Equipment Pricing Part 2

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.

PRESENTATION
There are a variety of schools of thought about the best way to present the price on an equipment sale. They range from verbal quotes to scratching a figure on the back of an envelope or business card to preprinted proposal forms to written proposals. This doesn’t include the presentation books and computer-aided presentations that super sales professionals like Steve Kerr utilize.

Obviously, scratching a number on a piece of scrap paper is Bubba’s method. Hopefully you are using preprinted forms or full written proposals. Regardless of the method, present the options side by side. Layout four columns for the customer. Start with your Bubba system on the left and increase the features/quality/price as you move to the right. In each column, list capacities, efficiency, each feature, each accessory, the warranty, and the price.


FOCUS ON MONTHLY PAYMENTS
Present the total price, but also present the monthly price if financed. Emphasize the latter. Show the monthly payment difference between the “good” and the “better,” and then the difference between the “better” and the “best.”

Calculating the finance charges should be relatively simple. You can use the customer’s own credit card payments to illustrate. Typically, any credit card involves a revolving charge plan where the minimum payment is 3% of the outstanding balance (note: most manufacturer financing plans are revolving plans with the exact same 3% minimum payment). Thus, a “good” system costing $3,000 will result in a minimum payment of $90. The “better” system, costing $3,800 will only costs $24 more per month (i.e., $3,800 X 3% or $114, minus $90 equals $24).

When you shift the dialogue from total payments to monthly payments, you shift from a discussion of $3,000 to $90 per month. When you shift to the difference in monthly payments, you’ve changed the focus from $3,800 to an extra $24 per month.

Isn’t this shifty? Not at all. A few years ago I bought a hole in the ground. Some people refer to my hole as a swimming pool. Given the way cash gets sucked into it, I prefer the term “hole” or “pit,” as in “money pit.” Regardless, I could not afford the pool. I could afford the monthly payments for the pool.

People buy based on cash flow, not total price. This is one of the reasons leasing is so popular. Think about it. How do most car dealers present their prices? They sell payments, not price. So should you.


FINANCING SOURCES
You should take another tip from the car dealers and line up multiple sources of financing. Don’t depend on the manufacturer program that’s limited to “A” credit. Find an alternative or two. If you offer to finance and fail to secure credit approval, the sale is dead. The homeowner’s too embarrassed to buy for starters. If they are rejected by the finance company, then financing is the only way they can buy. Finance companies prefer to offer financing to people who don’t need it.

Find a company that offers installment financing. The payments become much more affordable when you stretch them out over a ten year note.

Work with a bank or another third party lender who offers home equity loans. Not only does a home equity loan generally result in higher approval rates and lower interest rates, it gives the homeowner the ability to deduct the interest. People go to all kinds of extremes to avoid paying taxes. While the interest deduction is unlikely to amount to much, the idea of deducting the interest is attractive enough to serve as a tie-breaker with some people.


STEPPING UP
Whenever I’ve suggested presenting FOUR system options, many salespeople’s eyes glaze over. “Four systems?” they gasp, “That’s a lot of work. I don’t even have four systems.” Sure you do.

There are many ways to step up your offering. The manufacturer of a particular plumbing product, for example, sells a “5 year” and a “7 year” model, with the five and seven referring to the warranty. The product is identical. Only the price, nameplate, and warranty change. In fact, the nameplates are affixed by the supply house. A plumber walks in and asks for a “5 year” model and someone in the warehouse slaps the appropriate nameplate on the unit before taking it to the loading dock.

Increase the warranty. Purchasing a manufacturer or third party extended warranty, or create an in-house risk management program to cover it yourself. You can increase the efficiency. You can bundle extra accessories. Get creative.

When super salesperson, Tom McCart, was in the field, he prepared a variety of ways to step up. He used to ask questions and listen to the homeowner to determine what he would present (what a concept!). If the homeowner was concerned about efficiency, Tom would step up the efficiency. If efficiency wasn’t important, but the accessories were, Tom would step up by bundling more accessories into the higher end system. Have more than one way to step up the offer.


RESOLUTIONS
This coming year, resolve to get your equipment pricing in order…

Resolve to offer homeowners choices on every sales presentation.

Resolve to create a “Bubba” system.

Resolve to review and improve your presentation method.

Resolve to present monthly payments, rather than total price.

Resolve to line up multiple financing sources, including a long-term installment financing source and a home equity financing source.

Resolve do design a variety of ways to step up the offer.



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

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