Moving Beyond Sticker Price
Originally published: 12.01.07 by Ron Smith
Informing customers will help them understand lifetime costs and move past initial investment costs.
When you or one of your company’s sales representatives presents a proposal on an equipment replacement system and are told by the home-owners that the price is higher than competitors’ prices, two questions need to be addressed:
1. How do they know your price is higher?
2. What do you do about it?
In responding to the first question, let’s suppose that your price is $8,940 and the homeowner has three other prices: $8,190, $8,710 and $7,985. Does that mean your price is higher than the other three prices? The answer: Only on the surface. In fact, your price may be the lowest of all four. In this example the homeowner is only comparing the initial investment. That is most often how homeowners evaluate and make a decision on a new system. And unfortunately, that’s often how our industry’s sales representatives allow them to make a decision.
However, treating the initial investment as a simple commodity is misleading. The properly engineered and carefully installed system that you are offering and selling is much more than a commodity item.
Let’s properly evaluate your proposed price:
Initial Investment: This is straightforward. They have four prices and clearly yours is the highest of the four.
Operating Cost: Now it gets interesting. The operating cost of the system must be considered for the lifetime of the system and not what they pay for the system today. It is what they will be paying to the utility companies for the next 10 to 15 years.
Here are some of the items that affect the operating cost: installation material, installation procedures, equipment selected, equipment ratings, installer training, skill level and experience of the installers, supervision of the job, and the condition and sizing of the present or replaced ductwork.
Many homeowners assume a 14 SEER air conditioning equipment selection results in a 14 SEER system. Nothing could be further from the truth. It would be relatively easy for a contractor to install 14 SEER equipment and deliver a 10 SEER system. Is the refrigerant copper properly sized? Is the refrigerant copper soldered so it does not leak? Are there any air leaks in the ductwork? Is the ductwork properly sized? Is the refrigerant charge exactly correct? And is the air properly filtered?
The list can go on and on — Will the homeowners be properly informed of the value of a service agreement and offered the opportunity to invest in one? If so, are the precision tune-ups included in a service agreement properly performed?
Repair and Maintenance Cost: Many of the items that affect the operating cost of the system also affect the repair and maintenance cost. The skill level and experience of the installers play a large part in the repair and maintenance cost. A classic example is an installer that allows dirt and moisture to get into the open refrigerant piping resulting later in a failed compressor. Repair and maintenance cost must be considered for the lifetime of the system just as the operating cost was.
Future Replacement Cost: Any replacement system, regardless of which of the four proposals they accept and regardless of how well it is installed, must itself be replaced someday. The difference, of course, is how long the system will operate. For example, a properly engineered and carefully installed system may last for 15 years, whereas another system may only last nine years. Obviously, the future replacement cost is significantly more on a system being amortized over nine years as compared with a system being amortized over 15 years.
Now, moving on to the second question: What do you do about it?
A sales representative, when confronted with a price objection, should never leave the home without carefully explaining this sales principle: Four costs make up the total cost of owning and operating an air conditioning and heating system. They are the initial cost, the operating cost, the repair and maintenance cost and the future replacement cost.
Without being properly informed, a homeowner makes a choice based on initial cost. Upon further inspection of the lifetime cost, this deciding factor will cost the homeowner more money in the end. Don’t allow customers to make that mistake.
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