For those not familiar with this vernacular, a 2×4 (two by four) is a bit of wood, 2 inches by 4 inches in cross-section. It is sometimes brandished as a defensive or offensive weapon. You use a 2×4 to beat someone into submission … or, more correctly, a metaphorical 2×4 … lest you wind up on the wrong side of the law.
This post is about the actualization of the metaphor. Systems admins and support folks will call this a LART. There are several alternative but quite similar definitions of a LART. Ok, we aren’t a LART. We are more of a VART. Change the “L” word to “Vendor”.
This is also a post I have worked on, on and off over the years. I have sometimes thought of writing it, and as a catharsis, I had. Deleting it right away. Wouldn’t make sense to publish it. Or maybe it does. I dunno. So, here it goes.
[Note: I have nothing against Crystal light, my wife likes it, I just personally prefer fresh non-powdered drink mixes … Crystal light is a good product, I am using them as an example of a product which approximates a fresh made product]
Imagine you have a lemonade stand. And you bust your rear, you make some awesome lemonade. People know you work hard, and you describe what you get from your hard work. Your lemonade pricing is reasonable, you are not trying to gouge your customers. Oddly enough, you like your customers. No, really. They have some of the most interesting thirsts around.
But you are a small fry. Not a big fry. Which means in the world of competitive lemonade stands, others try to push you around.
So there you are with your lemonade stand, making your great lemonade. Those who buy from you keep buying from you, and tell their friends. Your business is growing. Your prices are reasonable, your quality is good. You don’t make huge profits, but the business is growing and you are enjoying being a lemonade vendor.
But the big fry, the Crystal Lights of the world, also have lemonade stands. Huge chains of them. And they ship stuff that almost, but not completely, tastes like lemonade. No, its close, but its not quite there. They don’t really know how to make lemonade, they have a few bright people trying to get them there, but they know how to build lemonade stands and they can ship volumes … of stuff that almost, but not quite, tastes like lemonade.
Ok, still with me?
Now along comes a small thirsty person. They really want lemonade. Quality matters to them. Good taste. They know what Crystal Light is. They know they can get better. So they do. Happy customer, happy vendor.
Now along comes a large corporate or university group. All very thirsty. But also focused upon the bottom line. At the end of the day, its not the quality that matters to them, but the cost. They have lots of thirsty people, and while these thirsty people, if left to their own devices, would in fact go for the better lemonade. But they have these people who manage the procurement process, so its all about the cost of the lemonade. Not the quality.
So they ask the Crystal light folks for their price for 100 cups of something that almost, but not quite, tastes like lemonade. Then they call you, at your lemonade stand, because your reputation is growing, to provide your high quality lemonade, at a price point that happens to be a little lower than Crystal light. They don’t tell you they have looked at Crystal light.
You look into this, and worry about your bottom line. Lemonade stands aren’t cheap you know. Lemons cost money. The good ones cost more. Crystal light can leverage its huge lemon buying power to negotiate for lower prices on less good lemons, which enables them to increase their profit margins. You don’t have this luxury, you aren’t buying lemons by the bushel.
But you know that this big important customer is thirsty, and that they will tell other big important customers about what they drank if they liked it.
So you agree, with great trepidation, to provide your higher quality product at a lower price. You know this means that you will have to put off hiring some master lemonade makers you really wanted to hire. The income from this will cover expenses, barely. If they would let you tell others about them, it would enable you to recover some of the value you gave up, in terms of marketing cache. Quid pro quo.
That is, if this large thirsty customer buys from you.
If. They. Buy. From. You.
But that’s not their intention.
Their intention is to drive the price into the ground.
Remember, quality doesn’t matter to them. Lemonade is lemonade in their mind. Even when the lemonade isn’t lemonade … its still lemonade.
What they do is go to Crystal light and point to you. On your lemonade web site, you see the panic’ed bleatings of a sales teams web-browsers trying to figure out why their large and important customer was looking at your stand. You see hits from Crystal light’s marketing team and wonder if they are doing competitive intelligence gathering.
And then the big important customer goes silent. Maybe they aren’t thirsty anymore?
You finally get through and discover that they big important customer has bought Crystal light at a discount that could only mean that Crystal light was paying the customer to take their almost but not quite lemonade product. Their bill of materials costs … the lemons, the water, the cups, the sugar-like substances … all add up to more than what they sold it for.
That big and important customer? That thirsty one? They just used you as a 2×4. And they beat Crystal light into submission with you.
This isn’t a LART, this is more of a VART … Vendor Attitude Readjustment Tool.
Unfortunately, this mode of business has a few … uh … interesting consequences. Not all of them intended.
Yeah, the big thirsty customer gets a lower price. And the lemonade vendors don’t make enough money to keep making lemonade. Which drives them from the lemonade stand business. Remember Lemonade Networx? Being bashed around by large customers has its consequences.
So choice decreases. Lemonade stands shift to more profitable lines of business. Bran muffins. Bagels.
The customer that wanted the lower prices now has less choice in lemonade. There is a cost for every action. And every strategy.
Obviously this is a metaphor, and no, I hold nothing against Crystal light.
We have seen, time and again, our hard work used as a 2×4 to bash other vendors. The trick is to try to detect when this is going on. I have gotten pretty good at detecting it. The hard decision to make is what to do when you detect it.
We don’t relish being a 2×4. This is not our business. We make really good lemonade.