Using a competitor's lower bit to raise your own prices? That's impossible! Most times, perhaps, but not always. What you are about to read is a true story.

In 1990, I was a branch manager with a medium-sized distributor. Our biggest customer was a cement mill that required a high level of daytime and after-hours service. Competition had driven our gross profit down to 15 percent. We also had a committed inventory for them of $60,000.

One day, the salesman that called on this account entered my office with a sour look on his face. He said that the mill was giving us an opportunity to meet lower-quoted pricing from another distributor. He mentioned that he wasn't sure how to respond to this request.

After a brief contemplation, I said, "Here's what I want you to do. Make an appointment with their upper management. I'll go with you, if you wish. We need to take this approach with them. 'Mr. Customer, we have been a major supplier of your cement mill for a long time. In that time, we have had a lot of mutually beneficial success. Competition has driven our profit margin through the floor, to the point that we actually lose money on each sale to you. I'm not sure how long our upper management will tolerate these losses. We simply cannot lower our prices any more. In fact, we are going to have to raise our prices in order to be a healthy, profitable supplier that you can count on for years to come.'"

The salesman decided to tackle this by himself. During his meeting with them, he called me. "They want to know exactly how much we would have to raise our prices," he said. I asked him to explain that we were at 15 percent GP, and need to be at 30 percent GP.

He did that, and their response was that they would get back to us later. We heard nothing else from them on the subject. They were continuing to buy from us, so we left everything at status quo. That weekend, I took a night call from the mill, and delivered the parts they needed.

The purchasing agent phoned the next morning to get their prices and issue a purchase order number. After hearing their normal 15 percent prices, he said, "Those are the same prices we have been paying. We thought you were raising your prices. When are you going to do that?"

I said, "Thank you. We've been waiting for your reply before doing so."

Overnight, our gross profit with them went from 15 percent to 30 percent.

Can you always do this? No. Should you always try this? Probably not!

Try to be open minded enough to recognize an opportunity such as this when it presents itself. But more than anything, have the fortitude and sternness it takes to orchestrate the sales pitch. Distribution is a two-way street. Customers depend on us just as much as we depend on them.