Client Lies Become the Truth

Bill Farquharson posed this question in a recent blog, The Big Questions I’d Like Answered. “What percent of the time when a client says, ‘Your price is too high.’ are they telling the truth?”

It was an entertaining blog, and some of the questions would be fun to debate over a beer, but I’ll try to address just this one.

For starters, what does the client mean: “Your price is too high?” Does a competitor really have a lower price, or is the price just higher than they want to pay? And are they comparing apples with apples—same paper, same run length, same credit terms, same lead time, same print quality, same finishing?

But, even after you’ve gotten the answers to all those questions, I would still say that clients are telling the truth a lot less often than you’d think. I certainly suspected this when I was selling paper, but the only way to know for sure was to test the water—hold my price until I lost a few orders. Of course, when management is pushing for volume to avoid downtime, this can be difficult.

Talk to sales people. When they lose an order, most of the time they will blame price. But when they win an order, they rarely credit price. So what’s really happening out there?

We got a unique window into the market after an acquisition. We talked to our new sales people, slash former competitors. They asked us why we were always undercutting them on price. We thought they were always undercutting us. We were both being lied to a lot more than we realized. As I used to say, “If they lie to me at 3 p.m., then lie to you at 3:30, by 4 p.m. it’s the truth.”

This explains why paper prices were depressed for more than 20 years—from 1980 to the 2000s. Paper prices are up now. Consolidation and mill closures have brought supply and demand more into balance. With larger market shares, mills have more incentive to protect their price rather than the next order.

Jack Miller is founder and Principal Consultant at Market-Intell LLC, offering Need to Know™ market intelligence in paper, print and packaging. Previously, he was senior consultant, North America, with Pira International.

Known as the Paper Guru, Jack is the former director of Market Intelligence with Domtar, where he also held positions as regional sales manager, territory sales manager and product manager. He has presented at On Demand, RISI’s Global Outlook, PRIMIR, SustainCom World and at various IntertechPira conferences. Jack has written for Printing Impressions, Canadian Printer, Paper 360, PaperTree Letter and Package Printing, along with publishing a monthly e-newsletter, MarketIntellibits.

He holds a Bachelor of Arts degree in Economics from The College of the Holy Cross and has done graduate studies in Statistics and Finance.

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  • http://TeinAtkerson Tein Atkerson

    Love this line:

    As I used to say, “If they lie to me at 3 p.m., then lie to you at 3:30, by 4 p.m. it’s the truth.”

    In research my company did for a paper company in 2009, we interviewed dozens of paper buyers. All cited price as the primary consideration in choosing paper. But, when we delved deeper, almost every paper buyer said they usually chose paper for reasons unrelated to price (end user expectations, environmental criteria, vendor proximity/relationships). The price had to be right, but it didn’t have to be the lowest.

    There does seem to be a delta between purchase intent and actual behavior, and I agree that price is often a popular scapegoat when customers don’t feel like explaining whys and hows of their decision-making.

  • http://LaurelAltman Laurel Altman

    I love this line:
    Paper prices are up now. Consolidation and mill closures have brought supply and demand more into balance.

    And it doesn’t have anything to do with the administration’s new duties on imported paper, eh? Nothing like curtailing competition then raising prices to whatever you like.

    I buy paper all day long and I never lie about pricing. I leave that to the paper companies’ expensive and corrupt lobbyists.

  • http://TomDixon Tom Dixon

    I love this line also… I purchase paper every day and I also do not lie to receive our pricing. I have been called out before…( Called a liar ) and this is what I do when this happens. I forward their competition’s pricing to them PROVING I am not a liar and ask them to NEVER call on me again. I do not lie and I will not except being called a liar. The word spreads pretty fast in our large but small paper arena that all paper buys are not liars…

    As for todays pricing… I believe there is a law against price fixing… isn’t there? seems to me paper mills announced a price increase in a slow paper market at the same time starting in April 2011. Huh ??? How does that work ??

  • http://JackMiller Jack Miller

    I didn’t and wouldn’t suggest that all paper buyers are liars, but as I mentioned, I did have the opportunity following a merger to speak with sales reps who had previously been our competitors. They were often told that they had to lower their prices to meet ours, while we were often told that we had to lower our prices to meet theirs. We were being lied to at 3 o’clock, and by 4 o’clock it was the truth, because we had met the “competitive” price.

    Now who was lying? Was it the printer? Was it the print buyer? Was it the paper merchant? We could never be sure.

    In the comments there is a suggestion of price fixing and a suggestion of imposing duties to raise prices “to whatever you like.” Both of these suggestions are based on mistaken perceptions.

    I can’t say that there has never been price fixing, because I couldn’t possibly know what I don’t know. But I can say that I never saw it, and the markets I operated in certainly did not behave as if there was any such thing. Mills frequently announce price increases, and other mills frequently follow suit, announcing similar increases. But that doesn’t mean that these increases are implemented. Sometime they are – when supply and demand are positive – and sometimes they aren’t, when supply exceeds demand.

    In the latter case, the mills will go to individual customers and say the price increase doesn’t apply to them. Competition eventually results in the price increase evaporating, but there is no major announcement, and some buyers may miss out on the real price. Again: supply and demand determine price.

    As to the duties, and raising prices “to whatever you like,” this is just wrong. The duties apply only to coated mills, and this was led by NewPage. Coated prices were basically flat in 2010, even with the duties, and New Page lost $674 million in 2010. Why? Supply and demand: low priced import form Europe kept prices under pressure. I did say that consolidation and capacity reductions led to higher prices, but this was on uncoated papers, notably uncoated free sheet, which were not affected by the duties.

    Look for an upcoming blog which will talk about duties and coated paper prices in more detail.