PHC is a commodity... NOT

 

BY JOHN BARBA

guest writer

 

What is a commodity? My favorite author, Dr. Larry Steinmetz, defines a commodity as a product or a service that is widely and readily available, with no discernable difference.

 

Not bad. If something is a commodity, no one, not even you, can tell the difference between your product/widget or service, or your competitor’s. And the only way you’re going to sell it is if it’s at the lowest price out there. Right?

Now that we’ve set the stage, let’s look at some things that might be considered commodities.

 

Fruit and vegetables are traded and sold as commodities, but are they purchased on the consumer level as commodities? Well, maybe.

 

Most supermarkets sell oranges in a two- or three-pound bag at one price, and then have oranges stacked so shoppers can pick the ones they like and bag them themselves. These oranges are more expensive. They’re also bigger, fresher and tastier.

 

And isn’t there a difference between grocery stores as to the quality and freshness of their produce? The better produce is usually found at the so-called “designer” grocery store such as Byerly’s or Trader Joe’s. It’s also a tad more expensive. Yet they sell stuff.

 

What about milk? Plain, white milk. Whole milk, skim milk, 2%, 1%. Milk’s milk, right? Can’t sell that at a premium price, can you? But yet some stores sell designer milk, or hormone-free, additive-free milk, milked from hormone-free, additive-free cows. And bacteria-enriched acidophilus milk; egad! They sell it for more money, and people buy it. For more money.

You can buy different sizes of milk, too. Pints, quarts, half gallons, gallons. The larger size is a way better deal, but not if you don’t want or need that much. Four quarts cost lots more than one gallon.

 

Are you old enough to remember “generic” food? Back when I was in college, the local A&P sold generic food. It came packed in plain, white containers marked “spaghetti,” or “corn.” It was cheaper than even the store brand, never mind the “name” brands. My favorite was the six pack of white cans labeled “beer.” This stuff was cheaper than Iron City! A couple of cases of “beer” later, however, my friends and I decided the “King of Beers” was a better value than the no-name stuff, which tasted like it came out of a Clydesdale. An unhealthy Clydesdale.

 

So is processed, canned or frozen food a commodity? It’s all the same, right? No difference at all and it can’t be sold at a premium price, right? If that’s true, the folks at Birdseye, Campbell’s and Green Giant better get ready to lock up the doors because the end is most certainly near.

 

Is anything in our business a commodity? Circulators? Relays? Faucets? PEX? Toilets?

 

When I think of commodities, I think of stuff that’s traded on commodities markets by commodities brokers, like Billy Ray and Louis and the frozen concentrated orange juice in “Trading Places.” Grain. Pork bellies. Copper (the metal, not the pipe). A commodity is the stuff someone uses to manufacture other stuff, and is bought and sold on the commodities market.

 

Service doesn’t matter. Technical support doesn’t matter. Delivery doesn’t matter. As soon as an enterprise wants to buy it and use it, however, it ceases to be a commodity because at that point, service, technical support and delivery do matter.

 

Any manufacturing concern will tell you that while price is an obvious concern, it’s only one of many. Any purchasing agent will have his hind-quarters chewed off and handed back to him baked, sautéed and carved into small bite-sized pieces with an appropriate garnish if the stuff he bought so cheap doesn’t show up on time. Or isn’t any good. Or doesn’t meet specification. Or is the wrong size. Or is the wrong color. Or the supplier can’t or won’t support it. You get the picture.

 

I have a friend who’s a purchasing agent at a major hvac manufacturer. I asked her once about the suppliers she no longer does business with, and how many were bounced because of price. She could think of several she didn’t do business with anymore, but she couldn’t think of any that lost her business strictly on price.

 

She could think of several that couldn’t deliver what they promised in the quantities they promised when they promised. She could think of several more whose quality wasn’t as advertised, and wouldn’t help solve the field issues their poor quality produced. But she couldn’t think of any that were bounced simply because their price was too high.

 

So, is plumbing, heating and a/c service and installation a commodity? Are the products you buy at your wholesalers commodities?

 

No and no.

 

If there’s a difference between what you do and what anyone else does, then plumbing, heating and a/c service and installation are not commodities. That means there are factors, other than price, that are important to the customer.

Your customers want you to believe in the commodity mentality, however. They want you to believe that the skill set you possess, the products you sell and the heating system you’re offering aren’t much different from anyone else’s. They do this partly because they may not know any better, but also because it’s to their advantage.

 

If you believe that they believe there’s no difference, then the pressure’s on you to get your price low. It’s the hammer the customer holds. They want you to believe in the myth that says if all things are equal, people will buy on price. They’ll do their best to denigrate, trivialize or ignore whatever unique value-added propositions you’ve developed.

 

Why do they do this?

 

Do they really not care that you have a live person answering your phone? That you have 24-hour service? That you’ve been installing radiant heat since 1987? That you have a proven track record of on time arrival and on time/on budget performance? That you’ve been in business in their town since 1938?

 

They’ll tell you all that stuff doesn’t matter, but don’t believe them. It matters, often more than you’ll ever know. But they’re drop-kicking all that stuff into the river and telling you it doesn’t matter for one reason and one reason only.

They want you to drop your price.

 

Why do they do this?

 

Because they can. And not only do we allow this to happen, we’ve more than likely trained our customers to do it to us.

 

John Barba is Contractor Training and Trade Program manager for Taco, Inc, and has been in the trades since he could walk, carrying wrenches for his dad in the family’s plumbing and heating business outside of Boston. John’s practical experience includes everything from ditch digging and drain cleaning to boiler piping and PEX installing, as well as business management and contractor sales. Since 1995, John has trained more than 12,000 contractors in hydronic heating design and installation.