Page 45 - GS140601
P. 45
Education
As this has become increasingly common in our area, Sometimes when a new
we asked members of GS Online's MLS Forum whether
they, too, had been experiencing rate marginalization in company is attempting
their respective markets. The answer was a resounding
yes with user StreetSweeper, who told us, "The Greater to enter a market, it will
Phoenix market is hyper competitive." User Mbruno
stated, "I'm not sure there's a segment of this industry that undercut the pre-existing
has not experienced rate marginalization."
players in a bid for market
What contributes to rate marginalization? share. This can only be
This brings us to the question: What allows rate
marginalization, or a price war, to occur? There are two an introductory strategy,
primary factors that lead to this phenomenon in our
industry, and they are paralleled in the pizza war of New though, or else the new
York's 6th Ave:
entrant will impact its own
1. Lack of product differentiation: When a product
or service is viewed as a commodity, something long-term sustainability.
constant regardless of who the seller is, it makes no
difference to buyers where they obtain it. All that
matters is how much they paid for it. When both User Steve Norell stated rate marginalization forced
slices of pizza taste the same, does it matter whose his team to become more aggressive; they decided to
name is on the seller's awning? This becomes a build in-house "value added products" (VAPs) to expand
large factor in our industry when a merchant level their offering. MLS Forum member Truth echoed the
salesperson (MLS) brings no additional value to advantage of technical know-how. He noted how grateful
the table and is unable to sell on anything except he was for his technology background and the leg up
price. In an environment where a salesman's only he felt this expertise provided. He stated that without it
means to acquire business is to lower profits, it "you will continue to appeal [only] to the small merchant
quickly becomes a race to the bottom in a zero- that is resistant to technology changes." Truth added that
sum game. without that knowledge, ISOs and MLSs would have to
look outward for their technological products, and turning
2. Penetration pricing: Sometimes when a new to VARs would likely become the only opportunity for
company is attempting to enter a market, it will growth.
undercut the pre-existing players in a bid for
market share. This can only be an introductory Technology appeared to be a common theme through
strategy, though, or else the new entrant will the conversation. User Mbruno commented that price
impact its own long-term sustainability. An marginalization caused his team to place focus on
example of this would be a new MLS willing to developers instead of solely on sales agents. "The addition
price his or her first accounts negligibly for the of developers to our sales teams has already netted some
purpose of simply getting some experience and big results and there's a lot in the works right now poised
volume in his or her portfolio. However, this for even bigger results," he wrote. As they say, when one
cannot remain the constant, or it will take far door closes, a good salesman will create a newer, better
too long to build a reasonable residual stream. window.
When Joey's Pepperoni opened by 39th St. the
proprietors thought their $1 slices would be the Forum member StreetSweeper also brought to the table
key to driving business their way. Unfortunately, the importance of relationships and honest communication
this act only started a downward spiral of with merchants. He stated, "When one cuts through all the
dwindling profits for all parties involved. smoke and sales hyperbole, owners understand when you
How do you defend yourself? talk with them about protecting margins. Any business
owner not watchful and protective of their margin is soon
We asked the forum if rate marginalization has affected out of business."
their business strategy and offerings. We received
excellent and thoughtful responses from our fellow This is an excellent point, but StreetSweeper noted that
salespeople. this will not work with everyone. Merchants who need the
lowest price, because success within their market niche is
45
As this has become increasingly common in our area, Sometimes when a new
we asked members of GS Online's MLS Forum whether
they, too, had been experiencing rate marginalization in company is attempting
their respective markets. The answer was a resounding
yes with user StreetSweeper, who told us, "The Greater to enter a market, it will
Phoenix market is hyper competitive." User Mbruno
stated, "I'm not sure there's a segment of this industry that undercut the pre-existing
has not experienced rate marginalization."
players in a bid for market
What contributes to rate marginalization? share. This can only be
This brings us to the question: What allows rate
marginalization, or a price war, to occur? There are two an introductory strategy,
primary factors that lead to this phenomenon in our
industry, and they are paralleled in the pizza war of New though, or else the new
York's 6th Ave:
entrant will impact its own
1. Lack of product differentiation: When a product
or service is viewed as a commodity, something long-term sustainability.
constant regardless of who the seller is, it makes no
difference to buyers where they obtain it. All that
matters is how much they paid for it. When both User Steve Norell stated rate marginalization forced
slices of pizza taste the same, does it matter whose his team to become more aggressive; they decided to
name is on the seller's awning? This becomes a build in-house "value added products" (VAPs) to expand
large factor in our industry when a merchant level their offering. MLS Forum member Truth echoed the
salesperson (MLS) brings no additional value to advantage of technical know-how. He noted how grateful
the table and is unable to sell on anything except he was for his technology background and the leg up
price. In an environment where a salesman's only he felt this expertise provided. He stated that without it
means to acquire business is to lower profits, it "you will continue to appeal [only] to the small merchant
quickly becomes a race to the bottom in a zero- that is resistant to technology changes." Truth added that
sum game. without that knowledge, ISOs and MLSs would have to
look outward for their technological products, and turning
2. Penetration pricing: Sometimes when a new to VARs would likely become the only opportunity for
company is attempting to enter a market, it will growth.
undercut the pre-existing players in a bid for
market share. This can only be an introductory Technology appeared to be a common theme through
strategy, though, or else the new entrant will the conversation. User Mbruno commented that price
impact its own long-term sustainability. An marginalization caused his team to place focus on
example of this would be a new MLS willing to developers instead of solely on sales agents. "The addition
price his or her first accounts negligibly for the of developers to our sales teams has already netted some
purpose of simply getting some experience and big results and there's a lot in the works right now poised
volume in his or her portfolio. However, this for even bigger results," he wrote. As they say, when one
cannot remain the constant, or it will take far door closes, a good salesman will create a newer, better
too long to build a reasonable residual stream. window.
When Joey's Pepperoni opened by 39th St. the
proprietors thought their $1 slices would be the Forum member StreetSweeper also brought to the table
key to driving business their way. Unfortunately, the importance of relationships and honest communication
this act only started a downward spiral of with merchants. He stated, "When one cuts through all the
dwindling profits for all parties involved. smoke and sales hyperbole, owners understand when you
How do you defend yourself? talk with them about protecting margins. Any business
owner not watchful and protective of their margin is soon
We asked the forum if rate marginalization has affected out of business."
their business strategy and offerings. We received
excellent and thoughtful responses from our fellow This is an excellent point, but StreetSweeper noted that
salespeople. this will not work with everyone. Merchants who need the
lowest price, because success within their market niche is
45
