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Friday, March 04, 2011

Price, relationships and value

Last night, before our sons' hockey team started playing, an entrepreneur updated me on his construction marketing challenges.  He distributes an environmentally effective LED lighting system -- in fact, a few years ago, he was one of the first to the market with this low-energy lighting model, and discovered (with some incredibly positive media publicity), distributors clamoring at his door for the opportunity to sell his product.  In other words, as a true early adaptor with positive publicity behind him, he had found (at least temporarily) the holy grail of business/entrepreneurship -- a market so strong that individuals would actually pay him for the right to sell his product.

He rationally, then decided to focus his marketing strategy on finding more distributors.  And things worked quite well for a while -- until problems started happening.  The distributors started selling other competitive products, they wouldn't listen to him, and he found it harder and harder to find new distributors.  This seemed puzzling at first, because demand for the lighting product seemed to be increasing and the whole concept has approached mainstream interest. 

Finally, as he experienced the "great recession" last year he learned the painful truth:  His product, once at the leading edge, had become normal -- and high volume manufacturers especially in China were producing variations, perhaps of much lower quality and durability, but at certainly lower prices.  How could he compete.

Well, I'm supposed to be a construction marketing expert but I cannot tell anyone how to run their business (except, perhaps, my own).  The more I listened to him, the more I sensed he was working on things which might be sidetracks to the main issue. 

Clearly, unless he wishes to work for coolie wages, he won't be able to compete with those low-cost Chinese products, and he won't be able to compete with high volume orders to major distributors and retailers.  He can compete by being ahead of the curve, truly the most knowledgeable in the industry, and selling to other early adaptors and visionaries.  He also probably can compete by plugging his product in the service area, by building strong relationships through appropriate influencers. 

He confirmed that, indeed, his "best" market channel is through renovation contractors as this is where his product has a natural entry point.  I suggested he engage with local home builders and renovations groups.  This requires however significant hands-on effort and relationship building.  (I advocate in my Construction Marketing Ideas book that you prepare for three to five years of time-based effort in this sort of association marketing before you reach the point where you have a naturally sustainable network of relationships).

Now, this sort of work and effort -- with painfully long commitment for relatively small volumes of business (one local market would take much effort) -- is of course not the equivalent to the great "high" at the early stages of this individual's business, where opportunities seemed to beckon and the whole world seemed ready to join him in enthusiasm for his product. 

But the problem is sustainability.  Unless you are truly fortunate or exceptionally brilliant, it is truly difficult for any business to maintain this early-adaptor lead, especially when your product/service loses its entrepreneurial advantage and becomes available more as a commodity.  In fact, it is truly hard to sustain any really powerful concept or market position, unless you have exceptional resources, agility and staying power, because competitors will nip and attack -- sometimes resorting to expensive litigation or dirty tricks.

One way to overcome these problems is to redefine the price/value/relationships matrix.  It is how I survived brutal competition, increasing industry anger about our sales techniques and methodologies, and technological changes, which have really cut to the core of the traditional business-to-business print media market.

Of course, sometimes I reflect on the "glory days" when sales seemed to arise almost effortlessly and the wild and exciting adventures of earlier business ideas where we (briefly) caught the publicity wave and had people virtually begging to do business with us. 


Wymetto said...

You are so correct. To much competition out there not to begin a relationship with the customer. This will also pay off in the long run with referrals.

ran daniels said...

As a business in construction we try as hard as we can to be clear and transparent with the information that we give are customers this way no complaints