When I owned a heating and air conditioning business we had several models to offer our customers. The brand we primarily sold offered everything from a basic system to high-efficient systems with all the bells and whistles. There was very little difference in our cost to install any of the systems. The main difference in cost was in the model the customer chose. Since there was little difference in the cost of installation, the greater profit was found in the highest priced systems.
For a long time our salesman would not offer the higher end product. We had competitors who offered much less expensive brands, and he felt he had to compete with them on price. The problem was there was no way we could ever compete with them on price. They could sell systems for what we were paying wholesale for the ones we offered. We had to compete on the value we offered our customers.
You can buy a shirt at Wal-Mart and you can buy one at Nordstroms. I can assure you the one at Nordstrom will cost you more, probably a lot more. There are people who would never spend the kind of money Nordstrom charges for a shirt, and they know that. They don’t market to those people. They market to people who want the Nordstrom experience and the quality they typically find in the products Nordstrom sells. These people know they will receive excellent service from Nordstrom. Nordstrom is selling the sizzle, not just the steak, and they have become very successful because of their reputation for excellent service and products.
Several in our company went for sales training, including our salesman. He was finally convinced to offer potential customers three options for their consideration. They could choose between our most basic model, one that was more efficient, and a third model that was the most efficient model available at the time. Many chose the middle option once they recognized they were purchasing added value for their money. A few even chose the most expensive models and added several add-ons to their system to realize even greater value. Once a few people began buying the more expensive models our salesman became more comfortable offering them to our customers.
Yes, we lost business from people who were committed to buying the cheapest system they could get, but that was OK. The higher profit margins are on the higher end equipment. With the same investment in labor we could realize better profits by selling more profitable systems.
Are you offering people the lowest prices in town, or are you offering them greater value for their money? You can’t do both. You have to decide which market you are going after. I think your greatest success will be in marketing to those who are seeking the greatest value for their money.