Down with loss leaders
Having just watched the Democratic presidential debate, I was reminded for the umpteenth time that I should never run for political office. Thank goodness for those who do. I applaud their willingness to serve. Even on my best days as a leader, I would never measure up to the current standards. I have changed my mind about standards.
Is changing your mind so terrible? What if, in light of new information, you take a different position? Once upon a time, a lot of people thought the world was flat. Is stating the world’s roundness a flip-flop, or an improved understanding based on new data? If you are running for president — as a Democrat or a Republican — is it really a bad idea to admit that you made a mistake or that you have in any way changed your stance on an issue?
Hmmm. I made a dozen or so mistakes today alone. And, I have certainly changed my mind about things that I was once fully committed to. At the risk of not being elected to anything ever, here are a couple of things I have changed my mind about.
Service agreements? Or bait and switch?
Heating system tune-ups that cost $229, $129, $79 or whatever have done a lot of damage to the industry. Yes, I understand that the point is to bring a customer to the table. Then, be at the ready to find stuff that is broken and make up for the loss-leader price by generating an add-on sale. But, service agreements have devolved into inconsistently delivered service, damaged customer relationships, and big financial losses.
Suppose you have 10,000 HVAC service agreements. You can set them up so that the renewal dollars are automatically collected from your customers’ credit card accounts on a monthly or yearly basis. Pretty sweet. However, you are required to provide service for those sales. So, you just locked in 10,000 discount jobs.
The hope is that the service tech finds opportunities to offer appropriate new equipment as the need is discovered during the service agreement visit. Because the sale is a loss leader, the service agreement techs are often the new kids or least experience techs. Where it gets weird is when the tech tries to communicate what is covered and what isn’t with your 10, five, 16, or whatever point plan. The tech often stumbles over the deal points while the customer folds his arms and scowls. I’ve gone on over 100 ride-alongs. What I’ve found is that the tech usually bails on the add-on opportunity, even if upgrades are a good idea. The arms-deal level of negotiation required to make the sale is just more than he can handle.
We have gone the wrong direction with these programs, and now they are considered Standard Operation Practices. We devalue the essential, important, life-enhancing service you provide when we hawk loss-leaders. I get it that many contractors consider the uncollected sales dollars as part of their marketing costs. But, are they really just bait-and-switch tactics?
The worst of the worst? The “Any Drain $99” ads
The worst of the worst of these loss-leader marketing tools is the discount drain cleaning offer: “Any Drain for $99.” Is the point here to just get a camera down the line and upsell to a bigger service? Can you really clear any line for that price? I know several contractors wrangling with the attorney generals in their states because they don’t actually have any invoices that demonstrate the advertised price.
My real issue is that I believe so strongly that what you do is incredibly valuable. It shouldn’t be given away. We have, as an industry, trained customers to price shop and haggle. You don’t haggle with a physician. He doesn’t say, “Let’s take a look down your throat — for only $29 — and hope we find some cancer!”
And if you believe, as I do, that PHC contractors have maintained the health and safety of society, and prevented more disease than doctors have cured, we shouldn’t be discounting your services. If what we are going to offer is insurance, then let’s restructure our companies as insurance companies. If what you are offering is on-demand service, then let’s market the value of that service.
A service agreement or preventative maintenance agreement could work. If the program was priced to cover the costs of the ongoing service. You could offer 10-15 percent off on these programs as you can schedule the services, most of the time, when it is a non-emergency situation. On commercial HVAC or drain systems, a thoughtfully-designed custom maintenance program is a great value to your customers. No need to discount it. For residential service, you could limit the service provided for the plan or the club to a 10 percent discount and front of the line service. We do save marketing costs with repeat clients. Then, your highly trained tech could arrive in your fully stocked truck and do an appropriate service call for that specific equipment. Not all systems require the same service. After testing the equipment and asking good questions of the homeowner, the tech can offer options for maintaining or upgrading the system. At prices that allow you to make your desired amount of profit. Fair enough?
I used to love service agreements. I’ve changed my mind. I welcome your differing opinion. Hop in the truck with two or three of your service techs and see if what you hope is happening out there is actually happening. Then, share how you do it that makes it a win for you, the tech and the customer.
I’ve changed my mind about this, too
I used to have to be right about things. I’m over it. I have learned so much by releasing my attachment to what I know for sure. Again, the ride along experiences are what caused me to lighten up about being the smartest person in the room. Your techs will help you solve whatever problems you have with service agreements, or loss leaders, or how you present prices and services to your customers.
We can’t change the past. We can, however, start over. I can’t change the whole PHC industry. I can change what I do. You can, too. As we do, we create ripples, which may bump into others and grow into a movement. As they do, in our lives, family, business and community … things will be better. You may be just the person who restructures our industry and helps us all lay claim to the honor and profits that should be front and center.
Hey … you could run for president!
Ellen Rohr provides “in the trenches” insight that business owners can relate to. Comments? Questions? A different view? Reach her at 417-753-1111 or firstname.lastname@example.org. You can also join the Bare Bones Biz community, at www.ellenrohr.com, for free tips, problem-solving webinars, money-making tools and lots of love.