Today more than ever home buyers and remodeling customers are fixated on price. Our nation’s consumer mindset is an intangible force behind most sales negotiations, including those involving major purchases of new homes or remodeling projects. The impact on our industry is builders feeling beat up and exhausted trying to overcome this issue and ultimately competing with one another on price.
The problem however, is not just the customers and their attitudes. Selling our products requires a healthy attitude on the seller side of the table too. Like it or not, customers in today’s world mostly come pre-programmed. But here’s the catch; so do we! Once builders begin to recognize the depth of this scripting on the part of both seller and buyer, a strategy to break this cycle and consistently win profitable sales becomes clear.
Builders producing custom homes and remodeling projects are not commodities dealers! To produce profitable results in the custom building industry requires vast expertise, knowledge and intestinal fortitude; unique products with unique value. When drawn into the endless downward spiral of competing on price, we allow ourselves to be perceived as commodities, bought and sold on price; a no-win proposition. Custom builders focused on profitable results understand that competing on price is a death wish. Competing to be unique however (as opposed to being the best), is where competitive advantage is gained and the challenging issue of price becomes secondary!
Strategy expert Michael Porter captures this mindset with these thoughts: competing to be unique requires focus on creating superior value, not on imitating competitors. Because customers receiving value (as they define it) have unique choices, price is only one variable, and usually not the most important one. Companies that learn how to define and deliver value can earn sustainable returns (profit). Competing to be the best feeds on imitation. Competing to be unique thrives on innovation.
Translated, a relatively small percentage of customers can be well served by average companies. Most are looking for (and often demanding) something more than average. They want value but cloak their value proposition in price language. Here lies great opportunity for custom builders wanting to break this cycle – innovation! Rather than allowing customers to chart your course you must chart your own course and commit to following it.
How does a builder break the cycle and do away with competing on price?
- Clarity! Create clear profit goals including your net profit goal in dollars (not a percentage), and your gross profit percentage goal. If you struggle with understanding these numbers and their implications for success, get help. There are multiple resources well within your reach, but there is no other option if you are committed to succeeding!
Take our GPScorecard to your CPA, business coach or financial advisor and learn how to accurately predict revenue requirements and pricing parameters. As the saying goes; if you don’t have a target you will no doubt hit it every time.
- Concise process: every salesperson needs a documented selling process that defines each step a prospect must take on the journey to a contract. The steps will not be suggestions, but prerequisites to each following step. That means learning how to graciously say NO when a price scripted buyer asks you to “just email me the bid”.
With that kind of clarity, a builder becomes a defender of profit vs a price giver. And in answer to many of your questions right now; yes, some customers will opt out. Please accept that in exchange for consistent profitability, you cannot be all things to all people!
- Courage; being focused on profit vs sales takes a deliberate choice to eliminate some prospects from your pipeline. Those who are stubbornly addicted to price are almost always a problem waiting to happen. Consider that it would always be better to let your competitors (those still competing on price) have them.
Try language like this: “I understand Mr. Prospect that price is important to you. It is important to all of our customers, and to us too. But we are committed to profitability around here, because we’ve learned over the years that without it, we cannot deliver the value our customers expect and deserve.”
Learning how to defend your profit and not your prices is a skill that delivers long-term successful outcomes for builders and their customers. 2018 could be the time for you to break the cycle!
 Adapted from Understanding Michael Porter by Joan Margretta, copyright 2012, Harvard Business Review Press