Equipment Pricing Part 1

February 8, 2004

By: Matt Michel

This is part of a continuing series of New Year’s Resolutions aimed at helping your company become “fiscally” fit. In this series, we will walk through the marketing mix of product, price, promotion, and placement. This Comanche Marketing tip focuses on equipment pricing.

EQUIPMENT PRICING IS DIFFERENT

Most service companies sell equipment, whether it’s air conditioning, furnaces, water heaters, RO systems, landscape lighting systems, swimming pools, security systems, or something else. Equipment sales differ from service sales.

Equipment sales are higher dollar.

With the exception of breakdown driven sales, homeowners usually have more time to make a decision.

Homeowners often have the option to gather competing estimates.

Sales professionals often enter the picture with equipment sales, while technicians make service sales.

As a result of these differences, contractors must approach equipment sales differently. There are books written on this subject too. I don’t have the room to produce a book. Well, actually I do. This is the Internet. But you don’t want to read that much and I’m too lazy to write that much in one sitting. Instead, here are a few ideas about making your equipment pricing more effective.


OFFER CHOICES
My local grocery store carries over 100 varieties of salad dressing and nearly the same variety of hot sauce and spaghetti sauce. There are even more choices for soup and a whole aisle dedicated to cereal. Why carry all that stuff? Simple. People like choices, even for minor purchases. So why should we expect them to be different when it comes to a major purchase?

Offer choices in brands, in quality, in energy efficiency, in color, in combination. Give them more than one option. If you don’t, it’s an invitation to call a competitor.

If you give them the choices they want, the homeowner has less of a reason to call a competitor. Here’s a secret. Homeowners really don’t want to call anyone else. They may not tell you that, but it’s true. Survey them confidentially and most people admit they only call one or two companies.

But they won’t tell you that. They’ll tell you they are talking with other companies just so you won’t try and take advantage of them. Sometimes they will get multiple bids. Sometimes they will not. You can reduce the odds they will call your competitors by offering them a variety.

When I give speeches, I often tell the story of the first washer and dryer my bride and I purchased. We were newly married and broke. We decided to walk into a Sears “just to look.” This was going to be our starting point. Venturing into a Sears store to look at the appliances is like walking down the cereal aisle in the grocery store. There was a million choices. We kept looking at one brand versus another, one feature set versus another.

“Look honey. This one’s only $15 per month more than the other one!”

“Oh wow, this one beeps when you press the buttons!”

“Hey, a black model.”

“Oooo, pinstripes.”

We never made it to the next store. We didn’t see the point. Everything we could possibly imagine was right there. We ended up walking out with the top-of-the-line Kenmore washer and dryer. It was way too expensive given our precarious financial condition. We didn’t care. We were HAPPY!

Offer choices. And make sure the choices you offer represent a range of prices. Some people want the least expensive option. Some want the best. Others want something in between.


BUBBA SYSTEM
One of the greatest challenges in equipment sales is justifying the difference between “Bubba’s” prices and yours. For example, Bubba comes in, quotes a low end piece of equipment, strips all frills, offers a low margin, and generally does a cheap job. Then, you come in and your basic equipment offer is 50% more. It’s tough to close a gap that big.

Bubba says his system is good. You say yours is good. The homeowner doesn’t know what to believe. As far as the homeowner’s concerned, both of you are issuing opinions. Nothing’s objective. But the price is real, quantifiable. The only objective piece of information the homeowner has is price, which works out in Bubba’s favor. Big time!

If the homeowner shares the price difference with you, you’re in a no-win situation. You can’t tell the homeowner what’s wrong with Bubba. No one likes it when one company slams the competition. Yet, it’s almost impossible to point out why your equipment is better without highlighting Bubba’s deficiencies.

And remember, if Bubba’s selling an air conditioning change out for example, he doesn’t highlight the fact he’s not replacing or cleaning the line set. He doesn’t mention the evaporator. He doesn’t speak of filter-driers. He doesn’t say a word about the pad or leveling the condensing unit. Bubba doesn’t talk about permits. When you talk about these things, the tendency is to assume that everyone does them. So Bubba gets credit he doesn’t deserve.

It’s a dilemma. The solution is to offer a Bubba option. Huh? A Bubba option?

Price up a low end, budget system, doing the bare minimum and call it that. Call it your “Budget” system. Cut the margin on it to the bare minimum you’ll accept. Then, use it as a foil.

Tell homeowners about your own Bubba (Budget) system. Point out the differences between it and your basic system. Be clear about the differences, about why they matter.

If you take a low end approach, with a reduced margin, the odds are you can get within 10% to 20% of Bubba. That’s a difference you can justify by the quality of your company and the trustworthiness of your salesperson. Now, when Bubba offers his lowball quote, the homeowner thinks, “Ah ha, that’s like the budget system.”

Be warned. Some homeowners will select your budget system. They might be planning to move in six months, out of work, cheapskates, whatever. If you present it, you must be prepared to install it from time to time.

I talked with a large air conditioning contractor who added a low end system to his company’s portfolio. To his surprise, he sold half a million dollars worth of these systems. Did he cannibalize more profitable sales? Possibly. But he didn’t think so. In his opinion, this was business he would not have gotten otherwise. As long as you’ve got the capacity, it’s marginal business that helps cover overhead.

What if you do not have the capacity? What if all of your installation crews are busy? Tell the homeowner that it might take longer to get the budget system installed, that one of the reasons it costs less is you schedule these installations after you’ve completed your others. You might lose a sale doing this, but it’s better than winning the job and losing a more profitable sale in the process.


Source: Comanche Marketing. Reprinted by permission.
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Copyright © 2003 Matt Michel

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