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Plastic Pallets - Opportunity or Opposition?
Plastic Pallet Primer: Plastic pallets are an opportunity to build stronger relationships with customers and grow sales; second of a three-part series on plastic pallets.
By Rick LeBlanc
Date Posted: 5/1/2001
(Editor’s Note: This is the second of a three-part series of articles on plastic pallets. The third and final article will review plastic pallet suppliers, their approach with respect to using distributors, and supplier contact information.)
While the vast majority of pallet applications can best be met with wood pallets of some description, alternative materials such as plastic are better suited for others. Selling plastic pallets broadens a wood pallet company’s range of product offerings without significantly increasing costs. And with more options at hand, a pallet sales person is better equipped to address the requirements of a particular application with the very best solution.
Pallet Enterprise recently interviewed several pallet companies that have added plastic pallets to their product line. A few have enjoyed increased sales through productive relationships with plastic pallet manufacturers. Several others, however, reported that they have had little or no success in the plastic category. Why have they experienced varying levels of success? Is the answer — differences in the customer base of one pallet manufacturer versus another or certain actions taken by a wood pallet company? Both reasons have probably played a part, depending on the individual situation.
Here are some tips for improved sales performance in the plastic category, from wood pallet companies that have enjoyed success, and from some plastic pallet manufacturers.
Not All Pallets Are Created Equal
The first step in marketing plastic pallets is to recognize the differences between plastic and wood pallets as well as among plastic pallets. These differences were discussed in last month’s article. Understanding the differences can help you identify potential sales. For example, plastic pallets are usually employed in closed loop applications where the asset will be fully utilized. Closed loop applications are characterized by single or minimal shipping and receiving locations, single dedicated carriers, frequent delivery, and short shipping distance. Plastic pallets tend to be used in food, pharmaceutical and in-plant warehouse applications.
Plastic pallets are no more "all alike" than wood pallets. If a customer simply ordered wood pallets, the sales representative would ask questions to determine the application and its pallet performance requirements. He would want to know about unit load weight, storage and handling considerations, and other details. The same holds true for plastic. If a customer wants a rackable plastic pallet but asks about a thermoform design, similar to the one used by the U.S. Postal Service, the sales representative should point out the limitations of the product and steer them to a more suitable option.
"The frustrating part is that the customer typically does not know what they want," said Steve Geiges of Treen Box & Pallet in Ben Salem, Penn.
The best way to avoid problems is to test the pallet in the field. Obtain samples from a variety of plastic pallet companies and offer them to clients to test in their automated plants and warehouses. Most of the time the wood pallet company will have to pay for the samples.
While wood pallets dominate the pallet market, customers are going to ask about plastic at some point. When that happens, wood pallet suppliers who have answers ready will be in a better position to profit from the opportunity.
"Educate yourself to the virtues of any product," said Hartson Poland of PDQ Plastics Inc. "What is the pallet going to be used for? Are you going to see it again? Is it used in a rack or in a flow-through situation? A wood guy is going to want to know what questions to ask and know the answers or have a good enough relationship with a plastic pallet partner to receive support."
Build Relationships — Plastic Friend or Foe?
Upon taking the leap into plastic, a wood pallet company has to establish a relationship with one or more plastic pallet suppliers. Too often, wood pallet companies view plastic as the enemy. Hartson dismissed the issue of rivalry between plastic and wood. "We have never had a problem with that type of thinking," he said. PDQ works with wood pallet suppliers as an extension of its sales force.
How a wood pallet company views the rivalry issue largely depends on the economics.
Is a plastic pallet sale adding new business or is it replacing wood pallets? New business is just gravy for a pallet company. But replacing wood with plastic can impact the pocketbook. Durable plastic pallets are more expensive with prices ranging from $18 to $100 each. Sales commission or mark-up on plastic pallets can be anywhere from 10-20% versus 2-10% for wood. Usually, wood pallets will be replaced more frequently and thus will result in higher volumes. You will have to do the math and decide if you want to try to sell a customer plastic pallets. In a sales calls with a potential customer, look for applications where plastic or another material would work better than wood. This may help to establish trust while undermining the relationship between the company and its current supplier. Armed with knowledge about many types of pallets and applications, a salesman can differentiate himself from everybody else by offering solutions instead of just throwing around low prices.
Wood pallets are not likely to go away any time soon. "Plastic pallets will never be a threat," said Art Wagner of Engineered Rubber Products (ERP). ERP recently entered the market with an injection molded plastic pallet. Art’s advice to wood pallet companies is: don’t shut out a sales opportunity. But like anything else, he said, there has to be enough profit in it for everybody.
"Traditionally we have not considered ourselves in competition with wood," Hartson said. "There is a place for all types of pallets in the arena. We make one extremely heavy-duty pallet. It is not designed to compete with a single-trip pine pallet." Even if a pallet user requires hundreds or thousands of pallets per month, he noted, there still may be a good application internally for a heavy-duty plastic pallet.
Relationships with plastic pallet suppliers can take many forms, including stocking distributor, non-stocking distributors, or commission sales. There are risks and rewards specific to each. Stocking distributors who pay up front for plastic pallets often can get a better price, and potentially make more money than non-stocking distributors or commission sales situations. Stocking distributors take possession of plastic pallets, keep them in stock, and resell them to end users. Thus, a stock distributor takes a greater risk because it could get stuck with an order if the customer decides not to buy or does not pay the bill. None of the wood pallet companies interviewed for this article were stocking distributors due to the financial risk of carrying inventory. A non-stocking distributor sells plastic pallets and invoices the customer. Then the distributor buys the pallets from the plastic pallet manufacturer for direct shipment to the customer. Both arrangements, keep the wood pallet company in control of the customer relationship. The wood pallet company is assured of its commission since it handles the billing. In commission sales, when the pallet supplier gets an order for plastic pallets, it notifies the manufacturer. The customer is invoiced by the plastic pallet manufacturer, which pays the wood pallet company a commission. This arrangement transfers most of the transaction burden to the plastic pallet manufacturer.
