DECEMBER 2000 ISSUE
OIL AND CONSUMABLES: MARKETING ADVANTAGE
By Ann Barr

The oil situation in Europe and the U.S. has caused major problems for people who do a lot of driving, as well as homeowners who use home heating oil in the winter. In colder parts of the U.S. where heating a house in the wintertime is a necessity, the cost of oil is expected to skyrocket this year. One local home heating oil company here in Virginia has come up with an effective marketing idea to increase business and save consumers money. This idea can be used by anyone selling consumable products.

Attention-Getting Ad

Last summer an advertisement in our local newspaper caught my eye. It read:

"Lock in your price NOW for heating oil this winter."

Because we don’t yet know how much we will be paying for home heating oil – and because predictions have been all over the board, that was a very timely and inviting ad.

How it Works
If you sign a year’s agreement with this oil company, and pay the estimated cost of oil based on the amount of oil used to heat your home last year, you can lock in your price for the Winter and your price will be guaranteed and protected for one year. It appears as though consumers will save money with this plan, based on the dire predictions about oil prices we’ve heard.

This is very much like the Annual Supply Agreements we used during the many years I sold office equipment supplies. Marketing an Annual Agreement was especially successful just before, during and after a copier manufacturer announced a price increase on toner and developer. One manufacturer of photocopiers raised the price of supplies twice in one year. Most customers welcomed the opportunity to lock in their prices before the price increase went into effect. You can read more about Annual Agreements and get a free Annual Agreement letter at www.sellingsupplies.com click on Sales Tool.

Set Prices – Or Discounts?
If you decide to offer your customers Annual Agreements, there are several decisions to make first. Will you:

1. Lock in the current retail price for a year, or

2. Offer a "special set price" for those who sign a year’s agreement and pay in
advance? or

3. Offer a specific discount based on current retail price when customers sign a one-year agreement?

The best option is to sell an agreement that locks in the current retail price for a year. If you are up against a competitor with lower prices, you may be able to offer a specific discount based on current retail price, as long as your profit margins are not hurt.

Wording Matters
Administratively, the easiest way to structure an annual agreement is to use the words:

"The buyer will accept delivery and billing as noted for these products. Based upon purchase of the above commitment, the supplies will carry a discount of [insert the discount you choose] based on current list price. In the event the buyer should not purchase the minimum quantity, they agree to pay the increase in cost based on the current market price of the lesser quantity."

You can add additional products to the agreement by using these words:

"If additional (different) products are needed, they may be ordered with the same discount stated above, while this agreement is in force."

The reason this wording is easier administratively is because after a year, when the agreement is renewed, you can leave in the same wording, even if your retail price is higher. You won’t need to spend time re-wording and re-working a new agreement at renewal time if the manufacturer has increased its price. The words: ". . .discount of [insert the discount you decide to use] based on current list price. . ."will work with any list/retail price.

Increase Sales and Customer Retention Rate
As we sold more annual agreements, our sales soared. Dealers I’ve worked with – who sell annual agreements – tell me their customer retention rate has increased considerably since they began pro-actively marketing annual agreements.

While a few dealers have told me their customers would never go for this, when I asked a copier dealer in Massachusetts why he has such great success with annual agreements (more than half of his customers pay for a year’s supplies in advance) he replied: "We’ve always done it this way."u

Ann Barr is a consultant and sales trainer with 19 years’ experience in Sales and marketing. ENX readers can get a complimentary e-mailed copy of her report: "64 Ways to Increase Your Sales" by subscribing to Ann’s free e-mailed newsletter "Weekly Sales Tips."E-mail your request to: annbarr@sellingsupplies.com with "Sales Tips" in the subject line, or visit Ann’s web site: www.sellingsupplies.com