July, 2006

The High-Price Myth

By Rick Schumacher

We would’ve got the sale, but our prices are too high.” In the never-ending battle to boost margins, this is the all-too-common report that sales managers hear from the front lines. You may know that they’re wrong, that your prices are perfectly in line with current pricing in your market. I’d like to share recent experiences with two different companies that shatter the myth of “our prices our too high.”

I recently called an established remodeling firm to discuss finishing the basement of my house. I had some ideas of the ideal finished project, but looked forward to hearing the ideas of someone who does this for a living. Based on the dream basement featured on this company’s expensive direct-mail postcard, I expected a first-class sales presentation. Let’s just say….he fell a little short. The rep showed up armed with a thick photo album, presumably of completed basement jobs. After walking around with a deer-in-the-headlights look on his face, and stating that he really didn’t have any ideas, he opened his photo album. Among the hundreds of photos inside, only two were basement jobs. The rest were shots of random remodeling projects that had nothing to do with basements.

A few days later, I was talking with the owner of a deck company for background on an upcoming story. Here’s how he explained his sales process: Before beginning to sell, Bob takes the time to walk through the space, complimenting homeowners on their space, and stating that there are some exciting possibilities for the new project. His sales book starts off with copies of his contractor licenses and clippings of newspaper and magazine articles featuring his company. With his credibility established, Bob begins showing and selling. He talks easily about the pros and cons of different materials. The bulk of his book is comprised of relevant photos of completed jobs.

Needless to say, the first rep didn’t get the sale. And it had nothing to do with price. In fact, we didn’t discuss price. And frankly, it didn’t matter. Even if his price were rock bottom, it still would have been too high. When I asked him how business was, he lamented that his company used to be so busy that they had to turn down work. Now they have to advertise more than ever to keep busy.

Bob, on the other hand, claims to close four out of five presentations. And it’s not because he’s the cheapest. In fact, Bob boasts that his prices are higher than any of his competitors. Plus, his company’s revenues have grown more than 30% each of the past three years. If people bought purely on price, Bob would be out of business. Instead, he’s thriving because he understands his product, the market and most importantly, that people will gladly pay more for solid value.

Obviously, pricing is a primary piece of the profit puzzle, and it is crucial that your prices reflect your product and service offerings. But the next time you hear the phrase, “your prices are too high,” it may be time to take a closer look at what you are really selling.