I have often asked company owners, managers and suppliers who their real competition is and I get many different answers. Many in the wholesale supply business say it’s the companies that are always selling products at a very low price point—the items range from boilers, furnaces, A/C units.
When I ask what they do to overcome the situation, some say, “We’ll match it,” while others say they will not even try to match the competition. Why? I’m told because they offer better service, stock more inventory, provide training and technical support. My follow-up question was how low in price can a supplier go and still make the gross profit necessary to survive. You would not believe the answers! Some companies have put employees on furlough or cut staff to afford dealing with competitions price.
Talking to mechanical contractors about this subject, they tell me it’s the fly by night guy’s that are operating out of their garages, have no license, never pull permits and are working for a weeks pay at cut rate pricing. They also mention that these are the same guys who lack training and the skill to do work properly. Many of the cut-raters tell their clients to “Show me all the money,” so they can buy the material before starting the job. I guess that although cash is often referred to as king in many areas of business, it’s also possibly a way to avoid paying Uncle Sam!
The well-established owners also tell me that quite often the honest, hard-working and sometimes elderly are taken advantage of. “In what way,” I ask, and the answers are truly criminal. For example, taking the money and never finishing the job properly, the equipment is not what was specified or fails to function properly. Guess what? The guy with the money is no where to be found. Now, an honest company is called to clean up the mess and of course someone has to pay again.
I have asked this competition question of a full service oil company, and as you can probably guess, the answer was the COD’er. I asked how it affects their business and I was told the COD company basically can sell oil cheaper because they have either low or no overhead. They also buy a truck for cheap money and get connected with someone selling through-put oil at a few cents above the rack price and in business they are.
In the area of service, they generally have a COD service referral list they give to the customer. Again, no parts inventory equals low overhead. This also means undercutting the full service companies that are insured with trained and licensed service technicians who are available 24/7. These full service companies employ a full time staff, offer medical plans, vacation, and 401k plans, all of which contribute to their overhead that requires them to maintain solid margin.
However, with all of the above said, there is another competitor that is often over-looked and that is the Internet. Your present or potentially new customers will spend hours on the Internet checking oil prices, equipment prices, specific equipment specifications, efficiencies and the names of the companies that provide the product they have selected. Some products can actually be purchased online by a customer. No license required, just a credit card.
You may also find some of the above mentioned companies looking into YouTube, Twitter and FaceBook as a possible way of being ahead of the marketing curve. I guess you could call this our new HVAC trade media, another powerful competitor. Can you think of any established company or manufacturer that can’t be linked to some website?