CASE STUDY The tale of the zero margins My first sales job was selling decorative paint to retailers in the UK. For the most part identifying their money-making logic was easy; there were those who aimed to pile it high and sell it cheap, and those who aimed for higher margins by offering range and service, with a range of subtle distinctions in between. I had one customer, however, a cash-and-carry, that seemed to use neither of these standard approaches. One day, on inspecting their selling prices I was horrified to find that they were selling at zero margins, which meant that, considering their costs of handling, they were losing money on every sale. I was convinced there must be some mistake, but didn't want to cause a potential crisis by raising the point, so made subtle enquiries. The result: there was no mistake - the prices were as they intended. And so I saw the disaster looming; before long they would discover their losses and drop my products like hot bricks. I resolved to do something about it by persuading them to alter their range. They majored on white paint, the highest volume seller but also the part of the paint range permitting the lowest margins due to fierce competition. If I could get them to take on a range of colours, surely they would start to make real profits? For six months I cajoled, badgered, nagged and bullied, all to no avail. I even suggested a trial of colours on sale-or-return and was astonished by their rejection of my generosity. Finally they took me aside and gave me a little education. I was reminded that they had negotiated particularly long payment terms -90 days instead of the normal 30- and that as a cash-and-carry they offered form of credit. White paint had a fast rate of stock-turn, faster than the arrival of the invoice, meaning that my product gave them a very nice cash generator. If I cared to look at their other ranges, they said, continuing my education, I would note that they did much the same on all lines, zero margins were the norm. Their money-making logic was the generation of cash that they put to other, more remunerative uses, in other parts of their business empire. My efforts to get them to stock slow-moving colours were entirely counter to that logic, so I could hardly be surprised by their rejection of my proposals. Once I knew the truth of the matter we proceeded from strength to strength, majoring on fast-selling lines purchased in bulk to maximise discounts – all very simple. The lessons learned were obvious ones. Don't make assumptions about the customer's money-making logic based on what other customers might do. Ask the customer what makes them different from the norm. Don't waste time on inappropriate value propositions. Be happy with simplicity. Case Study - The tale of zero margins Review the case study on page 200. 1. What is the basis of their money making logic? 2. How can you best contribute towards their success now knowing there money making logic (products or services)? 3. What rewards do you expect for your efforts?