Price-squeezing in the security industry: “the consequences of mistakes must hurt clients”

The “Lopez effect”: its ineffectiveness in the security industry and measures against price squeezing. Marcus Heide of Marktplatz Sicherheit, a German online trade magazine on the security market place interviewed Tanja Dammann-Götsch.

Before we jump right into this difficult subject matter, I would like to thank Tanja Dammann-Götsch for joining us today.

Thank you, Marcus. You know, this is a real pleasure for me. Let’s begin.

You like to say of yourself that you have worked in the toughest industry in the world for buyers, namely the automotive industry, and that you still work there today as a consultant. Would you be upset if I said that the automotive industry is kids’ stuff compared to the security industry?

Absolutely not. In fact, I regularly trigger competition in the toughest industry with my observations. Even the food industry has a comparative reputation. Every industry has its own specific challenges, yet when it comes to purchasing, there certainly are a few runaways. And the security industry is definitely one of 

To put it roughly in simple terms: when purchasing security services, it is usually first about the price. Then, it’s about the price and finally, it’s about the price. The quality and qualifications of the personnel rarely play a role. 

To open up a security company, you only need to pass a somewhat difficult proficiency examination at the Chamber of Industry and Commerce in addition to obtaining the trade license. Not very many small suppliers have yet heard of the mandatory tariff wages. Security service providers are regarded as interchangeable, also because many large companies really don’t know anything about the keyword marketing. 

The industry itself is too small to lobby influential politicians. And the only two relevant industry associations are busy behind the scenes. Yet they are not willing or able to make an essential contribution to effective public relations work.

In my opinion, that’s a very negative picture of the industry.

You’re right about that. However, I am above all quoting assessments that executives from the industry itself express — in personal discussions, that is.

The industry and the associations need to develop a new way of thinking to break new ground. This is undisputed and has been demanded time and again. There are two alarming points in the analysis: first, the industry obviously does not manage to make substantial changes to the situation by itself. Second, “security” is actually a high good. Yet, clients appreciate it so little that they themselves have no interest in the services they buy. 

Admittedly, this is a rough generalization. It is said that clients interested in good services have been sighted here and there. Nevertheless, things of course remain the same: it’s time to rethink. Especially I as a buyer can ask the right questions to support creating a new, positive image of the industry and its companies to buyers.

If you as a purchasing expert for a manager who has spent his or her entire professional life in the security industry were to describe what the world of purchasing “out there” looks like — what kind of a picture would you draw?

Surely some of you have heard of the “Lopez effect”. This is the synonym for cheap and often defective components in the automotive industry. In the late 1980s and early 1990s, José Ignacio López de Arriortúa adopted price squeezing as his prime directive, first at Opel and then at Volkswagen. No matter what was delivered, it was all about the discounted price. The buyers were rewarded accordingly. 

It wasn’t until later when they realized that this was a very short-sighted idea. The quality was no longer right and the customers no longer played along. The poor image that even small children today in Germany associate with the Opel brand comes by no accident. It shows an image problem that has lasted for decades — triggered by the wrong purchasing strategy.

I understand you, yet this argument does not apply to the security business. You can’t even say, “Once you’ve lost your reputation,…” Because the industry doesn’t even have one, that is — a reputation.

Nevertheless, the same generally applies to services as well as to physical products: you need to purchase good services. Otherwise, you can ruin your image.

Do you think any of the clients or the buyers are interested in changing their attitudes? Here are some contrasting examples: 

  • At the refugee shelter in Burbach in 2018, residents were mistreated by unqualified security workers.
  • In 2019, security guards working for a company owned by a right-wing extremist were deployed to the Sachsenhausen concentration camp memorial and museum. 
  • In July 2019, during a major customs raid after the “Audi Cup”, numerous security officers fled because they had been employed illegally. 

That’s exactly the point. When misconduct doesn’t have any consequences, then there isn’t any reason for improvement. The “Lopez effect” managed to ruin the image of an automobile brand. It can only be changed by the fact that it really hurts the clients when their bad behavior comes to light. This has not yet been the case in the security industry. 

