We interrupt this column for an important announcement: Price matters. Yes, it's time to face the facts. Whether the buyer's a middle-income consumer or a multi-million dollar corporation, the key driver of the "buy" decision is price.
Now that might sound intuitive, yet many of us have been propagating a far different story over the years. For decades, business press editors, consultants, researchers and analysts have been proclaiming that price is only one of many criteria used by buyers (both individual consumers and businesses) choosing among roughly comparable products and services. Not only is it just one of many criteria, the story goes, but it doesn't even place all that high on the list when buyers rank the many factors.
Bunk! Those claims are half right at best. Fact is, people and businesses care about price, and they care deeply. Indeed, recent reports on consumer spending patterns indicate buyers may care more about price than just about anything else.
Consider the fastest-growing segment of the retail sector: the so-called "dollar stores." At a time when year-over-year sales declined in retail specialty stores overall and even powerhouses like Wal-Mart saw scant growth, 99 Cents Only, Family Dollar and Dollar General all watched sales climb at a steady 4-percent clip.
And we're not just talking poverty-stricken pockets of Appalachia, northern Maine or the rural South. The fastest-growing outlet in the 99 Cents Only chain is located in Beverly Hills, Calif. That's right, nestled right up with the swanky shops of Rodeo Drive, you have the fastest-growing store, in one of the fastest-growing chains, in one of the fastest-growing segments of the retail economy. And the growth is driven by price. Not quality, not style, not customer service. Price!
In the logistics world (and in the transportation sector, in particular), study after study has downplayed the importance of price when companies select freight transportation services. Regardless of who conducted the survey—professional associations, magazines, colleges or consulting houses—the research into what propelled the "buy" decision invariably concluded that the service's price ranked somewhere well down the list of buying criteria. Almost to a one, the surveys showed that factors like reliability, low damage rates, high-tech tracking and tracing capabilities and billing accuracy overshadowed price.
Yet these studies inevitably left carrier executives and sales reps wondering where all these logistics buyers who cared so little about price were to be found. "Show me a company that wants to buy my services without regard to price," they'd say, "because I can get rich selling to people like that."
Sadly, it seems, those people do not exist. The surveys that say otherwise are simply delivering the results the authors wanted to hear or confirming what respondents believed they should say—that price is only a secondary consideration. Secondary in the research labs and consulting houses, maybe, but not at the bargaining table. Considerations like ontime service, damage-free handling and good customer service are just the ante: you don't get to the table without them.
Any lingering doubts will be dispelled in the weeks and months ahead as several market forces converge to drive LTL freight rates higher. To offset rising costs (especially for insurance), LTL carriers are demanding higher rates, and with tightening capacity, they may be able to command them. But the carriers that find ways to hold rate hikes to a minimum will find shippers flocking to their doors. Because in the end, price matters.
Gartner, Inc.
