Discount pricing impacts safety

May 1, 2006 By    

Have you ever noticed that certain products maintain their margin, while similar products are discounted to death?

Take groceries for example. We’ve all shopped at discount and premium stores. Sometimes, we shop at one store for basic items and another for special occasions and gourmet meals.

 Jay Johnston, LP/Gas Magazine Columnist
Jay Johnston, LP/Gas Magazine Columnist

Demographics tell us that discount shoppers may outnumber premium shoppers, but market share at discounted value does not always translate to profitability. When value-based marketing is properly leveraged, premium stores generate higher profits. It’s called a value-based experience.

This has been a tough year for selling propane. Even with planned growth, many marketers are down 12 percent from last year’s gallons due to warmer weather, economizing customers and the higher cost of product. Across the nation, some folks just turned down the thermostat and threw another log on the fire. Profitable margins will be critical.

Have you ever examined your customer base to determine what percentages of your customers are discount shoppers versus those who willingly pay a small premium for value based service?

Marketers with higher margins avoid getting pulled into a discounting war. They know they must make a profit to provide safety services, employee training and pay for new equipment. By design, they defer less profitable customers to their price cutting competition.

People buy based upon the experience and image of your company. Company name recognition, hometown history, quality reputation, supply capabilities, keep full contracts, pre-buy incentives, safety inspections, newsletters and 24-hour service are values one and all.

Propane safety is all about selling value. I believe it is a requisite to long-term success and the achievement of safe growth.

What type of experience are you offering your customers? Do you provide value or are you just the low bidder?

It’s the reassurance of peace of mind regarding safety that will best sell a premium price. Sharing honest reasons for your costs as they relate to quality service and safety will add understanding to your customers buying experience in many ways:

  • The customer will place a higher value on your company and products.
  • The account will be safer for the comprehensive way in which you discuss quality, value and your concern for safety.
  • Documenting safety communications by securing the customers signature will keep them invested in the process.
  • You will effectively reduce the likelihood of untrained, unauthorized work on the system.
  • The account will be profitable for a longer life cycle compared to the average discount customer.
  • Insurance companies will credit your company for those extra loss control efforts.
  • By maintaining margins, you grow by design through increased profitability.
  • With increased profitability you create greater valuation in your business.

I understand selling prices tend to be set by the competition, and that it’s the fine art of managing operating costs that creates margins. However, when commodity selling creates thin margins, safety efforts usually go on a diet.

“We’ve slashed our safety budget, so be extra careful” is a bad company safety motto.

I don’t understand how price discounters can stay in business. Those who do not effectively promote safety to their customers are asking for future problems.

Next time you are faced with an issue involving discount pricing, ask yourself: “How will this impact safe growth?”

Jay Johnston (www.thesafetyleader.com) is president of Jay Johnston & Associates, specializing in insurance and safety strategies, specifically tailored for propane marketers. He can be reached at 952-253-2710.

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