Remmey – The Pallet Company, located near Philadelphia, functions as a non-stock distributor because it likes to keep control of the customer relationship and ensure proper service. "I don’t want to lose a two truck-load per month order for wood pallets because of a problem with a few plastic pallets that I sold a customer," said Bill Schneider, vice president of sales for Remmey.
Relationships with more than one plastic pallet company may be required as some plastic pallets are best suited to particular applications. Bill Biedenbach, president of Pennsylvania-based Allegheny Recycled Products, for example, works with three plastic pallet companies.
It is important to partner with stable, reputable plastic pallet manufacturers. Stewart Richardson, vice president at Thomco Material Handling, has been successful in supplementing his wood pallet sales by marketing Shuert Industries twin-sheet plastic pallets in Canada. He attributed Thomco’s success to the high quality of Shuert’s twin-sheet pallet.
Not all wood pallet suppliers have been fortunate in plastic pallet sales. Ohio-based Bob Troyer Enterprises worked with a start-up plastic pallet company in the Northwest, trying to market a heavy-duty plastic skid into challenging steel industry applications, but the company disappeared. John Rath of Bob Troyer is not sure whether or not the plastic pallet supplier went out of business, but its phone line was disconnected and its Web page was taken off the Internet. Plastic pallets can often be a long, patient sell, and stable, long term relationships improve the odds of making it work. Some plastic pallet companies have come and gone. Make sure to get references to ensure that a company stands behind its warranty claims.
Ongoing Commitment Required
Wood pallet people emphasize that selling plastic pallets requires an ongoing commitment. "You are just not going to run in and sell plastic pallets to somebody who has been using wood," said Bill of Allegheny Recycled Products. "It’s definitely a long sell."
"When you run the range of pricing on plastic from $25 to $75, there can be a long silence at the other end of the line," said Bill. Sometimes pallet buyers are motivated to buy quickly, however. A common situation is when plastic pallets are purchased to address urgent regulatory issues about sanitation. "When this happens there can be customer urgency to close the deal," said Bill. While some sales may occur quickly, most will require extended periods of time.
There are a couple of points that have been discussed at length elsewhere, but are worth repeating. Because plastic pallets cost considerably more than wood, they are often treated as assets and capital expenditures rather than supply items. They may have to go through a capital expenditure or "CapEx" process of approval, which is often made at higher levels in an organization than buying decisions for supply items. The sale may involve a person higher up the corporate totem pole than a typical wood pallet purchase requires. When you identify an opportunity for a plastic sale, it is important to broach the subject of who makes the buying decision. If the decision maker is someone other than the person you normally deal with, use the opportunity to sell a superior solution that will make your contact look like a star for broadening his company’s horizons.
There may be internal turf battles due to purchase authorization procedures or the greater initial cost of plastic pallets. There are no easy solutions to these hurdles. You must make a compelling cost justification. Plastic pallets may require a more sophisticated sell. Often customers must be swayed with a spreadsheet that depicts cost savings anticipated from using plastic pallets. This takes time and costs much more to close a sale.
"You probably could sell 50 loads of wood pallets in the time it takes to close one plastic pallet order," said Steve. He noted that Treen Box’s success rate has been one in ten. Most customers evaluate plastic pallets on the operations level and the upper level management squashes the order due to the higher cost according to Steve. Be aware, customers and plastic pallet manufactures may try to cut a wood pallet supplier out of his share of the transaction. Even after a representative has sent samples and spent hours educating the client, many customers will go around you in a heartbeat to save a dime. When asked what he does if a customer or plastic supplier cuts him out of a deal, Steve responded that there was nothing that he could do except go home, relax and have a beer.
So why does Treen Box go through the headaches of selling plastic pallets? The answer — selling plastic pallets has helped the company learn more about various technology, applications, and customer needs. Steve said that if a company is not prepared for the changes ahead it can be laying the foundation for its own demise.
The need for an ongoing marketing commitment was echoed by Stewart. "Plastic represents about 15% of my business," he said. "But having said that, I work it 15% of the time. It is important to be consistent with the (plastic pallet) sales effort long term." While marketing plastic pallets is a long term process, wood pallet sales personnel must keep things in perspective, Stewart warned. Wood pallets, after all, are going to remain the number one priority for most - if not all — wood pallet companies.
Look For Opportunity
Changing market factors can alter demand and create opportunity. Such is the case for recycling plastic pallets. Before the rise of the international pest infestation issue, there was little market for odd-lot, used plastic pallets. But because plastic pallets come in so many different sizes and models, stray plastic pallets had very little resale value unless a recycler could collect a significant number of them.
"The China situation has developed a market for used plastic pallets," said Bill of Remmey.
In an effort to curb the spread of pests, countries have started to monitor, treat and sometimes stop products shipped on wood pallets. (See story in the April 2001 Pallet Enterprise.) Some companies looking to ensure that valuable shipments do not get delayed or stopped at borders have been willing to spend extra money for used plastic pallets. Used plastic pallets cost much less than new ones but are still much more expensive than wood. Although the market for used plastic pallets remains small, as the international community seeks to impose more restrictions on solid wood packaging, it will likely grow.
Keep your eyes open for opportunities. Adding plastic to your product mix, may attract new customers or improves relations with current clients.