Tips for Competing with Low-Priced Competitors

Imagine your prospect’s sticker shock when your company’s price is 50% higher than other firms for what they perceive as essentially the same layout and cabinet quality. Let’s say the project is for a kitchen remodel; the drawings from each firm look pretty much the same to your prospect. So how could there possibly be a 50% spread in price?

Your company has a large, well-appointed showroom, multiple cabinet brands presented in complete room environments and a reputation for good design, quality work and business integrity. Your price is $39,980 for cabinets, countertops, installation, and tax…total client satisfaction guaranteed.

Operating out of smaller space, with more samples than complete displays, Competitor A has not been in business as long. Her price for the “same” project is $26,000…complete satisfaction guaranteed. And your prospect has received other bids in that same neighborhood.

Multiple Risks Involved

While the lower price may look very appealing, the discerning consumer knows there’s a bigger dilemma: namely, which price is the right price?

Actually, each party has considerable risks at stake:

  • Your firm may have priced the job too high and risks losing it. Worse, being tagged with a high-price reputation will not only discourage referrals but limit growth potential.
  • Your competitors may have priced the job too low and risk losing money on it. Once that’s realized, they risk losing credibility by asking for more money after the project is underway. Or, they risk losing interest in the job because they can make more money by selling the next one. The apathy and lack of follow-through will certainly limit referrals and future business, too.
  • Your prospect shoulders the greatest risk of all: If Competitor A is chosen, they risk paying too little and getting a shoddy job that must be lived with for many years. In the worst case scenario, they could even lose their deposit money if Competitor A’s weak business management practices, a recessionary economy or a combination of both force this company to shut down. Then it would cost your prospect even more money and aggravation to find someone else to complete the project. On the other hand, if your firm is chosen, they risk paying too much and feeling foolish.

In such situations, you should understand your prospect’s predicament and try to help:

  • Remind your prospect of the intangibility of kitchen projects.
  • Complete a Company Price Comparison Worksheet with your prospects to help them understand where the differences are.
  • Provide a Company Reference Verification Worksheet so they can research the credentials of each firm.

The Intangibility of Kitchens

Your prospect needs to understand that kitchens are intangible products. They become tangible only through a comprehensive process of interviewing, consulting, designing, estimating, ordering, scheduling, coordinating and installing an incredible number of products, fixtures, surface materials and minute details. Only then, after using the new kitchen, will your prospect know how well the tangible product will actually perform.

To accomplish all of this requires people with extraordinary and diverse skills, product knowledge and professionalism. So it’s these intangibles – the process and the people – that can make or break a kitchen’s success.

If a kitchen doesn’t fit as designed or specified, or if it doesn’t function properly for your prospect’s individual needs, the results can be terrible.

The Price of Performance

Being highly people-intensive, kitchen firms are subject to enormous quality control problems. There are hundreds of possible error sources in producing a kitchen…mis-measuring a wall, overlooking a heat duct, miscalculating the layout of the cabinetry, incorrect appliance specifications, etc.

As a result, the professional firm will organize itself with a division of labor, a series of systems and the best quality people available, which will substantially reduce the risk of error. Indeed, some of the larger and more progressive firms have recently been introducing management information software into their operations to help control the voluminous detail in their projects.

It’s been proven that the extra costs of these services at the contract stage save up to 20 times the money wasted in correcting mistakes and oversights, either during the job or at a later date.

Accepting Obligations

When it comes to kitchen remodeling projects, as with most things, people usually get what they pay for. The professional firm has both a vested interest, and an obligation, to have prospects know what to look for when evaluating two competing proposals with pricing that may be 50% apart – or more.

After all, the professional firm knows how complicated (and costly) a kitchen remodel can be to design and produce…how difficult it is to make it “fit like a glove” with a minimum degree of dislocation. The professional firm knows that it’s accepted industry practice to use customer deposits for working capital purposes. And the professional firm knows that it’s possible to remain in business for years in this industry, operating at a loss but with a positive cash flow, due to these customer payment terms advocated by the National Kitchen & Bath Association.

An unusually low price isn’t a conclusive indicator that a competitor is going out of business. It’s more likely that this competitor has a lower regard for the costs, effort and services required to produce a kitchen with acceptable functional design, aesthetics, scheduling, coordination, workmanship, on-site care and cleanup, and overall performance.

Identifying Price Differences

There’s an awful lot more to buying a kitchen than just picking out a pretty set of cabinets at a showroom. And unique to intangible products, such as a newly remodeled kitchen, is the fact that the customer is seldom aware of being served well. With intangibles, customers usually don’t know what they are getting …until they don’t get it.

It’s only when their friends wonder out loud why the cabinet doors don’t line up evenly that the clients become aware of what they bargained for – faulty installation – as one of a host of possible undesirable conditions.

Professional firms must identify those areas of difference engineered into the project to enhance its quality, appearance, performance and satisfaction. By placing fair values on these differences, your prospect is then in an informed position to assess the risk of taking the lower price proposal versus paying for the worth of the enhancements in the higher price proposal.

 

Ken Peterson, CKD, LPBC, is president of the Chapel Hill, NC-based SEN Design Group and an instructor for the “Best Business Practices for 2012” seminar, co-produced by KBDN. Peterson can be reached at 1-800-991-1711 or kpeterson@sendesign.com.

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