more efficient than you are already.

    I wish you all the best and good luck in the future ... and if you need any help on the website, research, online marketing etc... fronts don't hesitate to PM me (desperate times ;P )
     
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  10. James Greg

    James Greg
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    If the suppliers have sold it at a loss just to break your chain of clients they will surely loose the client's confidence soon as no one is able to work constantly on loss. As soon as they will raise their prices it will surely make the client ask them questions and certainly lose his faith in those suppliers. Quality after all is what matters if you are providing good quality products your clients will certainly be coming back.
     
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  11. mvh

    mvh
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    I have some feedback. The customer called me this morning saying that they decided to place the order with us and cancel it from the other supplier. The supplier that they placed the order with is now unable to supply the full scope of the package.

    Still waiting for the order to come through. I have picked some minor issues with the quote program (Excel) that might have added a few thousands bucks, since we originally lost the bid and did some investigation. Will search the forum for software that I can use to manage sales quote or maybe post a new thread.
     

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