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Bookmark and ShareThursday October 4, 2012

Are you playing chicken or chess?

By Bob Johnson, NAID CEO

I grew up loving the game of chess. My grandfather taught me how to play.

As most readers may already understand, to succeed at chess, players have to think many moves ahead to anticipate the likely reactions of their competitors. In business, we also have to think ahead and anticipate the wants and needs of our customers.

However, when it comes to pricing services, a “race to the bottom” price strategy flies in the face of this principle. When price is the competitive tool, the player essentially engages in a game of chicken, which means he or she is not thinking long term or considering the competitor’s next move. The player disregards how the other guys in the market will react or defend their businesses and, most likely, retaliates by using the price card against his or her competitors to steal profitable accounts. If the price cutters were really aware of the mess they were creating for themselves, they would see they were actually setting up their own demise.

Also, there are some people who might say they are using price to cull the market. They mistakenly believe they can outlast the market. In their “game of chess,” they plan to play the price card until they have run the other guys out of business. When they are the last man standing, they assume they can adjust their prices back to profitability. This has worked in many industries; however, not in the destruction industry. For instance, with some notable exceptions, most of the significant players that were in the industry 12 years ago have been acquired by consolidators but yet the number of competitors today is higher than ever. If a company decided to spend whatever it took to drive away its competitors, as soon as the price rose to a profitable level, every city in the country would have new competitors within a few months. By thinking ahead and considering your competitors’ possible reactions, you can see the fallacy of the “we’ll be the last guy standing” argument. As one NAID member said to me, “When a competitor uses price to get business, they pee in the pool. The only problem is they have to swim in the same pool.” 

Next Tuesday, I will suggest an alternative to the price strategy so stay tuned.

Comments: 3 | Reply

   Robert Johnson    October 8, 2012 5:13 pm | Reply | 0 Agree | Flag Abusive

About all NAID can do in the pricing arena is educate customers about the importance of due diligence in vendor selection. When I say (or write) that it is illegal to select a data-related vendor on price alone, I am not just trying to be cute. That's a fact and likely the title of the next NAID brochure. As for NAID recommending pricing, that is not possible. The government is very sensitive to trade associations getting involved in pricing. As for suggestions and strategies to rise above the pricing wars, that will be the topic of tomorrow's blog. Keep in mind, if I had a foolproof way of doing that, I would be a billionaire. Still, I have some ideas that are worth considering. I'll look for your assessment of their worth after my next blog is posted midday Tuesday.

   Eric Wartel, CSDS    October 8, 2012 4:46 pm | Reply | 1 Agree | Flag Abusive

Bob and Nick, I agree, but only to a point. As a small startup myself, I have been overwhelmed by the steadfastness of my national competition in the area and what monopoly they have created for themselves over the past 7 years. How else is a new company supposed to get recognition by the customer without jumping into violations of price fixing, or the like, to maintain like-service recognition with the "big boys." NAID, by practice, is supported by small independent companies is it not? Most large national shredding companies were once small correct? As I agree with the small guys "peeing in the pool" being a bad idea, I ask for your advice for countermeasures that we small guys need to survive against the capital-rich national companies. With a common goal in mind - making money - should there not be some open communication from the industry, or NAID, as to what pricing should be by region, or something similar? My national competitor does not speak with me or respect my company, so there is no communication or cooperation. So it is boils down to one frustrating question; what is the smaller company supposed to do if they have nothing else to work with but offer lower pricing for the customer?

   Christopher Bashford    October 5, 2012 4:30 pm | Reply | 0 Agree | Flag Abusive

Bob, very well said. I do believe low balling by upstarts are hurting a lot of us. It is very tempting to go to their rate or cheaper to keep the business. We just have to remember, and it is hard to do at times, they will put themselves out of business. No one can operate an ELITE destruction company at $10-$20 a bin. It is impossible. Those of us who have been doing this for years just have to hang in there and let them "hang" themselves. Hopefully sooner than later.

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