How to compete with the Power Channel.
We are neither
advocating nor accusing competitors of the practices outlined below.
This information is anecdotal and intended to help independent office
products dealers become familiar with what we believe are unethical
and deceptive practices, which are (unfortunately) practiced by
various large companies in our industry.
Some of what follows is written in a satirical “tutorial” format, based on the assumption that you want to emulate these same unethical methods, and while somewhat humorous, gives insightful detail into the trickery that goes on each and every day.
Make the
bid/contract lists as long and unwieldy as possible:
•Make
sure that your proposals have hundreds of sku's- all with vague and
confusing descriptions and stock numbers. Do this intentionally to
confuse customers!
To Sell Brand or Not:
•
Customer requests pricing on 656YW, which is a 3M branded Post It.
Price the branded item at a very discounted price and then make it
virtually impossible for the customer to order. Price the generic
replacement item at a profitable level.
Use the fine print:
• After a
bid is accepted and awarded, insert favorable language in the
agreement that drives customer to certain catalogs that are priced
favorably or are limited to only generic brands. Use terms that
actually allow you to substitute under certain situations.
Column
Slides:
• Convince customers that discount from list
is bad and place them on a complicated column price that supposedly
drives better pricing on usage. Once on the column, the column can be
moved to gain margin.
Stale
Pricing:
• Common in furniture pricing. Give
customer a custom catalog that shows a discount from list.
Manufacturer's increase the retail price over time, but you do not!
Hoping you do not get caught, the item is advertised at a low price
but invoiced at a higher price. This trick requires that you convince
the customer that using the web for furniture pricing is bad, very
bad. If you are caught, you can always blame it on the supplier for
not keeping your information current. Corporate Express does this
regularly.
Bad stock
numbers:
• It looks like a manila file folder, but
the stock number shows something special - and more costly. For
example, #153L folders are shown on a bid list as #153L-2. You bid
the latter, while the power channel bids the former- gaining critical
dollars on you.
Misleading stock
numbers:
• For example, the bid list shows #C15H-GN, but
the power channel is actually quoting #C15H's- which happen to be
green. You are left holding the bag bidding what was
asked.
Unannounced substitutions:
• For
example, #564-01 liquid paper is on the bid list, when no matter what
- the power channel is going to ship #28411 - with impunity - even if
no-subs are shown on the bid specifications!
Shipping
misdirected products- contract sku's sent as off-contract
items:
• The power channel sends out a catalog that
does not show the contract sku's, so when the end-user actually
orders the sku that is shown - the contract sku [which costs less of
course] is shipped ... at the non-contract sku's price. For example,
a Universal ring binder is ordered at $3.00 per the agreed-upon
discount. The binder pulled is a stock power channel binder, which
happens to be on the end-users contract for $0.60. But, even though
the contract binder is pulled, the charges are the non-contract
$3.00.
Stock sku's for cost-plus customers are calculated
at wholesale or bumped-up wholesale costs- not actual direct costs.
Remember, customer does not know what the power channel [or you]
stocks!
• For example, a red one-inch binder costs
$1.00 and the contract states the cost-plus percentage is +20%, or
$1.20. BUT, the wholesaler cost is $2.00 and the binder is actually
sent out at $2.40!
• Power channel has been known to
charge a $75 gas surcharge, or $200 compilation invoice charge - yes,
can you believe!
Bait and
Switch:
•End user requires no subs, but power channel
starts out with a few anyway, just to see if customer objects. Or, go
in after a few months and ask approval to sub. If caught, they may
not sub the purchasing office only - all others are subbed at will!
Playing the
mix:
•After the power channel gets the business, they
will continue on a monthly basis to tweak the variable margin pricing
matrix, always seeking a higher account gross margin. And never
telling the customer that anything is changing. Then, at re-bid time,
they will lower the matrix beforehand - seeking to stave off
competition.
Discounts off list that are anything but:
•
Power channel gives a`50% off discount, but has a 'floor' or 15% [or
28% or 18%, et al], which means that they will give 50% off as long
as their minimum gross margin is at least 15%- which means it is not
in reality a 50% off discount ... and a figurative license to
steal.
Discounts off manufactured list prices - not
manufacturer's list prices:
• It's easy to give 50%
off if the list price is bogus. The power channel plays this game
today and each and every day.
Fix the usage:
•The
power channel commonly puts out usage reports that have bogus
information and/or have purchases left out- making the resulting
`totals' look better. For example, a power channel player sends
reports to the purchasing people showing purchases running at $100K
per month, when in reality- the accounts payable people are
processing $120K per month in invoices. You would be surprised how
often they get away with this! If caught- they blame in on a computer
problem!
Cook usage:
• The
power channel will manipulate usage they are supplying for their
end-user's RFQ purposes in order to give them a huge edge. For
example, if usage for a year is 150 each [or 6 boxes] of #503 Smead
folders; it could `magically' change to 150 boxes. Then, they bid way
below cost on this item because they know the end user buys them
little or never, while you bid anticipating significant quantity.
They can gain thousands of dollars towards the grand totals just by
doing this a few times - which they do!
Nothing extra:
• So
you are a big customer on contract with the power channel, so what?
Do you think you will get seasonal or promotional pricing on special
products? No - of course not! All special pricing is turned off!
Force them to lower
prices! What?
• Walk into an existing Boise account.
Tell the end-user that you are going to save them money without
selling them anything. How? Tell them to ask for some usage reports.
This automatically triggers a response from Boise in which they will
lower prices because the account is so `loyal'!!! Once prices are
lowered, ask why they were charging higher prices in the first
place!
Provide spreadsheet
designating percentage off with no pricing listed at all:
• Flood
spreadsheet with useless information and make a big deal out of a %
off discount starting at 55% but don't provide the list price at all!
Actually no price is designated period!
"Guarantee"
a 15 to 20% savings over the previous year if they switch vendors and
use them.
Corporate Express uses this, and utilizes to capacity
its ability to substitute product and units of measure. In large
contracts it is especially difficult b gauge actual savings, and many
rules and regulations must be adhered to in order to realize the
"savings"
The author of this piece is a former longtime employee of one of the offending companies, and after many years of making a living working for the dark-side, could eventually no longer do business in this deceptive fashion and live with himself. He subsequently resigned his job and became a consultant to independent office products dealers.