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Quality = Price! Fact or Fiction?

07/18/09

  11:18:18 pm by Blogger, Categories: Latest News, Personal Care Trends


Lately we have been getting so many phone calls from customers who are unsure about the stability of pricing, in the industry, that we decided a post was necessary to help everyone gain some perspective about the personal care market and hopefully offer some reassurance.

There have been a couple of ingredients that have gone up due to rising cost of feed stocks but, the market is stable. The pattern that you are all seeing with some wholesale companies and their rising prices is not due to a market increase. We suspect that they are increasing their prices because the state of the economy has been down for long enough that the consumer has been trained to accept price increases with no questions asked. The truth is that most manufacturers will increase their prices by about 3 to 4% per year, if at all. Every now and then there is a higher increase due to mergers and acquisitions, but that is not the norm.

While our competition is increasing their prices we are still focused on meeting our long term goals of streamlining our operation, and becoming more efficient, in order to keep our overhead under control and keep our prices from going up without justification. Sometimes we can even manage to keep our prices stable even when those prices have gone up. While the price of feed stocks and plastics were skyrocketing last year, and everyone was increasing their prices, we managed to maintain stable prices and ride it out, through adaptation and efficiency. Now that the market has stabilized, those prices have come back down and our customers never felt the effect of that unstable market, like so many others did. There are times when prices will go up due to permanent changes in which case the price will stay up and there is nothing that any of us can do about that, however, we believe that it is a supplier's responsibility to understand, and know, the market enough to know when the increases are due to instability, and will be temporary, to avoid over-reacting. Have you ever wondered, when a company shows a 30% price increase based on a temporary market increase, why don't those prices go back down when the market price goes back down? Most of our competitors increased their prices and have just kept those increased prices in place and are now enjoying an unreasonable profit, at their customers expense, because the market has stabilized and the prices are no longer justified. Just like the gas prices at your local convenience store, which have been fluctuating so much that now no one even questions it anymore, our competitors are increasing their prices because it is accepted as just part of what is happening in today's economy.


We recently took issue with a manufacturer with that same attitude and when we put them on the spot for not bringing their price back down now that they can't justify the price increase that they implemented in response to the unstable market last year, which has now stabilized, their response was that now they need to keep the increase in place to stay in business because their sales are down and they're not making their profit even with the increases. Needless to say, we no longer do business with that manufacturer, who is clearly not operating efficiently and we refuse to pay for their inefficiency because if we pay for it then our customers will also have to pay for it and they won't have had the opportunity to decide that they were willing to do business with and inefficiently run company, but think about it, that is exactly what you do everytime you place an order through one of your suppliers. You are supporting their business decisions and their choice of companies to do business with. We recognize that support and know that to make that kind of decision wouldn't be fair to our most valuable asset...our customer. We believe that a company who can't stay in business without robbing their customers shouldn't be in business and we won't support them.

Those, more expensive, suppliers tell their customers that it is due to a quality difference. Not true! That is just something that those more expensive suppliers tell their customers in the hopes that they will believe it and buy from them instead of their competition.


More than ever before we are getting calls from customers who have realized that we carry a lot of the same ingredients that are being offered by other suppliers. That has always been true. Those callers want why our prices are much lower if they are the same ingredients and there is no quality difference. If it is a ingredient that is only made by one manufacturer then it is, obviously, the exact same quality. Those, more expensive, suppliers tell their customers that it is due to a quality difference. Not true! That is something that only those high priced companies who can't justify their prices will say to keep, or get, you buying from them instead of their competition!

The prices that a re-seller will set for their customers is dictated by much more than the quality of an ingredient. The selling price is dictated by their overhead, which encompasses everything from the productivity level of their employees..their basic operating expenses..their average pay scale..their level of waste..the efficiency of their work schedules.. and so on. It is also dictated by their buying power, which encompasses everything from the negotiating skill of their buyers and procurement staff..their familiarity with the market and respective suppliers allowing them to acquire ingredients from the correct supplier with the best price for identical materials..their ability to buy in sufficient quantity to get the best price..their ability to control their inventory levels and buy direct from the manufacturer..their ability to receive deliveries without excessive shipping costs.. and so on.

The math is, actually, pretty simple. If you have two companies buying the exact same material made by the exact same manufacturer and one company is run with extreme efficiency or is a much larger company and the other is run very poorly, or is a much smaller company or is a company that is carrying anything and everything, the one run poorly will have to charge more for that material because they have more expenses and a higher profit requirement and the one that is smaller or is carrying too much, and has reduced their ability to buy in volume, will have to charge more for that material because they are paying a lot more for that same material by buying through a distributor, rather than direct from the manufacturer or because they are buying in smaller quantity. Manufacturers don't care what the total weight of an order is when it comes to the price on any given material, they care how much you are buying of each material.

There are many ways to improve a company's efficiency to keep their costs down which will keep their prices down. Many wholesale suppliers are spending a lot of money just to accept credit cards. They use credit card gateways, which usually takes 1 - 3%, and then their merchant company (credit card company) that takes another 1 - 3%. So for every sale that company makes they are paying 2 - 6% of the entire sale to 3rd party companies. We found one service that does it all and cut those costs in half. We use a phone service that allows us to pay less than half the cost of regular phone lines. We allow those employees who don't need to be in the building to work from home so that we can pay them less and they enjoy the freedom of a relaxed work environment, while supporting the environment, and we gain a happy, loyal staff. We use minimalist packaging because we are a wholesale company and only our customer sees that package. It is our intention to impress our customers with our quality and prices not with a package that just sits on a shelf in the back of the shop, or house. We are always looking for ways to make the company lean without affecting service and quality.

To illustrate this point...we carry and use most of the same ingredients, from the same manufacturer, as those used by Burt's Bees in their high end line. But, all things are not equal. They can retail an 8oz bottle of their body wash for less than we can make it for. Is there a quality difference? Of course not! They are probably buying those ingredients at levels that make our buying levels look like a joke, to the manufacturer, because they are just a much, much, larger company and we say more power to them. We would never dream of attacking their quality, mostly because we believe in operating with dignity and respect, but also because it would be ridiculous.

At Ingredients To Die For one of our key points of focus is on creating a company that is run efficiently with very little waste, highly productive employees, efficient scheduling and low overhead. We focus on these points in order to keep our operating costs under control to offer our ingredients, and products, at better than average prices. There are many ways to do this and offer a high quality product, which is the one area where we are not willing to sacrifice. There are many companies out there that will say their product is better because it cost more, but, in the wholesale business that is not really true. Many of those companies are just making a higher profit per product because they are not true wholesale companies. This company was founded on the idea of finding quality ingredients, through quality manufacturers, in order to make them available to the small business. We are a true wholesale company and make our profit through volume sales afforded by volume purchasing and we pass the savings, wherever we can find them, on to our customers.

We understand that in these times of uncertainty we all need all the help we can get. The economy is not changing nearly as fast as everyone would hope and now more than ever every penny saved can make the difference in you staying open or not. We will continue to operate the same way that we always have and you will not see any across the board, unjustifiable, price increases.

So until next Monday enjoy a 5% off coupon to save a little more on your products. Use the coupon 'CH5Off' during the check out process to save even more money with Ingredients To Die For

Happy Crafting...

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