Everywhere we turn these days we see ads promoting lower prices and discounts. The recent great recession has altered the mindset of not only consumers but of business owners as well.
In a reactive mode, many companies resort to discounting prices as a strategy to either gain new customers or make up for sluggish sales. This strategy just may end up hurting your bottom line.
My shop fell victim to this discounting strategy. At the start of 2010 we lowered prices on many services, repairs and diagnostic jobs. Why? There were a few reasons.
My service advisers were getting weary with all the sales objections and felt that consumers did not want to buy. They pointed to the economy and to our price structure. Many of my competitors, including new-car dealerships, lowered their prices. A local shop and a few dealerships started to give away diagnostic work, advertising “free check engine light analysis.”
My service advisers recommended that we lower prices. I reluctantly agreed. I told them that if we saw an increase in sales, then the strategy worked. If not, then we may have shot ourselves in the foot.
After six months I did a sales analysis along with a customer growth analysis. The results were disturbing. Our customer growth remained steady, our car counts went up a little, but overall profit went down. Then I did a jobs analysis. I wanted to see if lower prices meant an increase in the number of jobs sold. Well, it didn't.
My fears had come true. The lowering of prices on select jobs proved only one thing—lower income. In other words, we sold the same amount of work, maybe slightly more, before lowering our prices. All we did was take in less money for virtually the same amount of work. Without consulting my manager or service advisers, I raised all the prices back up to where they had been.
For the second half of 2010, our number of sold jobs remained just about the same, our car counts remained strong and our new customer growth was still steady.
How did the second half of 2010 compare with the first half? We increased earnings. Lowering prices, especially on diagnostic work, proved to be the wrong move.
Was our business affected by the recession? Yes. Did our customers selectively hold back on some spending during that time? Absolutely! But did we lose customers or experience a decrease in car counts? No. We actually gained new customers.
The reality was that people were unsure of their futures and were holding back not because of our prices, but out of fear. Can you blame them?
People saw their retirement investments crumble away, the equity of their homes declined and many of them lost their jobs. People also lost faith in major corporations and in the government.
The recession played a role in how major companies look at their business models. Howard Schultz, chairman and CEO of Starbucks Corp., took a small store in Seattle and built it into a global business. He built his brand, not on price, but on culture; a culture of taking care of employees and creating a customer experience so unique that people want to return.
When the company was going through rough economic times, Mr. Schultz fully understood how the economy affected Starbucks, but he publicly stated he didn´t believe cutting prices was a sustainable business strategy.
Instead, Mr. Schultz began to focus on the new customer of today and how his company was relevant in their lives. He understood what influences and motivates his customers and what his company stands for. He trusted that people would align themselves with the values and culture of his company.
For me, cutting prices was a lesson in branding and value proposition. We lost sight of what made us successful: It wasn't our prices that drove people to us; it was us.
It´s our culture and who we are as a company: quality service, convenience, trained technicians, friendly staff and community involvement. In other words, we put people first before profit. These are the reasons why our customers come to us, and I'll bet they´re the same reasons why your customers go to you.
Look at your company and its culture, make sure you truly know what motivates and influences people to want to be part of your company and patronize your business.
Harley-Davidson has inspired and influenced people to the extent that some will tattoo the Harley-Davidson logo on their bodies. I must admit, I don't think any of my customers would ever consider tattooing my company logo on their arms, but it would be nice, wouldn't it?
Joe Marconi is owner of Osceola Garage, an automotive service and tire shop with two locations in Baldwin Place, N.Y. He also operates AutoShopOwner.com, a networking website where repair shop owners and personnel can share ideas.