How to Get A Premium Price For a Commodity


#1

A while ago I read Mort Mandel’s book It’s All About Who You Hire, How They Lead… and Other Essential Advice from a Self-Made Leader. For those that don’t know, Mort Mandel founded industrial part and electronic component distributor Premier Industrial Corporation in 1940.

Wikipedia adds:

During Mandel’s 36 years as the Chairman of the Premier Industrial Corporation, the company had 34 years which ended in profit growth and in 30 of those years, its net profit after taxes, was more than 10% of its business operations.

Now how did Mort turn Premier into the world’s leader in a commodity business? How did Premier build immeasurable intangible value? Velocity. Using Difficulty to Their Advantage. Below, Mort recounts one example of how Premier did it:

At 11am on a Saturday in 1990, a representative from one of our biggest customers, Disney, called our Orlando branch office. The phone was answered even though the office was closed because we had 24-hour coverage seven days a week

A major amusement ride at Disney World was down. Disney wanted to know if we could get them a part needed to get their ride up and running. A representative called our warehouse in Chicago. That part was immediately picked off a warehouse shelf and driven to O’Hare Airport for a 2pm flight to Orlando. In Florida, the salesman on the Disney account met the plane at out 4pm, jumped in the car with the part and called Disney to let them know that he would arrive there in less than an hour. At about 4:40pm he pulled up to the gate where they were waiting for the part. A Disney mechanic installed the part in minutes and the ride was up and running at about 5pm. Total downtime roughly 6 hours. Disney feared that it would take until mid day Monday to get that ride back in operation. So instead of actually losing 6 hours, the company assumed it would lose a couple of days.

Disney estimated that the downtime in this equipment would have cost it $1,000 an hour. Bottom-line, we may have saved our customer as much as $20,000 by responding so quickly and flying a $42 part from Chicago to Orlando and then having a salesman drive it straight to the park on a Saturday afternoon. Two weeks later our branch manager in Orlando got a phone call from a senior executive at Disney. “I have your invoice for $42,” he said. “I know what you guys did, send me an invoice for $500 or something. I’m embarrassed that you are not charging enough for what you did.” Our manager responded, “You are a valued customer. We send you many shipments during the year. Most of it goes through smoothly and we make a nice profit on it. When you need us, we’re there and we don’t charge extra for that.”

How many times do you think the executive at Disney told that story? What do you think happens when someone walks into Disney and says, “I know you’re buying your parts from Premier. Whatever you are paying, we’ll give them to you for less.” He most likely would turn that person away.


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Consistency Matters
Intelligent Fanatics June 2018 Digest