“It’s only worth what I can sell it for!”

At one time or another most distributors have used this famous quote when dealing with the tax man. There is a companion statement/plea that also is used: “I don’t care what I paid for it, it is only worth “x”. Which happens to be the price I can sell it for!”

These famous statements appear to have taken on another meaning in today’s market.

With more national distributors offering slick, co-branded and private labeled products we are hearing stories of projects being taken at below many distributor’s on the shelf cost. The first thought that many have is that the lower net to shelf price that is offered by sourcing off labeled products must provide significant margin to play with. But is this really true?

Sometimes, but not always.

1. It depends on what group of products are being purchased. If there are commodities such as wire and pipe, these distributors are more than likely subject to some of the same time limits on quotes. Or perhaps they have cut deals with better terms and conditions? Or are trying to buy market share? Or actually do buy better due to relationship, leverage or are not using replacement pricing?
2. We’ve heard of distributors who rebid a project to all possible suppliers once they have won it with someone else’s price (and unfortunately all suppliers are participating in the quoting as they seek revenue and market share). The ethics of the distributor, rep, manufacturer relationship are changing (perhaps becoming more like distributor/contractor relationships?)
3. Some distributors are submitting product specs, for projects that they have already won, at the very last minute. And the specs are not exactly what was requested. Product substitution is being viewed as an opportunity to improve profitability (a new definition for “value engineering”).
4. Have these distributors been known for the low price in the market place before?

Within the last week we heard that someone from a national distributor is openly bragging that their rebates are better (20-25% better on average) than other distributor rebates (including marketing/buying groups). So you have to ask yourself, is this about taking market share for the sake of taking market share or are these distributors really trying to force unwanted consolidation on the market place.

And at what point do companies that want market share need to consider a little seven letter word (profits)?

Is the product really worth only what your sales people say it’s worth?

We’d be interested to hear what you have to say.