Pricing For Profits
I readily admit that if you simply raise prices more than a small amount, without any other changes — no new technology, no change in service, etc. — you can expect resistance from customers. My suggestion on pricing is not to raise them in a vacuum, ignoring the market, competition and your level of service. Instead, I think it is important to look at your pricing in a new way.
Lead, Don’t Follow: The leading companies in almost every area of business are also the price leaders. They offer more and they charge more. I have noticed many more low-end department and discount stores go out of business than the high-end ones. Why is that? There are a couple of reasons for this phenomenon.
The leaders set the standard for service and quality. Their merchandise is backed by guarantees that imply a refund is available with “no questions asked.” Customers like that kind of a policy because it eliminates the risk in their purchase decision. Leaders in the service and repair business back their work, and, more importantly, make their stance on quality well known. Their customers know they take extra care in performing the work and back it with a simple promise that satisfaction is guaranteed.
If you are going to be a leader in your business area, you will need to have the same strategy with your customers. Once you commit to that policy — and it does take a commitment to service, quality, professional treatment of customers and a no-risk guarantee — you will enjoy the leader’s position in your business community. When you secure that position, then, and not before, you will be able to demand a higher price than the competition. Higher prices must be earned. Of course, you’ll enjoy higher profit margins, too.
Not all customers want — or I should say are willing to pay for — top quality service. “Quality” means technicians are trained in the latest people skills; they use the latest technical innovations, tools and equipment; and have company requirements to follow a standardized repair procedure with no shortcuts. Despite the risk of poor workmanship, callbacks, wasted time and even equipment failures, some customers will choose their service company based on a low bid. These customers ignore their long-term costs or risks. That’s the only way they know how to make a decision.
Acknowledging that fact, you need to decide which segment of the market you want to pursue — low price buyers or high quality buyers. In today’s market, competing for the low price buyers is a losing battle. How can you offer the same prices when your costs for some of the equipment are as much as their selling price? That’s a war I would not want to fight.
Market Segments: Through some research I’ve done in my years of dealing with service and repair customers, I’ve found that about a quarter of the customers out there are purely price buyers. That means price is just about all they consider in hiring service and repair companies. And that’s perfectly OK with me. Let them make their decisions on whatever basis they choose. But they won’t be one of our customers. The portion of the market we serve is interested in both how much they pay and what they receive in real value — quality work, professional training and guaranteed work. Let’s look at the rest of the market and their basis for hiring your company.
At the high end of the market, there are about 15 percent of the people who hire what they believe to be the best, principally because those companies are the most expensive and have a reputation for quality work. These customers will not gripe about the price of the job. Instead, they demand to be treated professionally, with the work being done right the first time, when promised.
If you do what you promise and treat them with respect, they’ll be loyal and call you again. Be prepared to show your technicians are the best around, in appearance; technical knowledge; attitude; promptness; and courtesy. Your trucks will need to be modern and clean; and your call takers professional and understanding.
The remaining portion of the market, which represents the majority of customers available, consists of those people who need to be convinced they are getting real value for the money they spend. They are willing to spend more than the lowest priced service company, but only if they are convinced they are getting their money’s worth. This lion’s share of the marketplace wants value. If you demonstrate your company will deliver what it promises and maybe more, they want to do business with you. They understand callbacks waste their time, and a few dollars isn’t worth it to them. They don’t want unprofessional technicians in their home either.
It’s these people that high quality service providers compete to attract. Since you may not be able to sustain your business on the price-is-no-object portion of the market, your challenge is to obtain as many of these middle market customers as you can.
I’m not going to review all the customer service techniques you have read about in past columns, however, trained technicians are the keys to your competitive edge. Focus your marketing efforts. Go flat rate — drop time and materials.
Customers do not understand you have a substantial amount of overhead that goes toward operating your business. People will react unfavorably to the labor rate you quote. How can your technicians sell jobs when people are criticizing your material and labor prices? Switch to flat rate pricing instead and avoid the whole mess. Customers will see the single price for the job and not complain or second-guess your prices.