Wednesday, January 16, 2008

How can they sell it at that price?

Let’s face it. Business in the Green Industry is competitive and sometimes cut-throat. In recent years, I have had many growers ask me the question: What do I do when another grower is selling product in my market at a price that is below my break-even cost? While there is no perfect answer to this question, I have included several tried and true suggestions below.

  • Sharpen your sales skills. For example, educate buyers regarding your unique selling proposition in terms of your quality, value, service, convenience, and selection relative to the competitor(s). Also emphasize the historic “win-win” relationship you have shared with the buyer – assuming you have one of course. Some examples might include: a) that you have been there when they needed you, b) that you did not gouge them with extraordinary price increases when availability of a certain product in the market was low, c) that the low prices obtained from the undercutting grower are simply not possible at the quality level you typically provide.

  • Go and buy as much of the competitor’s product you can and use it as part of your own inventory – assuming it is of comparable quality or could be within a short period of time.
    Match the price in the short run. A marginal pricing strategy (where selling price is greater than your variable costs but less than total costs) can be used in the short run, but remember that it is not sustainable in the long run. With this strategy, you are attempting to “wait out” the competition until theoretically they go out of business or can no longer afford to compete in your market. This is considered to be more reactive in nature, whereas the first two options are more proactive. You must emphasize to the buyer that this is a one-time phenomena; that you are only doing this because you value their business.

  • Consider the nature of the product they are selling in your market. If the product they are selling in competition to yours has become “commodicized” – that it has become a commodity item that many are starting to grow and carry – then you have the option to quit growing it, or grow a different size, form, cultivar, or variety. In other words, tweak the commodity so that it becomes a differentiated product.

  • Examine your production system and the associated costs of production for that product. It may be that you are using a system that increases your relative costs of production. To do this, you may have to visit other growers, attend educational conferences and workshops, or participate in field tours.

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