Why are small bussiness willing to pay more for lower quality?
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@Minion-Queen said:
There is alot of value to buying from another SMB in their eyes, they don't even compare or look at prices, it's not about pricing at all.
They don't look at prices, but more importantly, they don't look at quality!
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@dafyre said:
Buying local is HUGE, especially for a small business -- especially when you can remain on good terms with one another!
It's also part of what keeps SMBs as SMBs. Which is fine if that is the goal. But big companies think differently - they evaluate the value of the relationship and look to see if they are supporting a business only because of "who they are" rather than "what they do." It's like picking the popular kids for your kickball team at school rather than the kids who are good at kickball. If the goal is to win, you do one thing, if the goal is to hang out with the kids you feel are cool, you do another.
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@Carnival-Boy said:
I try and use local SMBs and I'm not in the local country club or rotary. I just think it can be beneficial.
What's the benefit? I see it as a detriment in most cases - companies that are local, or chosen based on that factor, as less likely to be the best choice and most likely to be basing their business off of being "local". When "local" is the value, the business value almost certainly has to suffer in exchange for that.
There are certain things were the "local" does have value. A restaurant is a great example. You need food three times a day and there are restaurants in every town, in every country, everywhere. Even in ancient Rome. While you can get a lower price with better food somewhere else, you'd need to travel there several times a day to keep using it.
But anything that needs to come to you, needs to be shipped, requires expertise, etc. you want to avoid local. Not rule it out, maybe the best person anywhere is local, but limited or prioritizing by local means you are taking an arbitrary factor and putting that into the equation with things like price, value and quality.
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@scottalanmiller Your "who they are" vs "what they do" argument is something I can agree with.
If the relationship isn't mutually beneficial, then it is most likely time to part ways.
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It's a lot like the study that found that hiring someone "through church" resulted in the worst business relationships. It really had nothing to do with church or religion but just with small social groups where business relationships existed because of a semi-arbitrary discrimination by social group - a smaller version of "buying local."
The vendors (which was often a one man business) were found to be less skilled and more likely to rip off customers because they had two key factors: social pressure to keep the customers from complaining about people in their locality or social group and they knew that their customers had no or very few other options as their selection criteria ruled everyone else out. Having good pricing or doing a good job were not selection criteria for their customers so the vendors had no interest or incentive to do a good job.
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Again it's about the social relationship not really about much else. Remember very few SMB's are looking to be anything other than that. It's not about growing your business to expand your reach. It's about supporting yourself in a comfortable manner and maybe if you are lucky having something to pass on to your kids.
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@dafyre said:
@scottalanmiller Your "who they are" vs "what they do" argument is something I can agree with.
If the relationship isn't mutually beneficial, then it is most likely time to part ways.
There is "mutually benecial" and then there is the best case. I can have a vendor that does an "ok" job and we both make money and we both benefit - unless you are considering the case where there was a better relationship.
For example, I could run a hardware store and get all my stuff from a local distributor and we both make money. But I have to consider the relationship not against "nothing" but against the quality, service and pricing that I could get from someone if I consider all vendors as options and don't let a non-business factor like locality mingle with business factors like price, service, value and quality.
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@scottalanmiller said:
For example, I could run a hardware store and get all my stuff from a local distributor and we both make money. But I have to consider the relationship not against "nothing" but against the quality, service and pricing that I could get from someone if I consider all vendors as options and don't let a non-business factor like locality mingle with business factors like price, service, value and quality.
All things being equal if your SMB isn't looking to grow, then buying local in that situation works. But if you are looking to become the next Lowes or Home Depot, your business will always be looking for a better way to do things -- even if that means taking your business from a local joint to some place down in a big city nearby.
We did this with our compuer store because it made sense. We would have stayed with the local company if we wanted, but that didn't make good business sense for us, since a lot of our customers were wanting used computers and not new computers.
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@dafyre said:
All things being equal if your SMB isn't looking to grow, then buying local in that situation works. But if you are looking to become the next Lowes or Home Depot, your business will always be looking for a better way to do things -- even if that means taking your business from a local joint to some place down in a big city nearby.
"Works" is a grey area here. If the goal of the business is to "exist" rather than to "make maximum profits" then this works. But if the goal of the business is business and to make money, even if it is not to grow in size, then this doesn't really work.
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We have a butcher in our village and I used to buy all my meat from him. It's about a hundred yards from my house. But then a rather good supermarket (Waitrose), opened up a mile away. The problem is the meat from our butcher isn't actually that good, and I prefer the supermarkets, so I've been buying a lot more of my meat from there instead. I always feel really guilty whenever I run into the butcher in the village. The butcher knows I'm buying my meat elsewhere.
I feel bad because he's a decent bloke and I feel bad because supermarkets are taking over the country and we're running out of independent butchers.
On the other hand, his meat isn't that good, so it's not my fault.
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@scottalanmiller Agreed. Why would anyone open a business that is just existing? That sounds like really, really bad planning (if any at all, lol).
If I open a business, I plan to make money with it. I may not become a competitor for HP or Dell, but my goal would be to head in that direction.
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@Carnival-Boy said:
We have a butcher in our village and I used to buy all my meat from him. It's about a hundred yards from my house. But then a rather good supermarket (Waitrose), opened up a mile away. The problem is the meat from our butcher isn't actually that good, and I prefer the supermarkets, so I've been buying a lot more of my meat from there instead. I always feel really guilty whenever I run into the butcher in the village. The butcher knows I'm buying my meat elsewhere.
