The first day I started my business, I knew exactly what I was selling. What I didn’t have in my sights was just who I was competing against to make the sale. Physical labor along with the expertise and a unique skillset are what we offer as plumbing, HVAC and hydronics contractors. Our licenses and certifications are tools we use to not only qualify ourselves for prospective hiring, but are also the tools we need to uphold our labor rates. Product pricing is a whole other story, and when establishing a percentage markup or desired profit margin on materials we are often confronted with the fact that we cannot compete with the big box stores (BBS). It didn’t take long before I found myself back peddling while trying to explain to a customer that buying from me was in their best interest. I’m sure you have had that same conversation many times with your own clients.
This topic isn’t new to our current economy. We buy goods from all sorts of providers, BBS among them. Why should we ask our clients to do otherwise? How can we offer the same products when it most certainly comes at a higher price? This very situation has found many contractors, for many years, on the outside looking in when trying to continue in business while competing against such formidable foes armed with the buying power one million times that of their own. Well, convincing your clients to buy from you, while at the same time getting your price, is totally within your reach.
Before I start, I want to clear the air a bit. Much of what’s been written on this subject has been disguised as selling value. I don’t buy that approach and consider it a bunch of malarkey. Attend a conference or sales meeting touting the strategy of higher sales underwritten by the value selling technique, and you’ll be filled with the idea that you can overcome price wars against your competitor by selling more products for the same price. For example, “We include installation when you purchase from us.”
I’d like to state to the giant elephant in the room that selling more product for the same price as your competitors isn’t selling value. It’s discounting, which is the complete opposite of selling value.
For example, if your faucet or thermostat comes with installation included, and the price is the same as you competitor’s [BBS or contractor] faucet or thermostat, but the competitor charges money for the installation, all you’re doing is discounting the installation down to zero dollars. You’re still competing on price and that’s not selling value. Oh, and just wait until the next BBS flyer hits the mailbox and a sale on the said item undercuts your price by 20%. Now who is in control of your pricing?
The trick to keeping yourself out of the discount game is to sell value by keeping your price high. Even when faced by a lower-cost competitor and without giving away more product.
Put it on the table
Differentiating yourself, your offering and/or your company is the key to justifying a higher price than your competition. The basic types of differentiators are as follows:
Brand:An emotion uniquely ties to your company or offering. In the case of direct competition you’ll need to highlight why you sell a specific brand.
Feature:Point out not only a characteristic or capability that your offering has, but also point out what other products lack. For example, point out the premium materials contained in the construct of your faucet vs. those of the BBS faucets.
Convenience: Show them your product is easier to purchase and support than the competitor’s product.
Quality:Supply references as to how your product is of higher quality (last longer, more reliable, etc.) than your competitor’s offering.
Integration:Explain why your product will work better with products that the client has purchased in the past.
Commitment:Again, supply references and explain why you’re personally more committed to the customer relationship than the competition.
This list is only a start. Identifying more differentiators and articulating them will further your cause and help you defend the higher price to your favor.
Come to a consensus
Selling solutions to problems is what we do. Some do it better than others because they come to an agreement with their potential clients that the benefits offered by their products outweigh those supplied by their competitors. Think about it, not only does a plumbing or heating contractor supply the labor and skills needed to install that product, but they will warranty the installation for X amount of time. The BBS may provide installation, but only when it’s convenient for them and is in support of their overall retail profit goal. As soon as it becomes less profitable, they pull the plug at will. Ever heard of a plumber or HVAC contractor doing this? No. We simply, and begrudgingly at times, dig in for the sale because it is what we do. And good luck to the customer seeking help after the sale from the same BBS they purchased from. That too is your place to shine.
The bottom line is this: competing against the huge retail giants on price alone is a futile task. The amount of time spent already deciding where to buy our materials and how much to mark them up is a losing battle. Imagine Any Guy Plumbing trying to figure his markup on a toilet to remain price competitive with the BBS that buys boxcars full of toilets every month. Then consider the time, on and off the job, devoted to the process as a whole. It’s an unbearable burden with little to no reward. Last time I checked none of us started in business as a warm-up for bigger and better things to come. As I see it we get one chance at convincing our customers why it is us they should spend their hard earned money on. Put the differences on the table and show them why we are the better investment.
Side note: I chose the name of my monthly column, here on the pages of CONTRACTOR, to be Modern Contractor. I will never forget those that came before me and the great men and women I have learned so much from. Like them, I am trying to make it for myself and my family in a time where it almost seems as though everything changes by the day. I like to include humor in my writing when the subject matter allows. Most of all I tend to find a great deal of interest in subjects like social networking and self-marketing. In the coming months I’d like to tell of my experiences in these areas. Thank you for your time and thanks to CONTRACTOR for having me as a monthly columnist!
Eric Aune started Aune Plumbing LLC, in 2004, and to carry on the tradition of family members before him, he has specialized in residential and small commercial hydronic heating systems and service. He is a graduate of Dunwoody College of Technology and Plumbers Local 15, Minneapolis Apprenticeship Training Program, and is currently a United Association Instructor and teaches for the Plumbers Local 15 JATC. Aune is also founding partner and vice president of mechanical-hub.com. Contact him at: [email protected].