Background

Harry was in the ready-mix concrete business. With lots of constructionand developments underway, concrete was a good business. Like hiscompetitors, Harry ran a busy yard lined with trucks loading sand,gravel and cement for construction sites.

The Problem

To customers, unfortunately, concrete was concrete -- anundifferentiated product called a commodity. Harry noticed the firstthing contractors asked on the phone was "What's your price on a yardof concrete today?" Then they called three or four other ready-mixplaces to find the lowest price that day.

It was easy to be caught in a "race to the bottom": low prices,skimping on the mix of materials, paying the lowest wages, using poorlymaintained equipment, giving poor service -- and ultimately gettinglittle or no profit.

The Solution

Harry decided he didn't want to race to the bottom. He had to dosomething to rise above the pack. After we analyzed the problem, Iworked with Harry to develop a script. He began by asking contractorsquestions that showed his expertise about the applications of concrete.

First he asked, "Before I tell you my price, tell me what you're goingto use it for?" If it was for footings or for sidewalks, curb andgutter or for wellhead seals, his next questions was, "Whatmunicipality are you pouring in?" Because he knew the zoningdifferences, Harry would remind them that the city and county haddifferent requirements." Harry even offering bidding advice, tellingcontractors, "When you get quotes from the other guys, remember to askfor 6 sacks of cement per yard as opposed to 5 sacks, or you'll wind upjack hammering it up and redoing it." Then he'd remind them aboutadditives for surface texture or hardening speed. He even alertedcontractors that some suppliers of concrete had a "standby charge" ifthe trucks had to wait to unload--which he did not.

Immediately, contractors were listening closely to Harry's questions.

By the use of scripts and questions that demonstrated his knowledge ofconstruction requirements, he was able to differentiate his offering.He was not just in the concrete business; he was also in the concreteapplications and the "I'll keep you out of trouble" business.

The Result

Harry became a valuable supplier because the last thing thatcontractors want is trouble from architects and building inspectors.They learned that Harry had the practical knowledge to keep them out oftrouble. And, he consistently got a higher price for his product. Theother suppliers fought the commodity price war. Over 15 years, Harrymade a good living from good contractors who understood that price isnot everything. Finally, having secured his retirement getting a good Harry sold the business.

What happened then is very telling. The person who bought the businesshad a long history in the other end of the concrete business--concreteas a commodity." His answer to the question, "What's your price onconcrete today?" was "What's your best price and I'll beat it." In fouryears, the business was bankrupt.

Commentary

Every business has four components: product, knowledge, service ? andthen price. In my consulting with small businesses, I have found mostof them focus on price, maybe some aspect of product and service, butforget totally about their knowledge - their valuable "extra". Why?Because it is an intangible. But to customers, it is very important andthey are willing to pay for it. It can be the essential difference thatset you apart and makes you offering unique

If you've been in business more than 10 years, you've forgotten howmuch you know - the stuff you learned the hard way. Most of yourcustomers don't have this knowledge. By presenting your knowledge in asystematic way, you differentiate yourself, provide added value to yourcustomers and justify a premium for your offering. Knowledge has value,too.