I stared at the email and fumed. What do you mean we lost the business?
Oddly enough, this wasn’t driven by pride or ego. I was dropped into this mess as the “clean-up crew”, with a mandate to do whatever was necessary to get an unprofitable business back on track. I couldn’t care less which customers we won or loss.
Unfortunately, we had identified that customer as a key account in the competitive Las Vegas market. We actually HAD given them our best price on the product, offering the item at break-even pricing to protect our flanks elsewhere in the account. On a generic spec, commodity grade version of the item. Where we had the lowest cost in the wholesale industry.
And we had just… been owned. Not merely losing the business, but getting buried (by Vegas standards).
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 deliver 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…