I feel like maybe I have backed myself into a corner.
Price-Led-Costing
A simple concept; but for an industry steeped in generations of pricing from exactly the opposite perspective and whose most respected financial advisors continue to advocate cost-led-pricing this is bound to be a real challenge. To enable you, dear reader, to flip the switch in a brief blog may be impossible but at least I can get you thinking. After all that’s what I want you to do: Think
Peter Drucker believed, and so do I, that every three years every activity, every product, every service, every policy, every vendor, every strategy of your business should be screened against a simple question:
If we weren’t already doing this would we be going into it now?
He believed that without systematic and purposeful abandonment, an organization will be overtaken by events. AND THAT IS EXACTLY WHAT IS HAPPENING TO DEATHCARE!
Price-Led-Costing is actually about more than pricing. It is truly a strategy, combining pricing and marketing with what has become known as “Blue Ocean” Strategy. In other words:
Focus Only On Those Things Customers Value Most and Set a Fair Price For It.
This week’s Creedy Roundup Features a great video entitled “When To Disappoint Your Customers” that speaks to this point. So go there by clicking the icon at the left and come right back.
Last week I used NewComer Funeral Homes as an illustration which confused several readers. Yes, they look like a discounter and they use price advertising to get the public’s attention but study their price list and it’s a different story. Now think SouthWest Airlines another great Price-Led-Costing example. Set a fair price and control your margins to drive a profit. There are, in fact, a few lone wolves in funeral service who do that. I used one example last week. I bet you know of a few more. The fancy dancy high price firms look down on them but I bet if you looked at their financials you wouldn’t be so quick to judge.
My challenge right now is to convey this to you in a one-way written format when it is only effectively communicated in a dialogue because, for you to successfully make this transition will require you to let go of some deeply entrenched paradigms that many of you have never even thought about. SO LET’S TRY THIS:
I will tip some of your sacred cows if you will take the time in the comments section to engage in a dialogue with me. There are a whole lot more sacred cows than this. Many are situational relating only to a specific firm. This is just a sampling to give you an uneasy feeling of the challenge facing us. Challenge me and I will challenge you back. Everyone will benefit, including me.
Sacred Cows and other Barriers to Success
What is your ratio of licensees to calls? Last I looked the industry standard was well below 100. Why? I know your answers because you have told me. I am not satisfied. You tell me it’s what families want. What I hear is that you confuse a license with competence. And / or you have licensees doing non-licensee work. Progressive hospitals have solved the nursing shortage by assigning non-nurse work to well trained non-nurses. The result: fewer nurses who are paid more but lower overall payroll, happier nurses and happier patients. Funeral homes would find the same.
Why do you need a license to make funeral arrangements? There is no consistent formal training for it anywhere? Despite their protestations to the contrary, most licensees aren’t that good at it. More than a few respected funeral homes have acknowledged that their preneed staff does a better job. Besides smaller funeral homes are often forced to break the law when they get busy by having mom (who doesn’t have a license and who is better at it anyway) make arrangements.
Why do you need to send 3 licensees to the cemetery?
My state requires that each licensed establishment have a prep room even if you centralize the service and never use it. Why does a branch facility have to be a licensed establishment?
Why do you need a fixed pew chapel? Why do you need a selection room? Why do you need to trade cars every 3 years?
Are you overserving your customers? Are all those extras you are cramming into every service paying off with increased volume or are you working harder for the same profit? As our profession goes through this transformative stage in its history we are doing what Drucker refers to as “patching”. We are trying to dress up what we are used to selling hoping people will see value. This leaves us vulnerable to the SouthWest Airline strategy that focuses on what people value ignores the frills and prices accordingly. See video by Steve McKee on Narrowing Your Focus.
If a Price-Led-Cost player like NewComer entered your market would you be vulnerable? If your answer is yes to this question and you were strongly convicted that the earlier sacred cows were important to your success then you are not as convicted as you think you are.
Why are you spending so much time and money on your selection room and none on staff training?
Why do we have to pay cousin Chris the same wage we pay the company President when she doesn’t even come to work?
