Value Based Pricing ?
A service priced below market value is often perceived as a low quality service
This is Dick. Dick wanted to own his own business and decided he would start a pool service company. He was determined to do everything the right way.
He set up an account with the local distributor and purchased all the needed supplies. He made sure that he had insurance and would get the proper licensing. He got his first few customers quickly, but word of mouth would be slow to develop and he did not think advertising would be a wise decision.
Dick had failed to establish a marketable point of difference that added worth to his brand. He did not have the experience or knowledge that his competitors possessed. Instead of investing in education and increasing his skill set, Dick came up with an idea.
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Dick decided that the best way for him to compete with so many other pool companies would be to cut his prices drastically below what everyone else was charging.
His plan worked! Dick quickly amassed a large group of customers. He was very proud that his business had grown so quickly. Dick thought of himself as a marketing genius.
In competing on price instead of competing on value, Dick acquired quite a few customers that no one else wanted. He built a clientele that was only with him for price and they nickel and dimed him every step of the way. These were not really Dick’s customers. They were customers of the lowest dollar. Building a clientele based on price would prove to be a dangerous strategy.
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Dick’s schedule was full. He had pools to clean from dusk till dawn. Still, something didn’t seem right. Dick found his customers to be challenging and demanding. They were reluctant to approve items necessary to maintain their pools (O-rings, baskets, gauges, etc). This made his job harder and he was having trouble keeping up. He was going to need some help.
Dick ran an ad in the local paper and the results were less than promising. He wasn’t able to offer a very high wage. Although Dick had a lot of customers, he had undercut the market so drastically that he could not afford to pay much. He could not offer any benefits. No one wants to work for Dick.
Dick didn’t know what to do and was quickly becoming overwhelmed. His phone was ringing constantly, not a bad problem to have, but many of the calls were complaints. Unable to find help, he would start to cut corners in an attempt to make his company profitable. This caused his pools to suffer. Some of the other Pool Service companies in the area gave Dick the nickname “Splash n Dash”, others called him “Dump n Run”, potential customers just didn’t call…
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It wasn’t long before Dick began to start avoiding his phone calls from the customers he still had. He started skipping pools on his route in an effort to catch up. He was receiving bad reviews and was damaging his company’s name.
Dick was broke. His truck was in the shop and he could not the afford repairs. He owed the local suppliers money and they began to refuse to fill his orders. Dick had run his company like an employee, not an entrepreneur. There was never much left after he paid himself.
Dick’s company eventually went out of business. He was deep in debt and unsure of how he would recover; phone calls from collection agents had now become the norm. The stress had taken a horrible toll on his family. The handful of good customers that Dick had on his route were now left with a bad taste in their mouths toward swimming pool service companies all together. The pricing Dick had set for his company lowered the value of pool service in his area and severely damaged the market.
-The Moral of the Story-
When you charge a Fee for Service below the market value, you diminish the worth of your business and erode the value of that service for everyone in that area that offers it ?
Don’t be like Dick. If you own a company, or are considering starting one, do your due diligence and determine what the market will bear before you begin. Make sure that you allot for the necessary certifications, insurance, and licensure (where required). Make sure the profit margin is high enough on each job that it supports all the expenses necessary to be a business, plus unexpected vehicle repairs, and maybe an employee down the road if needed.
If you do not have enough education in the field, there are a tremendous amount of resources throughout the industry available to you. Many of the manufacturers offer training on their products at no cost. Trade organizations are a tremendous resource for educational opportunities. Invest in and attend a CPO Certification class for starters (That would be a Good one!). If you still do not have the skillset you need, work for someone for a couple of years before venturing out. If you do not believe you bring enough to the table to compete on value, step back and wait until you do. If you are not valuable enough to charge the going rate (or more), then the product you are offering is not of value.
⁉if the above is not the case and you have the skills, why in pete’s sake would you not charge what you are worth? ?
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