Many Logistic’s businesses (especially freight forwarders/brokers) state that many shippers are price shoppers. Therefore it’s best to use a transactional sales model to reach their customers faster than the competition. In this article, I will bust one of the most viable myths related to freight price by providing live stories on this topic. I know that most likely you heard from many others sales consultant’s that price is not a decisive fact in Logistic’s, although we all know that it’s not true. Nevertheless, there are certain situations when the price is not the key factor, and we will talk about those cases in this article. Before going into the bushes, I will shortly introduce myself so the readers can be sure that I’m eligible enough to make such a conclusion.
I’m working in the Logistic’s sector in various key positions for 15 years. I was lucky enough to work on almost every crucial supply chain link. I started my carrier as a sales clerk for an anon asset-based freight broker, then moved on to work for an asset-based transportation company; later, I co-founded a freight brokerage business. And the last ten years of my corporate life, I led a logistic’s department for one significant trading and manufacturing group in Europe. And the knowledge on both sides allowed me to identify mistakes that many of Logistic’s companies are making. To my vast surprise, most companies are making the same mistake – using a transactional sales process to sell logistics services. Furthermore, I’ve noticed that companies that use different approaches take the best customers and operate at a higher margin.
To which basket can we put Logistic’s services to value-added or transactional?
To better understand what I mean by a transactional product, let’s look closer at its definition.
Transactional product- it’s an easy-to-understand product with no meaningful differentiators. The critical, decisive edge of such a product is related to low price and availability. Please see few examples of such products: Toilet paper, laundry services, telephone services. In other words, it’s low-valued services with no risk involved, and the customer either needs it or not. The success for selling such kinds of services and products is rewarded for the fastest and cheapest companies.
To my big surprise, many logistics companies are using the same process for selling Logistic’s services, burning through lists of cold leads, pitching their services straightforward. They do not have any transparent process in mind, just dialing and smiling, depending on the pure luck factor or catching someone who requires such services at the time of calling. And sometimes they do get lucky, but this article is about sales efficiency, not luck or the number of dials.
To begin with, I don’t understand why logistics services were classified as transactional services. Let’s overview typical logistics services. These services are often expensive, some of which are particularly complex (e.g., 3PL / 4PL). It involves not only a selling process but often a complex buying process. Furthermore, logistics service providers are rarely changed (long-term contracts are often signed), and the cost of a mistake is often high. The price is, of course, essential, but trust and service level is a critical factor as well. In my view, the above definition of logistics services does not in any way fall within the definition of a transactional product. Or only a tiny part falls within that concept – for example, a truck in any company is essentially the same as in another one, and most of the time, such services are pretty straightforward (if talking about road transportation services), and yeah, they are either needed or not. However, the logistics service consists of many more elements: customer service, speed, specific knowledge of products, etc.
Of course, it is essential to mention that transactional buyers (price shoppers) are more common in this field. Some shippers do not pay attention to anything else as to freight price. Well, at least until they do not get burned, which eventually happens with all price shoppers.
I already hear many of you shouting – aha, I knew from the beginning that the cheaper freight offers are the key to success, let’s stick with the good old transactional sales process. If such a statement were confirmed in all cases, we would all buy Xiaomi phones, but many of us decide to buy iPhones instead.
What place does the price occupy in the overall marketing complex of logistics services?
I follow up with my earlier statement. Many Logistic’s company owners and managers will say that this is the most critical part. But as I was both selling and procuring Logistic’s services, I can make another statement. The price is undoubtedly the essential element, but it also depends on other elements like value-added services, service levels, speed, knowledge, etc.
I will reveal one secret to you. Early in my career, I was a typical transactional buyer. I was always looking for the lowest price. I used every possibility to push down on price (maybe because I used to sell logistics services myself and wanted to show off). But later, I realized that the stick has two ends, and in some situations, a lower price is not always the best option. So then I started buying logistics services strategically, dividing the total Logistics budget into parts. One part (the smallest one) was meant for price shopping, the other for onboarding new service providers. However, the most significant part was devoted to a few service providers who work permanently and earn a higher margin. So when I talk about a higher price, it’s not like I paid twice as much, of course not, but those carefully selected and vetted providers received 5-10 premium.
And I know that many other companies buy logistics services in the same way. But, of course, there will always be a certain percentage of customers who will always opt for a cheaper service. In addition, there will always be a significant number of customers whose business model is precisely twisted in such a way where logistics costs determine whether or not such a company will make a profit. But every logistics company has to ask itself, do you really want to work with price shoppers only? Or maybe it’s more important to balance your sales operations to ensure maximum growth and profitability? Organizations need to transform their sales operations from a reactive model to a pro-active model to maximize companies’ profitability. It means they need to work on balancing their customers and margins.
Another critical trend is developing in the Logistic’s procurement arena, which is related to pandemics. Pandemics are changing typical tactics for purchasing logistics services. When the availability of services has declined (in some directions), many shippers have realized that if they use the usual “ask, ask, ask, buy” method, they may not have goods on the shelf, which is significantly more expensive in terms of lost sales compared to a few euros more expensive logistics costs. Furthermore, there is a huge chance that we will see a wave of bankruptcies of companies that have not adapted to the changed supply chains next year. Many of those companies that will fall are the price shoppers, as strategic purchasing is critical in minimizing pandemic-related issues. So the pandemic changes not only consumers’ buying habits but also the purchasing of logistics services. And this new shift, I believe, will remain for a more extended period because it’s more sustainable and efficient in the long run.
Therefore, logistics companies that will realize this faster will win the competitive battle in the future and grow faster than their competitors. To achieve this, companies need to balance sales of their services, diversify their customer base between transactional buyers and value buyers, and transform their sales process from transactional to value-creating. I don’t want to say that you need to abandon the transaction model altogether, it works in some cases, but if you only work with such clients, you may end up deadlocked in the long run.
Thank you so much for being so attentive. If you are looking for advice to transform your sales organization from transactional to value creation model, or you are looking for someone to help your employees adopt a sales process meant for generating premium customers, please reach out to us today.
About the author:
Tomas Ananjevas is a supply chain professional with 15 years of proven experience in sales and procurement of logistics services and supply chain strategy development. After 13+ years of corporate life, Tomas decided to open his own company, which helps logistics service providers better compete, implement needed changes and scale faster. Connect with tomas by pressing here.