You Can't Change Home Centers, But You Can Change Your Own Company
Plenty. Despite what you think, you can survive and thrive despite home centers. But you’ve got to think outside of the box. You’ve got to take risks. Most of all, you’ve got to stop complaining and start taking positive action!
1. Support the manufacturers that support the trade. The first step you can take, if you’re bothered by a home center, is to support the manufacturers who remain loyal to the trade. There aren’t many left, and the executives running these companies are confronted with the fact more and more of the market is gradually being taken over by the big box retailers. Not only are the retailers taking more of the market, the trade continues to purchase products from manufacturers who also sell retail. If plumbing contractors want the remaining manufacturers to stay loyal to the trade, they need to make an effort to give companies like A.O. Smith, Anaheim, Bradford White, Gerber and Wolverine as much of their business as possible.
2. Support the supply houses that support the trade. Contractors also need to realize manufacturers are not always to blame when a product shows up in a retail outlet. Sometimes it’s your friendly local supply house. Manufacturers cannot control supply houses selling retail, just like supply houses cannot prevent you from selling parts over the counter to consumers. When a trade-only brand shows up in a retail outlet that’s the result of a decision made at the supply house. If you don’t like it, support another supply house.
3. Avoid exposing material prices with flat rate. Frankly, worrying about what you won’t buy because the consumer can identify the cost of the part is not the path to prosperity. It’s better to look at your own business. In that regard, consumers should never be able to determine your markup on a part. Time-and-materials pricing exposes your material charges; flat rate does not. Furthermore, every research project I’ve seen shows flat rate is preferred by consumers. Consumers prefer the certainty of a fixed, flat rate.
4. Use flexible pricing. A standard pricing strategy among large retailers is to use flexible pricing. Some SKUs (stocking units) are priced at lower margins than others. Typically, these visible items are the most promoted. On other items, the margins are higher. Learn these margins, and adjust your pricing accordingly. It’s not necessary to match the retailers. After all, you’re selling a bundle that includes installation and warranty. However, you should flex your margins down on the more visible items and up on the rest. Do it correctly and the margins average out over time.
5. Offer a variety of choices with varying margins. Flexing your margins involves more than just lowering prices on a product. It also means offering choices within a product and flexing up on the higher end. For example, you might offer your lowest margins for a standard five–year, 50–gallon, 36,000 BTUH water heater. Flex up the margin on a 50,000 BTUH water heater. Flex up more for a 10–year model. Offer consumers a choice and explain the difference. Given three choices, some people will pick the low-end because they want to spend less, some will pick the high-end because they want the best and most people will pick the middle because they want to be safe. However, if you only offer one choice, it’s “take it or leave it.”
6. Arm your technicians before sending them into battle. Don’t count on your technicians to sell higher end products without some help. If you were fighting a war, would you send them into battle without a weapon? But you probably send them to face the consumer unarmed. Prepare flyers or brochures that highlight the differences between various models. This is basic merchandising.
For example, you might describe the benefits of the 50,000 BTUH water heater as, “This model is like installing a bigger water heater in less space, for a lower installed cost and without the standby energy waste from keeping more water hot when it’s not being used. In short, you get more hot water, when you need it, for less money!”
Technicians are not salespeople. If they were, they wouldn’t be technicians. So it’s not realistic to expect them to be salespeople. It is realistic to expect them to hand the homeowner a flyer, price sheet or pamphlet and answer questions.
7. Make it easy for consumers to compare. List the benefits of each model so it’s easy for the consumer to make a comparison. To continue with the water heater example, include a comparison of fundamental feature differences and similarities, such as capacity, input, recovery rate, warranty and so on. If you’re flat rate, you should be able to calculate the price for a standard job with blank lines below it for any additional work (e.g., installing a larger vent pipe for a higher recovery model).
Provide a line for the tech to write the total price of the job and a line below it for him to write the monthly cost. The monthly cost is the minimum charge the consumer would pay on most credit cards for the water heater. Since most revolving charge plans are set with a minimum payment of 3 percent of the outstanding balance, this is an easy number to calculate. It highlights the marginal monthly cost difference to the consumer from stepping up from a standard to a superior to a premier.
8. Point out the obvious. Don’t overlook the routine extras you perform at no cost. Don’t assume the consumer knows that delivery, disposal and permitting are included. Tell them by stating “Delivery: included.” Alternatively, you might slash margins even more on a “budget” model and include a $15 delivery charge and a $15 disposal charge to get them back up. You can break out the permit charges separately to highlight this is a city fee, not your fee.
9. Keep your customers out of the retail stores to begin with. Other than leaving a magnet or putting stickers on the disposal and water heater, few plumbing contractors attempt to build loyalty with their customers. If you allow it, the customer will forget you. Don’t let him. Start a service agreement program, send your past customers a newsletter or mail out special coupons for your “existing customers” regularly. The customer keeps seeing your name and thinks of you next time there’s a plumbing problem, rather than thinking of the retailer.
Sometimes you can stimulate action through the use of a timely mailing. Promote a special on disposals for a limited time. Tell customers how to recognize when a disposal might be nearing the end of its life and tell them if their disposal is showing these signs, they can save money by acting now. Warn them of the consequences of a water heater bursting and flooding, then tell them how long they can expect a water heater to last.
10. Help yourself by helping the retailers. Contrary to popular perception among contractors, Home Depot doesn’t consider you the competition. They’re in a battle with Lowes, Builder’s Square and Menards. As they define it, they win by offering better service. One of the ways they provide better service is to recommend a good, reputable plumber when the homeowner gets in over his head or simply, doesn’t want to do a particular job.
If the consumer ventures inside a retail store for plumbing, it’s because he has a problem. If he’s reasonably competent, he may do the work himself because he likes to or because he wants to save money. This is not your customer and never was, so don’t worry about him.
If he’s unsure, he may want advice or input from the “knowledgeable” people working in the plumbing section of the store. More often that you might imagine, the advice the consumer gets is to, “Call a plumber.” Sometimes the clerk may not know enough to be able to help the customer. Sometimes he may be extremely busy and can’t (or doesn’t want) to take the time to explain things, step by step. Sometimes, it’s a complicated job and recommending a plumber is the right thing to do.
It’s more important to the store for the customer to be happy with the store than to make a sale that day. They know a satisfied customer will be back. An unsatisfied or frustrated customer may go see the competition. Make sure they know you are someone they can recommend. Make friends with the people on the floor and give them some business cards to distribute.
These are 10 simple actions you can take if you’re concerned about the big box retailers. Not only will they help you with the home centers, but many of these actions will help you to better compete with other plumbers. Certainly there’s more you can do. The point is to quit worrying about retailers and do what you can to compete. The retailers aren’t going away anytime soon. You can’t impact them. You can impact your own business. So do it!