Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Fri Nov 30, 2007 9:35 pm Post subject: What the Market Will Bear. I Think an Important Question.
Five blind men encounter an elephant and wish to understand what it is. The first touches the elephant’s side and reasons an elephant is much like a wall. The second feels the tail and reasons an elephant is much like a snake. The third feeling the elephant’s leg decides an elephant must be like a tree, and so the story goes . . .
While each man was partially correct, from his perspective, they were also wrong as to what an elephant actually is. There is a shop, widely known for being very good at wheel alignment. Within a one-mile radius of this shop there are several independent shops, several tire dealers and at least six new-car dealerships, also offering wheel alignment.
This shop calculates the price of wheel alignment based on their cost and the profit they believe is fair. They then work to establish value, by doing a great alignment. Compared to the competition their price is about 5X and they consistently have a backlog of clients and have for many years.
The other shops in the area, base the price of alignments on what they feel the market will bear. One shop priced alignment at 1X, because to him, that was what the market would bear. Another shop prices 2X and a third 3X all because to them, that is what the market will bear. Still another tried for a while to price at 5X but could not sell any at the price, he claims it is above what the market will bear.
The shop that charged 1X has since quit doing alignment because according to him, the market will not support a price that will allow him to make a profit. The 2X shops says alignment is a loss leader, because that is what the market will bear. He continues to offer them in a hope of up-selling other repair. The 3X shops says alignment is a break-even service, but also continues, hoping for additional sales.
My point is, each shop may be right, from the perspective of their ability and knowledge. Their price is, the most that they feel they can charge and likely is. My other point is, like the blind men, they are also all wrong. While as a general rule, there is “an amount” that “a given market” may bear. I believe the amount is based on the value provided to the client and not a static figure. While one shop provides good value at 5X another failed at 1X.
I believe, “the market” is the people that a business, through knowledge, skills and product is able to attract and retain. This market pays 5X for wheel alignments everyday and finds value for the price.
Would they pay more? I don’t believe this should be a concern. Basing price on cost and needed profit and then working to build value is the strong point of this company. The other shops try to base price on what they feel the market will bear.
I believe price must be based on cost and profit needed and the service must represent value at that price. If not either the service must be improved or cost reduced. The more common belief is, there is an amount “a market” will bear and prices must be set to this amount. This is evidenced by loss leader oil changes, flat repairs, wheel alignment, diagnostic services and on and on.
My question is: Being in a one-mile radius it would seem the above shops are in “the same market;” why does the market seemingly bear different amounts in different shops, in the same area?
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Sat Dec 01, 2007 10:31 pm Post subject: Re: What the Market Will Bear. I Think an Important Questio
louis wrote:
My question is: Being in a one-mile radius it would seem the above shops are in “the same market;” why does the market seemingly bear different amounts in different shops, in the same area?
I think you answered your own question when you talked about value. We need to give the customer value in the work we preform. This value has to be from their point of view, not ours.
Different people place a higher value on different things. For some it is all about price, for others it may be connivance, some people want a personal relationship with the shop. The person that is only looking for a 1X price will never be happy at a 5X shop, the same thing holds true in reverse.
Most people expect the same basic things from their service provider. However, at different points in time they may place a higher value on one aspect or another. It is part of our job to teach our clients more of what constitutes value. They may not know that a ball joint made by manufacture A is worse than one made by manufacture B. We need to teach them why we use the better quality part.
I learned someplace that our customers want us to succeed. That has been a valuable lesson.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Mon Dec 03, 2007 9:03 pm Post subject: Re: What the Market Will Bear. I Think an Important Questio
Hi Dave,
Dave wrote:
louis wrote:
My question is: Being in a one-mile radius it would seem the above shops are in “the same market;” why does the market seemingly bear different amounts in different shops, in the same area?
I think you answered your own question when you talked about value. We need to give the customer value in the work we preform. This value has to be from their point of view, not ours.
That may be one of the most important things a shop can realize, in my opinion.
Dave wrote:
Different people place a higher value on different things. For some it is all about price, for others it may be connivance, some people want a personal relationship with the shop. The person that is only looking for a 1X price will never be happy at a 5X shop, the same thing holds true in reverse.
Let me suggest a slightly different twist on the same point. I do not believe it's really about different people at all. I have never believed that people exist with certain dispositions toward auto service. For instance there are no A, B, C or D clients.
Rather, every person can be what is referred to as A, B, C or D at one time or another, with one vehicle or another or even at one shop or another. The difference is not in the person, rather how they feel their needs are best served. This is in direct conflict to what most shops believe and many management gurus teach.
For instance, Mr. Brown may own a 95 Chevy pickup. He only uses it on weekends and does not depend on it at all. It never gets driven far or fast and if it breaks down, it's no big deal. He is not going to spend money to fix the power window, A/C nor ABS light. He may look for cheap service and neglect anything not absolutely necessary. A typical C or D client?
He may also own a Lincoln that he uses for business. He maintains it meticulously, wants high quality service and preventive maintenance. He seeks out the highest quality shop, because on this vehicle it makes sense to him. An A client?
Of course there could also be a hundred other variations. The point is, we must get away from thinking of people as existing in categories. Fire Mr. Brown with his truck and you fire Mr. Brown with his Lincoln. Mr. Brown may also trust and believe in Shop A. To them he would be what is referred to as an A client. Shop B, he does not trust. He would not want them to do any work for him but goes there sometimes for menial services on the vehicle he does not care about. This is only because they are convenient and cheap. To shop B he may be what is referred to as a D client.
Dave wrote:
Most people expect the same basic things from their service provider. However, at different points in time they may place a higher value on one aspect or another. It is part of our job to teach our clients more of what constitutes value. They may not know that a ball joint made by manufacture A is worse than one made by manufacture B. We need to teach them why we use the better quality part.
People do have different expectations at different times and are pretty smart. They may not know the difference in the parts, but they know the repairs at shop A last longer and work better. We easily get the message across with results. Folks measure us by the results we produce and over time.
Dave wrote:
I learned someplace that our customers want us to succeed. That has been a valuable lesson.
That’s a great thought and I firmly believe it is so. Anyone might do well to remember and try to apply that knowledge. Thanks Dave, I appreciate your thoughts.
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