Maintain Price Margins and Keep the Sale When Clients Go Price Shopping

4/10/2013 5:30:00 PM
It happens in every industry, to everyone. It’s what killed Border’s and Circuit City. Price-shopping online. We’ve all felt the pain of a client taking our estimate, after we’ve put in hours of work to formulate the perfect package for them, and then calling us back a day later telling us how they can get everything cheaper online, completely ignoring our expertise and time put forth to recommend just the right product. I’ve found it tends to happen more in the middle-market (jobs under $30,000), but will still occur in the high-end as well.

While it is tempting to get into a negotiating and bargaining back-and-forth to salvage the sale, there are some other great tips I’ve learned along the way to help maintain margins and keep the sale. Some of these I’ve had the great fortune of being taught by people who’ve been there, done that, and some I’ve learned on my own through trial and error.

Just today, one of my very close peers got a call from a client in Queens whom he had gone to visit several months ago after Hurricane Sandy. The client was rebuilding his flooded basement and wanted to make it a family room and listening room. He was originally looking at a few different brands of speakers, receivers, and remotes but my friend steered him toward Paradigm Studio towers, center and surrounds, a Marantz SR7007 and a URC remote, along with all of the ancillary products. He was pinging the integrator constantly with questions, and I just knew he was trying to bleed him for information so he could either work with another integrator or try to do it himself.

I warned the integrator what was going on and gave him the tips I’ll give you. But he was too nice, wanted the sale too badly, and thought that if he didn’t give the client everything he wanted, he’d lose the sale. Well, fast-forward five months, and I was right; the client has gone and purchased everything on his own and now wants the integrator to install it all, but without the margin he would have made on the product.

After much thought I have dissected my experiences and ways to counteract the challenge of being price shopped on the internet into three scenarios:

The Information Gatherer. Just like the story above, this is someone wants to question you constantly and is digging for as much info as they can get. The best defense is to charge a consulting fee. You can make this refundable upon product purchase from you or not, but charging the fee has a two-fold result: it makes the client understand that your time isn’t free and it helps you make sure they are serious.

I tell my clients that the initial proposal is free, and I will answer basic questions about it, but once they start getting into technical specifications, comparisons with other brands and how the products will work together, I tell them that I will need to charge them a $200/hr consulting fee. I usually get one of two responses: 1) They understand that I am a professional and that my time and opinion has value or 2) they think the service should be part of the initial quote. For those in camp #2, I explain to them that my time, and particularly my knowledge, is valuable. Would they expect a computer technician to show them how to clear a virus for free, an architect to draw up blueprints at no charge, or a decorator to provide a floorplan before a retainer is signed? I do this in a very non-confrontational way, but am still firm about the value of my time and knowledge. If the client is very adamant, I will offer to refund all or part of the consultation fee if they buy the products recommended through me and hire me to do the job. That almost always seals the deal.

The Negotiator. This is the potential client who does all of the price checking online and then comes back to negotiate with you. There are a few ways to combat this: First of all, I do everything in my power to only sell products that are not available at heavily discounted prices from authorized resellers (ie Amazon). However, in those instances when a client finds the odd price out there, or it is a product I just have to carry or particularly love (ie URC remotes), I use a few strategies:

1. I reiterate that I am an authorized reseller and that any product purchased through me is fully covered by the manufacturer warranty. The client mentioned above, who bought everything on his own, purchased the Paradigm speakers and the integrator will let him know that he is in no way warranting them, since they weren’t purchased through him.

2. I remind the client that I provided them with a valuable service in researching all of the products and putting together a cohesive package for them. Basically, I try to appeal to their sense of obligation to help nudge them in the direction of overlooking a few points of price differential (especially if prices are close).

3. I offer to “down spec” the product to meet a lower price point.

4. On higher end and more custom products, such as remotes, audiophile receivers, amps, or anything else that requires programming or configuration, I will tell the client that I cannot and will not handle the product unless it was purchased through me, because if there is a problem, glitch or failure, I want to have full control of the value chain and not play the finger pointing game between the vendor who sold the product and myself who installed or programmed it. Essentially, I tell them I’m not responsible for anything that goes wrong with the product during and after the install. This does risk losing the job altogether, but more often than not clients see the value in having the same person responsible for everything.

The 3-Bidder. This is the client who always has three or more companies quote everything and then tries to play them off of each other to get everyone to lower their price and lose their shirt. Here is where I rely on carrying products not widely distributed (Paradigm speakers, Anthem electronics, AudioQuest cables, etc), so the client can’t compare apples to apples.

Additionally, I rely on my reputation, referrals, and testimonials and let them know that they get what they pay for. They can get the job done inexpensively, but if it is done poorly, it will cost them two to four times as much to fix it.

Clients like to think of our business as a commodity–that a speaker is a speaker and install is an install. We all know that is not the case and that we add a huge value to the job. Keeping our wits about us, having a few key strategies, and holding our ground on pricing, makes us all more profitable and keeps us all busier.

Please comment below if you have found any strategies or tactics that work particularly well for you in these or any similar situations.
 
 

Todd Anthony Puma is president of The Source Home Theater Installation in New York City.
 

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