I feel bad because he's a decent bloke and I feel bad because supermarkets are taking over the country and we're running out of independent butchers.
On the other hand, his meat isn't that good, so it's not my fault.
That's what we found back home. In the "big" village near where I grew up a Walmart moved in, which is awful. Except that it provided us the ability to buy good products at good prices for the first time and it treated its employees legally and with respect. It raised the wages in the region and for the first time low wage earners got healthcare and vacations (the US protects small businesses and does not require them to provide for basic employee needs.) So the quality of life shot up for everyone, shoppers and employees.
Everyone still complains that they aren't local. And I appreciate the value of the local store but if they are using the fact that they are local to not bother doing a good job.... that's the risk. And lots and lots of them abuse it.
Food and retail I think are a bit different (but the effect still applies to some degree) because it's not about business, it is about consumers and price and quality are definitely not the only factors.
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I've tended to get better service from SMBs than big companies, so that's one reason for preferring SMBs to be our partners/vendors. And it can be harder to connect with non-local SMBs, simply because they don't tend to operate or advertise outside of their locality. So that's one of the reasons why a lot of my vendors are local.
I also prefer to deal with people I know, so will often engage with local companies that are owned by or employ friends of mine. That's not because they're in the same golf club, it's because I trust my friends more than strangers and trust is the most important thing. That makes it more likely that they're local, although I'd employ NTG because I'm kinda friends with @scottalanmiller and @Minion-Queen and they're 6000 miles away. So it's not a local for local sake thing, it's just that most of my friends are local.
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@dafyre said:
@scottalanmiller Agreed. Why would anyone open a business that is just existing? That sounds like really, really bad planning (if any at all, lol).
If I open a business, I plan to make money with it. I may not become a competitor for HP or Dell, but my goal would be to head in that direction.
Something that we at NTG found when trying to deal with lots of local businesses was that nearly half (@Minion-Queen and I literally went to every business in our local county that could be found, knocking on doors, walking the streets, etc.) had no interest in making money. One even said "If I have to use a computer to track the finances, I'd rather go out of business", and almost immediately he did (hardware store.) Many were just wives running a tax shelter for their husbands, it was a hobby and had zero hopes of ever making a penny, that wasn't the goal. Some were there to make money, but only just enough to get by.
So while I make a point of "what's the point of business", there truly are lots and lots of "businesses" that exist for purposes other than being a successful business and would not be legally able to operate as a public corporation because they aren't trying to make money.
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@Carnival-Boy said:
I've tended to get better service from SMBs than big companies, so that's one reason for preferring SMBs to be our partners/vendors.
This I agree with, in many cases. Don't avoid companies based on size, generally, or only within reason. But I think that's part of the whole "focus on business factors" argument. Don't seek out SMBs, but don't avoid them either.
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@Carnival-Boy said:
I also prefer to deal with people I know, so will often engage with local companies that are owned by or employ friends of mine. That's not because they're in the same golf club, it's because I trust my friends more than strangers and trust is the most important thing. That makes it more likely that they're local, although I'd employ NTG because I'm kinda friends with @scottalanmiller and @Minion-Queen and they're 6000 miles away. So it's not a local for local sake thing, it's just that most of my friends are local.
We are "local" in the digital sense
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Argh, I hate that I have to constantly switch between these two browsers while working. So confusing.
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@scottalanmiller said:
Many were just wives running a tax shelter for their husbands, it was a hobby and had zero hopes of ever making a penny, that wasn't the goal. Some were there to make money, but only just enough to get by.
Very jealous of this.
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@scottalanmiller said:
This I agree with, in many cases. Don't avoid companies based on size, generally, or only within reason. But I think that's part of the whole "focus on business factors" argument. Don't seek out SMBs, but don't avoid them either.
There are three things I find attractive about SMBs.
- They often don't employ salesmen. So when you initially engage with them you often talk directly to a technical guy (who often owns the company). I don't really get on with salesmen, for whatever reason.
- We are often a big customer of theirs. This gives us leverage. If we're a $100k a year customer, an SMB will often work hard to retain us. But for a big company, we're irrelevant, and often get treated that way.
- They seem to have a lower level of staff turnover. At big companies, I seem to get a new account manager every 6 months, at small companies I have often been dealing with the same people for 10 years.
The exception is buying IT hardware. I buy from big companies because they carry stock and benefit from economies of scale. And a box is a box. It really doesn't matter whether that box is coming from next door or from Scotland, it will still arrive at the same time in my factory.
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@Carnival-Boy said:
We have a butcher in our village and I used to buy all my meat from him. It's about a hundred yards from my house. But then a rather good supermarket (Waitrose), opened up a mile away. The problem is the meat from our butcher isn't actually that good, and I prefer the supermarkets, so I've been buying a lot more of my meat from there instead. I always feel really guilty whenever I run into the butcher in the village. The butcher knows I'm buying my meat elsewhere.
I feel bad because he's a decent bloke and I feel bad because supermarkets are taking over the country and we're running out of independent butchers.
On the other hand, his meat isn't that good, so it's not my fault.
The question is... Did you tell him why you don't shop with him anymore? It's possible that if he drastically increases his quality, even if his prices are higher, he'll have a better, more profitable business.
