When asked to define our business, most sales folks would say we specialize in logoed merchandise. They would assume the merchandise serves a specific function for a specific purpose, be it apparel, hard goods, tradeshow merchandise, or sales incentive programs. It’s just a matter of pairing the right merchandise to the customer’s spec and shipping it on-time.
This mindset is short-sighted and will invariably hurt your business.
There continues to be increasing pressures in our industry to commoditize the products we offer. This commoditization compresses our margins. In fact, most procurement departments incorrectly place our business in the same bucket as office supply spends. In their mind we all sell the same products and buy from the same suppliers, therefore the only point of differentiation is price.
The commoditization of our industry is most apparent during the RFP process, especially when dealing with a larger corporation. There is an increasing number of procurement outsourcing groups that specialize in helping companies maximize their total cost of ownership opportunities. These companies are paid specifically to show cost savings. Many RFPs now include reverse auctions and a push for volume rebates. I find it interesting that demonstrating cost reduction doesn’t necessarily translate to a promise for more business. The reality is that most RFPs overestimate their spend and offer no guarantee of future business. Even worse, they don’t mandate that their internal users buy from preferred vendors.
So what does this mean to distributors that are trying to go after and retain the larger corporation’s promotional product spend?
Will these corporations simply keep putting out new RFPs when their contracts are up and keep shifting their spend to the distributor that offers the new best price? Are we really just selling a commodity?
This brings us back to my original question. What business are we in?
I am reminded of an MBA class I took at Oregon. The assignment was to describe what business FedEx was in and what make them successful. The class came to the consensus that FedEx focused on logistics, shipping products on-time around the globe, and strong delivery schematics. Our professor said we were all wrong. FedEx is in the business of “making promises and keeping them.” What made them successful was that they were “reliable” in delivering a package overnight anywhere in the country.
In a way our industry is positioned similarly to that anecdote. The real answer is that we provide solutions for a variety of branding and marketing needs. The promotional items are just a vehicle to delivery those solutions. We provide a service not a commodity. If we understand the goals of our clients branding needs, we become a valuable team member and provide them with the service of helping solve those needs. The solution, when working with procurement folks, is to show them the value of that service and the ROI of the total cost of ownership when that value is included. This concept is much easier for marketing teams to grasp as they deal with building brand value and identity.
In today’s economy it is vital to show continuous cost savings and increased value. But that doesn’t necessarily mean all of the value has to come from reduced prices on promotional items. It means that you better show value in the service you bring to your clients or you will indeed fall into the commodity trap.