Is the SPA Avalanche Coming?

Indications from distributors throughout the country is that margins are eroding. Daily, distributors are fighting to capture business and retain, or grow, market share. Retention is needed to “feed the engine” and generate revenue and cash flow. Some are using price as a tool to enter a market place (the result of expansion). And others recognize that they are losing business to untraditional channels, such as the Internet (www.hdlighting.com, www.automationdirect.com, etc…)

Customers recognize that they can buy everything somewhere else for less. (and what does this say about the value of service?)

And when competitors can offer significantly lower prices, while remaining in business, a distributor starts to wonder “how can they offer that price?”

Yes, sometimes the competitor is giving up some margin, but they also still have to pay overhead, commissions and make some money, so are all products purchased equally?

Manufacturers would like many to think so, but in the electrical industry, frequently the ability to negotiate, relationship and having quantifiable information can influence product acquisition costs. And with more product coming in from overseas as well as manufacturers focused on trying to retain, and grow, their market share, pricing opportunities are available.

While everyone does need to make money, there can be targeted opportunities to lower acquisition costs for specific customers, geographic areas, or customer segments while retaining profitability in other less sensitive areas of the business.

Food for thought:

• Could this mean that market specific pricing policies change?
• Could usage of SPAs significantly spread? (We think so.)
• Is there a role for volume unit pricing?
• Is the girl who you brought to the dance (the manufacturer) the one who you are going to go home with (do you need to consider an alternate supplier?)
• Are you training your salespeople on how to address price pressures?
• Are you willing to say “no” to some business?

With the inability to maximize price profitability, it becomes important to identify alternative revenue generation opportunities such as complementary product recommendations, refining your price matrix and understanding customer potential.