Price Wise: On stingy customers & profit margins

14/09/2011

'Stingy customers' are everywhere, even for medical device manufacturers. Device Talk and this article in the Economist discuss how Medtronic is dealing with them. Some excerpts -

Scandals, recalls, stingy customers, anxious regulators - America's industry for medical devices is suffering from all of them... the pressure on prices is growing more intense. Hospitals, squeezed by lower government payments, are squeezing companies in turn, refusing to pay more for a new product that is only slightly better than the old version ... To appeal to stingy customers, [CEO Omar Ishrak] wants to change the way Medtronic's products are sold, gathering data on cost-effectiveness so that the firm can 'project offerings in economic terms'.

Plastics processors have their fair share of stingy customers. 'Stingy' means a need to control costs as much as processors, and an unwillingness to accept cost increases for whatever reason - including higher resins costs. So processors, to retain customers and hold on to already low utilization rates, must absorb higher resins costs and risks and withstand lower profit margins in the hope that customers stop being stingy and business returns to 'normal' someday, right? Wrong, but that's what the majority of processors are doing - evidenced by the death of resins futures.
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