Don't be tempted to cut prices

Antony Byford says supply chain disruption caused by the Thai floods show that discounting is not always the best way to recover

The Thailand floods were a disaster that affected millions of people. Any problems we have suffered from the subsequent product shortages and higher prices for disk drives and PCs must be kept in perspective.

But we can learn some business lessons from the events in the weeks after the floods.

A number of things happened, some of which were just about common sense, while others seemed more akin to exploitation and profiteering. Signals of course could be mixed as the situation changed rapidly from one day to the next.

On the whole, disk drive vendors seemed to behave responsibly. They did their utmost to switch production to lines that could most readily meet demand, and produce the maximum number of drives from the components available in the supply chain.

They did, however, increase their prices. This of course is a simple function of economics: if products are scarce, you have to find a way to limit demand, and higher prices will always do that.

But some may have asked whether it was fair to put them up so much. Those higher prices had to be (or will have to be) passed on or absorbed by the channel and the customer.

There is no question that some companies within the channel supply chain have attempted to exploit the situation, to the point that some buyers simply turned away and looked elsewhere or deferred IT buying decisions or IT projects. This helps no one.

Some prices have already had to be reduced from those over-inflated levels to persuade customers to come back into the market.

We deliberately held our prices as firmly as possible as we do not believe it would be right to make excessive profits from a shortage that was nobody's fault.

But what we – and I think everyone across the channel who has tried to be equitable about the situation – will have discovered during this time is that customers are willing to pay a little bit more for the technology they need and value.

There will always be a limit to what they are prepared to pay, especially while the economic outlook remains so uncertain. But they are still prepared to pay a fair price for things that deliver genuine value and benefit to them and their businesses.

Sometimes, understanding and articulating any advantages might seem harder than simply cutting prices or going to the distributor for a special bid price, but if customers are willing to pay a little more, it is surely worthwhile.

Today more than ever it is important not to undersell the products and services we provide – and an extra few points of margin can make all the difference, not only in terms of profitability but in flexibility to invest in training and service level improvements.

Budgets are under severe strain, and it is always easy to reduce prices just a little more to close a deal. However, we can probably can – and perhaps we should – place a little more value on what we offer. We might find that customers will agree.

Antony Byford is channel sales manager for UK and Ireland at ZyXel Communications