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Supplier Was Racing to the Bottom on Pricing, Switched to Challenging the Industry Leader

A company in commodity sales is often blind to its differentiators. Firms that offer anything more than warehouse fulfillment and a convenient Web site may overlook the competitive advantage of value-added services. In this look back, a supplier learned they were measuring themselves against the “also rans” in their category rather than against the industry leader, who turned out to be their only relevant competitor.

Key Question

Ann: “Do you have sole-source relationships, or do you solicit competitive quotes for each purchase?”

Course-correcting Quote

“Before I started working with ‘ReFurbished,’ I always bought new from the OEM. To get internal approval, I have to get quotes from other suppliers, but ReFurbished and the OEM are the only two I’ve bought from. My ReFurbished account manager is helpful, responsive and professional. We’re a small fish to the OEM. Our contact person there changes constantly. ReFurbished gives us more personal treatment and better service. Once I was satisfied their products were solid, I started giving them our business. I’m saving money buying remanufactured parts, and I’d rather do business with a company that knows my account.”

The Client’s Quandary

ReFurbished sells remanufactured OEM products to big and small companies across the country. They have two dozen competitors who refurbish and sell the exact same products. ReFurbished assumed every purchase decision was based on price. Instead, most customers interviewed said they only checked with one other supplier prior to purchase (usually the OEM), and ReFurbished’s high quality and superior account management staff won customers’ loyalty.

Conclusion

ReFurbished found out they were being measured against the OEM, not other remanufacturers. They could raise their prices and still win sales to repeat customers. They could also position themselves more effectively with prospects who value reliable account management.

Many companies rely on vendors to preserve institutional knowledge when they lay off their own experienced (and expensive) team members. Vendors can parlay the asset of account knowledge into “partner” status through peer-to-peer relationships with senior managers or executives. A rich and relevant account history coupled with excellent account servicing can be differentiators that justify premium pricing.

Ann’s note: I categorize projects as assessments, investigations, treasure hunts or rescue missions. This case study was from an “assessment” that revealed the vendor wasn’t charging as much as their market would bear. The message is this: companies gain surprising and valuable guidance from customers, even in a simple assessment.