Cost of a price war

I often hear that price drives the uk security industry, particularly because of the threat of cheap imports. I want to suggest that is over simplistic and that from a marketing perspective a far more complex mix of factors are involved.

Undoubtedly price is an issue. First, the widespread use of compulsory competitive tendering, especially in the public sector. Secondly, the cheap imports, particularly from the Far East. Whilst they may offer low prices they do so at the cost of little or no after sales support. Thirdly, the UK market is the world's most mature security industry. As opportunities for growth through an expanding market decline, the competition for market share intensifies and inevitably this puts pressure on prices.

But I think to place too much emphasis on price underestimates the intelligence of the user and ignores several other factors that are dominating the evolution of the industry in the UK.

With only five years experience in the industry some may question whether I have sufficient perspective to draw some of the conclusions I do. However, those five years have been pivotal ones for the industry for three reasons in particular.

The trickle down effect

The first is that the developing terrorist threat since 9/11 has fundamentally changed the rationale for investing in security. It matters now, more than ever before, that the systems that are installed perform superbly well with an accuracy and reliability that in the past was not considered so important. Naturally this impacts on public sector and public space CCTV. But I believe there is a trickle down effect. The technology that is seen to work to protect our nation's infrastructure will become the standard required of all installations. The deterrence motive is being replaced by the evidence motive.

The second reason is that developments in CCTV technology have never been more exciting. We are moving from an era of continuous, but time-lapse recording, into an era of intermittent, but real time recording. Instead of recording everything to a relatively poor quality, we are increasingly able to record just what is needed but to a quality unimaginable only a few years ago.

The third reason is related to the growth in the use of IP. The ability to monitor systems remotely is further aiding the transformation of our industry. This is not simply about changing the way an end user might think about system monitoring. The ability to monitor systems nationwide (or even internationally) may lead to considerable consolidation and pose competitive challenges to installation and monitoring firms that have a distinct local or regional identity. It also marks the transition of the installer from box reseller to service provider.

Let us examine a core element of traditional marketing theory as it applies to installers – the role of the four P's: product, promotion, place and price.

Installers have found themselves under increasing pressure in recent years to expand their product portfolios beyond their core competences. For instance, for a CCTV installer to expand into intruder or access control, or for an analogue installer to acquire digital and networking expertise. The decision to diversify comes from two directions – changes within the industry that cannot be ignored if you are to stay in business (digital) and the desire to make you more attractive to end users relative to your competitors (such as extending your business into another technical arena or vertical market).

One of the challenges for the installer seeking to diversify is how to achieve this quickly. Acquiring experienced staff from the new sector or even buying another business can prove effective but expensive routes to growth. A low cost, more experimental route is to identify another company with which a mutually beneficial marketing partnership might be established. With all these options it is important not to oversell your new competence to prospective customers, especially those established customers that have proved so important to your core business. Customers are quick to identify a business that is overstretching itself and has little substance to back up its claims.

End users are more influenced by promotional activity than might be assumed. Why else would the world's leading brands spend a fortune on it? An oft-quoted equation is that every company should spend between 3-5per cent of its turnover on marketing activities. For a start-up business this is almost certainly too low and at the other extreme is probably too high for the largest. But if you are unsure, it is probably a good gauge.

But what should the marketing budget be trying to achieve? In terms of objectives, focus on name recognition above all else. Ideally, when people 'think security' you would like them to think of you and vice versa. An accurate and catchy strap line and clear and simple logo can help. First, seek to establish some relatively low-cost year round promotional exposure. Secondly, devise some time limited, more expensive activity targeted at the markets you want to develop. Networking through local business clubs and entertaining customers is worthwhile.

'Place' refers more to the method of your sales or distribution channels. This is one area of the security industry that hasn't altered that much. The security industry still relies heavily on the personal sale. This is unlikely to change , for, as the technology becomes more complex, system design becomes more important. The implications of this are that people remain an absolutely crucial part of the installation business. People buy from people not companies. The greatest strength of your sales channel remains the quality of your people (and their training). Manufacturer's product branding hasn't yet reached the point where it can drive sales regardless of the quality of the salesperson.

So, can price erode the importance of product competence, the impact of promotional activity and the quality of your people? Yes it can. But who would want a customer that placed price above everything else? Would you as a customer take that risk? With the performance of their system and your reputation in the balance?

Price is important where all other factors are equal. The moment price overtakes the appropriateness of the solution or the sales techniques of your staff, either the customer, or supplier, or both, will lose out. And the only winner then is your competition