I stared at the email and fumed. What do you mean we lost the business?
This wasn’t driven by pride or ego. We really HAD provided them our best price, quoting a pricing level where we should have been assured of victory. This proposal was offered at break-even pricing to protect other business in the account. On a generic spec, commodity grade product. Where we had the lowest cost in the wholesale industry.
And we had just… been owned. Not merely losing the business, but getting buried.
I picked up the phone and called our sales representative. The usual street intelligence process hummed and we confirmed that we had indeed been underbid, by a food distributor. Taking the business just above their product cost using a “paid for” truck. A couple of pallets of prime rib for the free buffet apparently generated more than enough margin to cover the delivery cost of the run.
Doing the math, this particular competitor turned out to be an even worse threat than a fellow janitorial supplies distributor. The janitorial supplies player would have operated with a similar cost structure to ours, which they would have needed to cover by earning margin on a similar assortment of products.
We got run over by a “paid for” truck – any margin they took away from us was pure profit…
Moving beyond the gritty world of janitorial supplies distribution, you see this same adjacency risk in many other industries. Amazon has leveraged their demand to pivot into cloud / web hosting (AWS) and logistics (FBA and other programs). Their strong existing demand allowed them to pivot into the space with a highly efficient cost structure vs. the incumbents.
Your most effective future competitor is probably lurking in adjacency…