Are You Competing With Your Supplier?

This past week I ran across a contractor who was set up by his supplier as a “sub distributor” to his competitors. He got 15% to sell materials to his competition. So I asked him how he handles retail customers who ask him for a price to line pipe. He said he’d bid any job and didn’t see why he should hold back and protect his customers. I don’t know about you, but when I was in the plumbing & heating industry, I never bought from the guys competing for the same customers I was competing for. Even when the competitor/supplier has the best intentions, there will come a time when you are talking to a prospect and your competitor/supplier walks in to deliver his proposal for the same customer. It’s painful to watch as you are instantly deflated and know the guy can undercut you on material by 15%. You sum up your presentation and walk out the door with your tail between your legs, vowing to never buy from the “supplier” again. And while the competitor/supplier tells you he didn’t cut the price, there’s always the thought in the back of your head that while he said he didn’t cut the price, what did he say that got him the job and left you in the cold? If he didn’t cut price, did he tell them he sells to you? Did he tell them he’s the guy who trained you? Did this demonstrate that he may know more about things than you do?

Many companies try this “multi-level” marketing plan to build more customers with their product, but in the long run, many of these arrangements prove too much for competition within a market segment and eventually die out over time.

From the other perspective, the one from the “supplier/competitor” standpoint, there is a reluctance to train new people to do what you are currently doing successfully. When you were the only one doing the work, all of your future customers came to you as a subcontractor and had you do the work. Now, not only have you lost the work, but gave up the majority of the profits earned on the job for a measly 15% of the materials only. Moreover you had to train the former customer, and in many cases advise your customer on the job you are getting paid on. And if the job goes badly, your newly trained installer is going to look to you for relief.

We typically don’t see people making drain cleaning machine running a competing drain cleaning business to yours and you continue to buy your machines from them. The same with cameras, jetters, pipe or any other material supplied to our industry. The practice of buying lining equipment & material started years ago in our industry and has held on through different iterations over the years. Most often, the shake out goes to the contracting side over the supplier side in the long run, but people still follow the paths that have been forged in history. The challenge is to find which works best for you, your core business, and concentrate on that. If it is supplier, then get out of the contracting business, if it is sub-contractor, then go after that market segment, and if it’s contractor, grow your contracting business. Become a master of one of the paths, and forget a jack of all trades who usually doesn’t excel at any of the paths because of the lack of focus.

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