After all, there have been successes in terms of qualification for years. For example, the German Federal Security Industry Association makes meeting quality standards a condition for membership. The specialist for protection and security goes through an apprenticeship. Nevertheless, all of this only leads to a basic quality standard. Its value is relative because in the end, hardly any customers are interested. What counts is that the cost per person-hour is two cents cheaper.

But the buck should not only be passed on to the client. If the industry itself would consistently adhere to agreements, then a lot would already be gained. Time and again, those responsible at the big players have agreed to not undercut each other in the case of dumping prices. Then, as soon as they got up from the negotiating table, they would run to the client to do just that: undercut dumping prices.

Nothing of course can be done about that. There is nothing that the associations can do in this case. However, what you could do about it is: intensely educate your market and inform the public about misconduct. When you do this really well and professionally, then a lot will be achieved. Because people usually don’t know what’s going on in this industry. 

When I go to a concert, get on the train, or get checked at the festival entrance, I assume that the security staff is qualified and knows how to do their job. After all, in the end it’s all about personal safety and a matter of life. This is something I need to be able to rely on. If this is not guaranteed, then I need to continually address it publicly based on that specific case — promptly and on site.

The association will rightly point out that it is very difficult to prove a lack of qualification in individual cases. Besides, the members of both associations are security firms. They will hardly draw attention to their potential clients and ruin their chances with them until eternity — not even through the association. 

The situation in purchasing security services is obviously at the stone-age level in many cases: you need something and you get it for free. It doesn’t matter how it turns out “in the end” and, as a client, you needn’t fear any consequences.

There is no better way to sum it up. As a purchasing expert, what do you recommend so that somewhere down the road one day, things will be better?

In other industries, services are based on references. That means, you ask around and request references. The top priority when purchasing services: a good price of course that can’t be denied. Yet beyond that, it also means that everything needs to run smoothly. Corporate culture often plays an important role in this case.

 If I as a buyer suggest a service provider to my management and they are only interested in the price, then I will choose the cheapest one. However, if the management is paying attention to quality, then I will have to do a service provider evaluation. This is how it works, for example, when purchasing engineering services.

In general, what are the advantages for the industry in dealing with the question of quality in connection with their clients’ purchasing, just in case you have not yet given up your last hope completely?

The modern strategic buyer also looks at the issues of price, technology, services, sustainability, and innovation when it comes to services. So, when you deal with the issue of purchasing along with how the industry is perceived externally, then this is a very important point. 

It is important that the buyer is involved in taking a close look at the processes and doesn’t just have an eye on the price. He or she also needs to think ahead in terms of quality and work approval. This is simply minimizing the risk in the sense that the overall picture is taken into consideration: 

  • How satisfied am I with the performance of the security service provider? 
  • How well are the employees trained? 
  • What are the opportunities regarding the technologies and innovations? 

Today, we have some of the greatest apps and devices for monitoring services. This is also something that should be looked at. 

And that already takes us to the subject of innovation. This is, after all, the most fundamental task of today’s buyer — evaluating such aspects and assessing them compared to a certain percentage in addition to the price. That is why the security industry should definitely deal with the issue of purchasing and quality, especially when insiders know about the reputation of the industry.

What are the consequences if you don’t?

Exactly what you just described will happen — only what is behind the decimal point counts. I think it is an extremely great pity that the reputation of industry is so bad or not at all visible since it performs an extremely important role. In my opinion, the industry itself is well worth it.

In addition, the industry — excluding exceptions of course — makes little effort to think outside the box. Suppliers don’t feel compelled to promote their industry well, just as little as they would ever have the idea of involving a purchasing consultant.

I have already cracked some very hard nuts in the automotive and other industries. It would indeed be a personal challenge for me to be present at the negotiation table of a security service provider. I am sure that I would be able to develop an effective strategy that would make it easier for the service provider to negotiate and to benefit the client at the same time. “Win-win” is possible. To do this, however, you also need to be willing to go in a new direction.

This interview was originally conducted in German by Marcus Heide, Martkplatz Sicherheit