Selling: Yes, it is worth differentiating yourself even in a supply/demand driven market.

“There’s no point in trying to differentiate ourselves, our market is dictated by supply and demand. We just answer bids when they come..”

On contract up-time is a major driver as the cost of idle assets and people can be crippling, and on the face of it, it’s difficult to argue with such an approach, when the market gets tight, prices go up, and when it loosens up, customers try to renegotiate or exit the contract and play the market to get cheaper prices for the same service. At the first signs of the cycle going the other way they will endeavour to tie in suppliers at the lower rates to the moderate the inevitable price increases as the cycle repeats itself.

Through these cycles, the market is inevitably volatile, rendering it difficult to plan, train or even build a rapport beyond transactional thinking. Customer fidelity is a rare experience coupled with a sensation that “that’s the way it is” in an pseudo-commoditized market.

But is there a better way to manage these capital intensive or high maintenance assets?

Let’s look at the extremes of these markets. At the lower end you have a market where suppliers thrive by providing the minimal service to satisfy the customer’s minimum requirements and have the means to be price-competitive. Such suppliers will not seek to differentiate themselves beyond cost.. a good example would be the Low-cost airline suppliers.

In this blog we will focus on the other end of the market, specifically in the Oil& Gas industry. Can they thrive under such a business model?..of course not, as many conventional airlines have found to their cost when trying to go head to head with their budget competitors.

The O&G industry is on a much smaller scale compared to travel, and the market is roughly in supply/demand equilibrium.  One big difference between the lower and upper ends is the investment suppliers make to provide their services, be it in assets such as a drilling rig, the people staffing it, the training required and the overall way the service is managed; all of which add to the running costs that make the situation even more precarious when off contract. In such a small market your customers know this all too well.

So, what are your options beyond “sharpening your pencil” and lowering prices?

Firstly, it would clearly be beneficial to minimize the degree to which your customers terminate a contract early or negotiate your pricing from a position of strength. This will only really be achieved if they believe that what they get today is tangibly better than if they go to the market. This in turn is a function of how well you are doing to satisfy what is most important to them. Are they looking for performance, flexibility, risk minimization…the list can be long but finding what is most important beyond the running cost is the key to successful alignment and contract longevity. If you read this and say, no it’s only the price that matters, the chances are you have not asked the questions that matter.

Secondly, how can you gain a pricing premium for the additional investment you have made? Once again, early engagement is the key. In any buying process there will be an evaluation matrix that can be adapted to reflect the evaluator’s priorities. Let’s say that an operator needs a drilling rig for a H2S rich reservoir, and you also find out that they would like to be able to “farm-out” the rig for a certain period during the contract. Unless instructed otherwise the Procurement specialists will source a unit that has H2S handling facilities. The level of detail required to differentiate between suppliers will not automatically be included in the bid document unless you raise the importance before the bid document is prepared. Omitting critical requirements does no-one any favours and could lead to conflict and in this example, potentially life-threatening consequences. You have to build up your differentiation and make sure it becomes part of the evaluation.

Finally, by understanding the end-user’s needs (not bid requirements) you may be able to shape your proposal more thoughtfully and bring flexibility that can make the difference. What if your customer only had 1 H2S well out of the 10 in the program, would you need a permanently installed system?..could a permanent installation actually make the farm-out process more complicated?..These considerations generally don’t make the bid document, but can win you the work.

Operating at the top end of any market does change the way we develop our business, and if it is to be profitable, better alignment is essential. Nothing is a commodity unless you (the seller) believe it is.