Apr 19, 2009

And Now Drywall?

Everyone knows that when it comes to drywall, it’s all about price. Right? I mean, come on, this is a commodity business guys. Construction is in a massive funk, pricing pressures are debilitating, and smart buyers will find the lowest cost sources they can.

We know what that means. No-name branded drywall made in mysterious factories far, very far from consumer residential markets here in the U.S. But that’s OK, because transport costs are (usually) low, and heck, it’s only drywall, not food or baby toys…

Now comes homeowners in Florida (see WSJ article), moving out of their houses because of fears about toxic effects of cheap, but allegedly dangerous, overseas drywall used to build their homes and the freshly painted bedrooms for their kids.

New school marketers are carrying the flag of a forgotten, but basic, Marketing 101 principle:

VALUE = Benefits – Costs

In contrast to how old schoolers use the term, Value is not to be confused with low price. While it’s just common sense, it seems that reliable, safe, high quality product is indeed part of the benefits most consumers are seeking. Much of the responsibility for ensuring those benefits rests in channel systems, and with commercial buyers. Managing by Gross Margin, while it leaves plenty of time for the quick golf game or long lunch, does little to address the more complex supply chain and distribution trade-offs that a relentless pursuit of lowest price surfaces.

I’m reminded of a little story a CEO told me about his eye-opening negotiations with mid-level buyers at a major home improvement chain. The buyers indicated that if the branded product CEO didn’t get his sales team to lower their prices down to foreign import levels, they would push the products off the shelf and substitute lower cost house brands made  overseas. He knew how those price points were accomplished: using inferior and unsafe materials, cutting corners on design specs, etc. He refused to play the game for both moral and business reasons.

Consumers demand and expect that the entire system that delivers them a product or service – at any price point – is trustworthy. That means the product itself (WHAT they buy) as well as all the activity that occurs in the channel system (HOW they buy).

A new generation of business leaders is going to have to clean up the messes left behind by the old school guard and their advisers who thought so much about efficiency and low price that they forgot about the end customer. Big changes to come!

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