Anytime a group of contractors get together, have you noticed that it only takes a few minutes for the conversation to get around to how low-price competitors are making it difficult to do business in their market? It doesn’t matter what the market is or where it is. The topic is always, “How can we compete with these low priced competitors?” Seldom, if ever, does the conversation get around to the fact that perhaps rather than trying to compete with the very low-priced competitors, we would be better served by providing our customers with greater value for the money that they are spending with our company.

I recently attended the SMACNA Convention at the Broadmoor Hotel in Colorado Springs. And while this may sound like a promotion for the Broadmoor, that is not really my intention. The point that I want to make is the owners of the Broadmoor long ago determined that they were not going to be able to compete with the low-priced motels down the street about a mile. Therefore, they determined that their strategy would be to provide a superior product with superior value to that provided by the standard hotel/motel. They also determined that they were going to set their pricing based on what it would take to provide that extra value, rather than set it based on their so-called competition.

Just to give a few examples, of course, the ambiance at the Broadmoor is exquisite. The mountains, highlighted by Pikes Peak, a beautiful lake, and almost unbelievable landscaping, all make for the upscale experience. Actually, you can probably see the mountains from the small motels as well, but without the lake, plus I’m sure the landscaping is better at the Broadmoor.

Where the Broadmoor really excels is the value they provide in the area of customer service. For example, I left a wake up call each night. In the morning, the wake up call wasn’t just the typical recorded call, but a live, very friendly operator asking if I would like another call in 15 minutes and also asking if there was anything else she could do for me. I was given the impression that I was the only person she was needing to call that morning. However, given the number of rooms, I’m sure that wasn’t the case. But then the epitome of service came the third morning. Apparently after leaving the wake up call, I didn’t get the receiver completely seated on the phone. My wake up call was for 5:30 a.m., and I was in a rather remote building. At 5:32 a.m., I received a knock on my door seeing if everything was OK since they had not been able to get through to my room. Added value like that allows them to be able to charge over three times a typical cheap motel.

Set Your Prices

There are other examples, of course, of companies who have decided not to compete with the lowest price competitors. Consider Starbucks. They are obviously not the lowest price coffee in town. While I am not a coffee drinker, I assume they are providing something very special in the way of coffee value. I assume this, given the number of our employees who bring in their Starbucks sippy cup rather than drink a cup of our coffee maker coffee (which we provide at no cost). I envision the old cartoon of the panhandler, now called homeless person, with his hat out looking for 25 cents for a cup of coffee. Starbucks has obviously found a way to provide exceptional value, as perceived by the customer.

The point in all of this is that we as contractors need to quit trying to be the lowest price competitor in town. My theory is that there is always going to be someone who will be lower priced than us — especially since we are a union contractor. Therefore, we have taken the approach that we need to provide more perceived value to our customers to allow us to charge the prices we need to charge to be profitable. Remember that every one doesn’t want the lowest priced car, the lowest priced coffee, or the lowest priced hotel room.

Set your prices at the level you need to be profitable. Then make sure that you provide the extra value to your customers to justify that pricing.

Publication date: 10/24/2011