I try to avoid cable TV as much as possible for fear of getting sucked into watching another new reality show where people rummage through storage lockers, hunt for alligators or eat deep-fried insects all around the world. But I gave in to channel-surfing a while back and came upon a show that seemed mind-numbingly mundane ... and yet I couldn’t look away.
What both attracted me to and horrified me about this show is that it’s built around a business practice that some restroom contractors fear will have a huge negative impact on their industry. The show on the A&E Network is called “Shipping Wars”, and it’s a showcase for a business tool called the reverse auction.
DRIVING PROFITS DOWN
In the program, a group of independent truck drivers compete with each other to land oddball shipping jobs, moving things like collector cars, antique furniture or bulky mechanical parts across the country. Each episode starts with the truckers staring at laptop computers, getting ready to join an online auction for a number of projects.
When the auction opens, they throw out their best prices in a flurry of bids. Each can see what the other is bidding, and trucker A might not like trucker B, so he undercuts him. Trucker C is desperate for work, so he bids lower. Trucker D puts on his thinking cap and determines the narrowest profit margin he can accept and bids it lower. The price is invariably drilled down so low that the winner has no idea if he or she will come out ahead after hauling an item halfway across the country.
“I’m not sure I can make any money on this job,’’ the winning bidder might say into the camera. “But at least I kept so-and-so from getting the work.’’
After each trucker lands a job, the show follows their trials and tribulations as they deliver the loads and collect their pay. It’s a high-stakes game where one tire blow-out or serious traffic snarl can leave these shippers with no profits at the end of a stressful workday.
IT COULD HAPPEN TO YOU
A few years back, experienced portable sanitation contractors working in Florida complained to me about construction companies, in this case national homebuilders, employing online reverse auctions to whittle down the price for restrooms placed at multiple locations. Uncomfortable with the idea of competing to see who could give the lowest price, these contractors were doing all they could to resist the urge to bid. The auctions they did join ended up with winning bids so low the contractors couldn’t see how there was any profit to be made.
These bidding wars go against everything established PROs have come to believe about operating a successful service business. When the profit margin is razor thin, contractors have no money left over to upgrade equipment, pay workers a fair wage and offer benefits, join trade associations and train employees on best practices. Little things like uniforms, nice-looking graphics on the trucks and a website built to enhance marketing will fall by the wayside. Professionalism will suffer and the industry will take a step backward.
And knowing you’re involved in regular cutthroat competition with other contractors in your region will take its toll, too. You will be less likely to build cooperative relationships with nearby PROs to lease equipment back and forth, partner to serve major event customers or even work together to solve growing disposal issues in your community. Nobody wants to do business that way.
The housing collapse may have put a damper on construction-related reverse auctions in Florida, at least for a while. But with improving technology making real-time auctions more workable and programs like Shipping Wars showing how to cut prices to the bone for small business service providers, don’t expect the idea to be gone for good.
THE USHIP PHENOMENON
The reality program is built around the online auction listing company, uShip, which brings customers and shippers together to move thousands of items every day. Since its founding in 2004, uShip has used emerging technology to make reverse auctions easily accessible to consumers and allow anyone with a pickup truck, a trailer and a gas card to join the transportation industry.
Take a look at the uShip website and you’ll see many customers are happy with the service. They report shipping jobs were handled professionally and on time. They applaud the website for a convenient way to reach multiple shippers and say the prices they paid were reasonable and often cheaper than they expected.
According to the Dartmouth Business Review, companies employing reverse auctions – or e-procurement – have been able to save 8 to 15 percent on average when buying supplies. The concept started with major companies like General Electric, according to the report from Dartmouth, but the tool has been adopted for a myriad of business-to-business transactions. A huge benefit is automating the purchase process to involve many more suppliers than was previously possible.
The Dartmouth study and others say reverse auctions have a downside for buyers because of the potentially deteriorating relationships with suppliers and ill feelings between suppliers competing for business. In some respects, the buyer should want suppliers to remain profitable and viable, said author Sandy Jap in a report for the Harvard Business Review.
“Some suppliers cannot sustain sharp price reductions over the long term. Yes, buyers may enjoy savings the first few times they run an auction, but those savings may come out of suppliers’ profits,’’ Jap said. “Those suppliers that can’t compete at the lower price levels will eventually be forced out of the industry, or there may be a consolidation of the supplier base. Either way, buyers end up with fewer alternatives, and bargaining power shifts to suppliers.’’
MAKING THE CASE
Restroom contractors should be armed with a few good arguments against the use of reverse auctions in the event their customers entertain the notion. It’s conceivable the tactic could be tried in a variety of areas, from the residential construction mentioned earlier, to large special events or government contracts to serve military bases, for example.
Here are a few talking points to pull out if you hear customers raise the issue of reverse auctions:
We’re here for you.
Loyalty is critical to the success of small businesses. When you hire our company over and over again, we’re going to bend over backward to make sure you’re happy. You know our manager, you recognize our technicians, and when you call, we’re going to answer and respond. You can’t expect that level of service when you hire the lowest bidder every time.
Longstanding relationships pay off.
There is a cost to reverse auctions that customers forget about when they see prices spiral downward: Every time you change a supplier, you’re incurring office expenses to switch invoicing, and managers are spending time training the new supplier to comply with your company’s policies and procedures. What does it cost you in lost time when you have to show a new restroom contractor where units go at special events and bring them up to speed on your service expectations?
Your customers deserve the best service.
I may not be the cheapest, but my drivers will show up to your event on time, wearing uniforms and well-trained to satisfy your customers. At the profitable price I charge, I can deliver consistent service from experienced technicians, clean, well-maintained service trucks, and most importantly, accountability. If there is a problem, you know I’ll show up and take care of the mess. Your loyal customers are worth the extra expense.
You get what you pay for.
If you drive the price for restroom service to a bare minimum, you’ll get the minimum service. You may expect the low-ball contractor to show up every seven days, but he may stretch that to 10 days to try to retrieve a profit. You want the best deodorant products, but the low price might necessitate less effective odor control. You want to call 24/7 in case of an emergency? They might not answer the phone.
You don’t want surprises.
You can’t afford to have something go wrong, especially with the sanitation you provide on the job site or at an event. Imagine a dirty or overflowing restroom due to neglected service. If that happens once, you could lose a customer for life. One call in the middle of the night from a frantic, disgusted customer will wipe out all the good feelings you had from getting a cheap price for restroom services.
