Graham Sowerby, marketing director of web-based dealer, Catering Appliance Superstore, has cautioned dealers against using low prices alone to attract customers.
Here, he gives his opinion on the consequences of such ploys:
The catering supply industry has a long history of tight margins and highly competitive pricing, and this situation has only become more intense with the growth of eCommerce equipment and appliance vendors, of which we are proud to say we are one of the largest and fastest growing in the UK.
Internet based suppliers in all industries enjoy lower overheads than high street or even retail park operations, so it is perfectly natural that eCommerce business models are succeeding and that prices to customers are coming down as a result.
The fact that prices for customers continue to fall is a universally positive development, of course. Or is it?
In a world of increasing price competition, where identical products can be compared across multiple vendors in a matter of seconds, is there any point focusing on anything other than price?
As a large and growing online retailer of commercial catering equipment, we have found that the best recipe for financial success and job satisfaction actually rests on three pillars; creating an industry leading website that provides real value to the customer, having an exceptional level of customer service, and maintaining fair competitive prices.
The trouble is, many companies in our industry are now struggling to maintain the first two of these essential factors, and that’s because of constant, unceasing price erosion that leaves them short on profit and short on resources.
We employ a broad range of sophisticated price and margin analysis tools, and of course we run price comparison and industry benchmarking processes constantly, so we’ve become extremely good at keeping abreast of macro and micro trends in appliance and equipment pricing – and we’re afraid to say the picture is not a pretty one.
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Quite frankly, online prices are too low, and the customer is the only real winner at the moment. We believe all reputable retailers need to take a step back and look at the direction their industry is taking, understand what is causing this issue, or the industry is only going to get worse. But what can we do?
In our assessment of fair, competitive pricing, there are a number of online catering equipment suppliers that we have no option but to ignore, even if they have lower prices than ours. In fact, we could go so far as to say we consider they are operating in a slightly different market, one where the other two pillars of our business model, industry leading website and excellent customer service, don’t apply. You only have to look at some catering supply websites, and their associated customer feedback, to see what we mean.
While we monitor pricing at all levels of the industry, we only judge ourselves in comparison to other reputable suppliers, who have invested well in their websites and organisational processes, and have good reputations and customer feedback scores. When we set pricing, we avoid putting our prices lower than these companies within the industry, and worst-case we may match the lowest price.
We’re proud of the job we do for our customers and we want to make sure we can still afford to do it in the future. Inevitably we lose some sales by not responding to aggressive pricing, but we very frequently gain customers from budget suppliers because of a poor customer service experience they have had somewhere along the way.
Our main issue comes when more established retailers, who should perhaps know better, take a jump below the benchmark figure for a particular product or range. The knee-jerk reaction to this is to price match, as long as the thinnest sliver of profit is retained, and sometimes we have to – but our general view is: what’s the point in moving into the low service, budget end of the market, when there are already plenty of operators there?
Sophisticated price competition is a fact of life in modern economies, and of course is healthy and desirable, but old fashioned price wars have wrecked many industries for suppliers and customers, and are something we don’t want to see in ours. There are only a handful of online catering equipment suppliers that we class as reputable competitors, and these are the businesses, including ourselves, that have the opportunity to influence the market the most.
Dropping prices to attract customers is fine in the short term, but it doesn’t leave you much margin to develop your reputation or business model – it’s a very restrictive model, and almost impossible to backtrack on. What is perhaps worse, the industry is training a generation of customers to obsess over price alone, which has a knock on effect when they are comparing suppliers.
Increasingly, we see people opt for cheaper models rather than brands respected for their build quality, and we see a lot more disgruntled customers as a result! Budget brands have their place, but the trend towards more “cheap and cheerful” products is worrying.
It’s not all doom and gloom, though. We know for a fact that good customers, the kind who will keep coming back if you provide good service, will not just buy based on price. There are still plenty who are looking for some level of reassurance that the company that they are buying from can fulfil their order, and support them if something goes wrong.
Unless a number of our competitors stop playing a dangerous price game and instead concentrate more on the quality of the service that they offer, the industry is in for a long and rough ride. We’d personally like to see more of our competitors adopt responsible pricing models and help to improve the state of the market for all involved – customers included, in the long run.