Purchase To Own - Taking a Look at the Big Picture
When we look at new products, we usually are looking at ways to streamline the mounting and laminating process. And to be fun, that is fun and we like to do this. But this month we have been working on a new concept to combine equipment and supplies purchases and by combining the revenue streams, help to lower costs for our customers and give us a more secure annuity on supplies business. We have termed this program our “Purchase To Own” (PTO) Laminator program.
The PTO program allows customers to receive a Free laminator by making a 2 year commitment to buy supplies from us and buying a certain level of supplies. We built-in a deposit on those purchases up front to secure the 2 year commitment and amortize that at a 25% rate over their purchases. This gives the customer a very tangible reason to stay “loyal” to us and insures the supply stream. When compared to the cost of sales calls, customer attrition rates and alike, this helps to justify paying for a laminator to secure that business.
We also needed a partner to build a program around and be comfortable that we were not going to hurt the market pricing on their products. D&K worked with us to do different things such as free good and extended warranties. This insured the equipment performance which of course is needed to consume the supplies. In what we offered, the value was significantly higher than the cost which further helped the customer’s value proposition.
The major challenge is in communicating the program as not some form of black magic (although I always liked magic and believe you need some in business). The key is that an average customer’s volume on mounting and laminating supplies is worth a lot. For example, the average proseal customer sells $20K worth of mounting and laminating services a year. Based on a 4 times mark-up, their average purchases are $5K a year - hardly an insignificant sum. To secure that business is worth a lot to me. And for larger laminators the averages are even higher. And this values is actually worth much more than the cost of a laminator. So what we are trying to do is have our customers understand how valuable their business is to us. We think this would be better than any loyalty program we could create.
We are also looking at this angle from our purchasing side and seeing what reaction our key vendors may have to blanket 1-2 year commitments and what that would be worth to them to secure our business with them. I think this may be a way for us to stay very competitive over the long term - both securing our volume of business and procuring supplies at competitve prices to support that.