Competing on price or value: Which offers the best opportunity for profit?

Many processors and mold manufacturers get caught in the low-price trap and are forced into defending their price without data to back up why their price is the best value for the money.

While emulating Wal-Mart in some operational aspects might be a good thing, processors and mold manufacturers often get caught in the low-price trap that is probably only good in the retail setting. News flash: There are no Blue Light specials in processing or mold manufacturing.

So, if price isn't the best way to compete and capture new business, just how can processors and mold manufacturers get the price they need to remain profitable? At the recent annual convention of the American Mold Builders Assn. in Las Vegas, NV, Stephen Rose, practice lead, automotive and commercial with Kotler Marketing Group , spoke to attendees about what it takes to defend their price to an OEM community that is very price conscious.

 

Building a good defense

"In today's purchasing world, the knowledgeable buyer is history," Rose explained. "Most buyers that buy molds know nothing about moldmaking. They are given a price objective and they could be fired for failing to meet that objective, which is why most do everything they can to squeeze value from the supplier at the lowest price."

In fact, Rose pointed out, purchasing organizations attend day- -long seminars on how to squeeze suppliers, defeat them, and get what they want. "They've raised the level of their game," he added.

The primary problem is that when most suppliers are called into a buyer's office to present their proposal for a program, they "talk, talk, talk" about how they are ISO and TS certified, how good their quality is, how efficient their manufacturing process is, and on and on.

Rose witnessed this a few years ago when invited to spend a week at General Motors' Warren, MI plant to watch how the purchasing game was played.

"These were good suppliers, they supplied a lot of value, but were led like lambs to the slaughter by these savvy purchasing agents," said Rose. "They didn't get the work."

The supplier who did get the work, however, had a different tactic. It was Autoliv Inc., a global manufacturer of automotive safety systems. "The Autoliv representative talked about data and metrics," Rose said. "He brought proof in the form of hard data to prove what Autoliv's advantages were as a supplier to GM, and they awarded him the business."

Rose then offered attendees three ways to help them avoid the low-price trap by identifying the value their company offers:

1. Present the data about your benefit claims. Most suppliers don't have data and today's purchasing people need it to support the claims. "Forget about becoming friends with the purchasing agent. They don't have time and it doesn't matter," Rose stated. "Today's purchasing agent has the attitude, 'Don't bother us unless you have important information to share.'"

2. Equip the buyer with a business case of the benefits of spending his company's money with you rather than on the lowest bidder. "You

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