How Small Companies Respond To Price Pressures

How Small Companies Respond To Price Pressures

When there are too many companies competing in strongly contested markets suppliers struggle to obtain the favours of customers, the over-capacity puts pressure on profits. This can result in businesses setting a price policy that often appears suicidal to outside observers. What advice should be given to smaller suppliers trying to compete in difficult markets like these? This sales training article describes five major survival strategies used by small suppliers to help them survive in strongly contested markets.Concentrating on high turnover and/or service-oriented medium-sized clients.Large buyers are usually served by large branch suppliers. Particularly in difficult economic times, it is very difficult to get near these large-scale customers.Large companies urgently need this customer group to make full use of their capacity and will therefore fight hard for them.For example, a medium-sized American lorry manufacturer concentrates specifically on small to medium-sized haulage contractors. This customer group demands a good service at an affordable (not cheap) cost.Small and medium-sized clients do not have the same purchasing power as their larger counterparts and cannot therefore put so much pressure on price. Consequently: you will sell smaller amounts to them, but with better profit margins.Surpassing the user service offered by large companies with the help of trading partners.Small and medium-sized suppliers often sell their goods through trading partners. This can be the key to an improved user service. In conjunction with the trading partner the smaller supplier can create a service concept for the users of their products.If you sell photocopying machines, for example, make sure that either one of your trading partner's employees or one of your own client care technicians repairs any faults within three hours.Sometimes smaller companies offer their trading partners the possibility of earning more money with their product than with any of their competitors' offers.Another option is to lend support to the trading partners by offering sales training in the areas of product knowledge and service. This way the trading partners will always recommend the company's product to interested clients before they recommend any others.Only making considerable price concessions when dealing with larger clients.Current and potential large-scale customers are to a almost certainly in a position to dictate price to small and medium-sized suppliers. This does not present a problem as long as they do not offer the same price concessions to other buyer groups.Therefore, smaller companies try to modify the products that they sell cheaply to their large-scale clients. For example by choosing other brand names, simplifying production, slimming down the guarantee package, changing the design or the packaging. In particular, they make sure that these cheap products do not take up more than 20-30% of their manufacturing capacity.Quickly reacting to falling market prices.At the beginning of tough price clashes on the market most suppliers live under a price umbrella. This means that in particular the larger suppliers have reached a very comfortable price level over the past few good years that no one undercuts.With a falling use of capacity, however, the price umbrella begins to leak and some companies start to 'buy' themselves a better use of capacity by allowing price concessions.This is the best time for small and medium-sized suppliers. Whilst the larger suppliers are swaying because of their inertia and still safe financial situation, the smaller suppliers can act below the price level by instituting reductions and thereby gain a greater foothold of the market.Checking the profitability of all their customers.As a result of their targeted activities, most small and medium-sized suppliers usually get higher prices than their larger opponents. But never forget that most small and medium-sized suppliers also incur higher costs.Every better service, every faster delivery and every longer guarantee costs money. If you are the salesperson for a small to medium sized business it is important that you analyse your customers' profitability, or at least the profitability of your larger customers. This activity sometimes forms part of sales training courses and when done often results in the discovery that because of the low prices paid some clients get more from you than your company gets back from the client! This is something your company, in contrast to larger suppliers, cannot afford to do as you simply can not carry non-profitable clients for very long.

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