By louis
Published: May 12, 2007

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 in our area, 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.

The 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. The price is about 5X and they consistently have a backlog of clients and have for many years.

The other shops 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 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.

The point is they may all 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. I believe many times people reason that because they cannot do something, it cannot be done. I also think, when they decide it cannot be done, they look for reasons, hopefully outside of themselves, to justify their position [the market.]

As a general rule, there may be "an amount" that "a given market" may bear. I believe this amount is based on the value provided to the client more than what other businesses charge. While one shop provides good value at 5X another failed at 1X.

I  also 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. Others in the same area [market?] try to base price on what they feel the market will bear.

A question to ponder: Is it "the same market" the other shops are serving, and why does it seemingly bear different amounts in different shops, in the same area?

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