People will pay more for priority service, even when they know other firms will do it cheaper.

It's a fact of life for service contractors who know what they're doing to get complaints about their higher-than-the-going-rate prices. Most of the time, these complaints don't start with the customer. In most cases, the customer is egged on to complain after talking to some plumber who doesn't know his cost of doing business and tells the customer he would have done the work for half the price.

This has become a serious problem for many flat rate companies around the country. Some have been harassed by consumer protection agencies that believe the "going rate" is what everyone should charge. No matter how many cost breakdowns and P&L statements you show them, most of the people who work for those agencies have never run a business. They can make life miserable for a knowledgeable service contractor who tries to do right by his employees and operate profitably.

Priority Service

I'm aware of a few firms around the country that have responded to this dilemma with a bold approach. One aspect is to offer two levels of service calls. Here is a sample phone script from one of these firms:

"We offer two levels of service - priority service and neighborhood service.

"Our priority service is more expensive, and there are other service providers who charge less for the same job. Priority service features service today, or any day of your choosing. Priority service calls are performed between the hours of 8 a.m. and 10 p.m. This is a $40 trip charge fee, which includes the travel time to your location. All service, repair or diagnostic work is additional to the trip charge. Overtime rates apply on Sundays, holidays and after 10 p.m. Priority service is our Cadillac service plan.

"Our neighborhood service option features a reduced trip charge of only $10, and you'll also enjoy a 25 percent discount off our priority service prices. Calls are scheduled by neighborhood on specific days of the week. Neighborhood calls may be bumped by priority calls or other events, such as severe weather. Neighborhood calls are performed only Monday through Friday, and no other discounts or coupons are accepted on these calls. Neighborhood service is designed for customers who are willing to help us be more efficient so we can pass the savings on to them.

"With both levels of service, our technician will quote you a firm contract price before additional work is started.

"Do you have any questions about our different service options?

"Which service option do you think works best for you?

"If we would be in your neighborhood before your scheduled day, would you like us to try contacting you to schedule an earlier neighborhood service visit?"

The Upshot

A company has had this policy in effect since last November and reports some interesting results. First, there has been no drop-off in service calls compared to previous years. In fact, total call volume is up compared with last year's same period.

Second, there has been a steep drop-off in customer complaints.

Third, about 85 percent of callers opt for the Priority Service option.

What does this tell us about consumer behavior? For every person who complains about price, there are many more who are willing to pay a premium price for premium service.

The contractor using this script told me that of those limited number of complaints they still receive, most of them come from people choosing the neighborhood service option. This tells me that the priority service option amounts to a way to screen out customers that a company would be better off not doing business with in the first place.

Perhaps the most stunning aspect of this approach is the notice served at the beginning, that "other service providers charge less for the same job." This warning is repeated on the company's job ticket, which states "there may be other service providers willing to perform this work at a lower price. Owner understands that s/he has the option of seeking other bids before authorizing this work."

This came about at the recommendation of a consumer protection lawyer who had been investigating complaints about this firm. The agency had no evidence that the company in question offered anything except honest, professional performance. The only issue was that its prices were above market norms, which is the situation faced by virtually every PHC service contractor who understands the business of contracting. The consumer protection people were the ones who suggested that this company state up front that its prices were higher than normal.

The contractor's first reaction was horror. He thought it would be suicidal to tell callers that his company charges more than others, and most of his trusted business associates told him the same thing. On the other hand, the consumer protection agency was leaning on him hard to either lower his prices or tell people up front that they could expect to pay more. It was one of those damned-if-you-do, damned-if-you-don't situations, or so it seemed.

The pleasant surprise was that business suffered no detectable loss. A two-tiered service policy helped bring about a change in operation that lowers the cost of doing business for this firm, which then passes along those savings to consumers. It came as something of a shock, however, to find so few people choosing the lower price option. Even more shocking was that almost everyone contacted decided to do business with this firm even after being told that others can do it cheaper.

Lessons Learned

The contractor is rather gun-shy about revealing his name, so I won't. But rest assured, this is a real company, and the results I'm reporting here are accurate.

It goes to show what everyone in business ought to know. Price is not the most important determinant of what causes people to choose one firm over another.

For instance, as most of you know, for many years I have been on the seminar circuit teaching "The Business of Contracting" class to contractors around the country. My handouts and other seminar materials are quite bulky and must be shipped prior to my arrival at the seminar location. I generally use UPS, which charges different prices for overnight delivery, two-day service or longer periods.

If I have plenty of time, I'll choose the cheapest way, but if time is growing short, I'll spend more to ship it overnight. This is just one example among many that one could cite of people paying a range of prices for essentially the same service, depending on how urgently they need that service. With PHC service work, as with other goods and services, people go shopping above all for the best value. They want to do business with a company they can trust to do the job right, even if it costs more.