As I said these are just a few of the questions that need to be asked. There are more. In the process I have probably made a few of you a little frustrated with me. That’s how it works. If you aren’t willing to experience a little frustration…if you just hope by dressing up what you already have you can survive…then I can’t help you. I am not pointing fingers or judging. I am only asking questions that need asking.
Disclaimer
I have learned I am easily misunderstood so in an effort to be as clear as possible I am including the following chart.
P.S. I deliberately made that last point. It’s actually in this article but it’s deeply buried. This is a topic tied directly to the issue of our addiction to cost-led-pricing. Current trends in management practices place greater emphasis on supervision than leadership. The void of leadership skill in this profession is a critical factor. So, I will leave it to later.
Now, it’s your turn. Challenge me! Double-dog dare-ya. The future winners in funeral service will be price-led-costers. So, let’s start talking about it now.
P.P.S. Those of you who think you can protect yourself in the legislature, be careful. For instance, Why does a branch have to be a licensed establishment? It doesn’t. Some practitioners reading this will want to try and require funeral homes to always have their facilities licensed. I can already think of organizations who have their sites on us that have the facilities, are already performing services, are not licensed and that you cannot legislate out of the business. That game has never saved you in the past it won’t save you now.
[…] further discussion: This article is linked to the Creedy Commentary article “Licensing Laws: Barrier To Survival” Click on my photo to return to that […]
I agree that all the licensing regs are creating excessive challenges with unintended consequences that could put many out of business. It might seem like a good and protectionist idea to require dual licensing as that will keep the clergy out…. WRONG! Dual licensing has invited the clergy to “accept” cremation as a form of disposition paving the way to the low cost cremation provider… and now the clergy are not only funeral directors but more churches are now building columbariums and cremation and scattering gardens. We should be working in partnership with the clergy and allow the clergy to minister to the living while we continue to minister to the deceased.
I have seen that the “trade” of embalming requires a very different set of skills from those necessary to handle an arrangement conference, follow-up on the paperwork and coordination necessary for putting on an EVENT on minimal notice. We are engaged in the business of “life celebration” why can’t an event or party planner make funeral arrangement? They’d do it with more flare than the average funeral director! But what they won’t do is embalm!
I struggle everyday to try to explain the “business” side of our industry to our directors, interns and funeral assistants. Half the time, they are courteous about listening though I sometimes question the understanding, the other half of the time… they don’t even pretend to listen because as a business person, “who am I to have an opinion about how funeral service should be offered and managed”. What I am trying to build is a team of people who understand what we do, why we do it, and the consequences both short and long term of the decisions we make. With that knowledge, even in the absence of the “boss”, they should be able to logic their way through when confronted with a problem or challenge.
It is time for a fresh look at our industry and it is time to proudly claim what we do – deathcare should not be a taboo subject – when someone says “what do you do?” – don’t whisper “I am a funeral director” or “I work at a funeral home”.
Wonderfully done article Al. Remember those windmills you once asked me about? I think the echo I hear might be your voice bouncing around in empty rooms from those in denial heading for lunch 😉 – tim
Very well written! Let me add a sacred cow experience of mine. While working at Schoedinger’s I conductect a process exercise where we documented all the tasks in a traditional funeral. It came to about 22 hours of time not including removal and prep room which was centralized. Next we identified the tasks that had to be done by a licensed FD. This amounted to about 5 hours and that included a 3 hour arrangement conference! Only about 20% of the total time required a license director in a well regulated state. The rest could be handled by reasonably trained administrative and part-time staff. So for a 150 call firm you would only need 750 licensed hours instead of 3,300! Talk about overserved!
And as threatening as Newcomer might be the real threat will come from another vector. Afterall, Newcomer is just more efficient with the same approach and has not fundamentally changed the game, just offered a better price with a more “efficient” cost structure. Critical mass of disloyal funeral service customers is getting close to the point of being attractive to outside investment. Every constructive move the industry makes reduces this attractiveness. Thanks for taking the tough stands to help us all!
I am reminded of the old bromide “necessity is the mother of invention.” In Colorado, with no licensing and 65% cremation, we have to learn to make a little on many things. For us, the casket sale of the past is becoming the reception sale of the future. In Colorado I am free to deploy staff where their skills are most closely aligned with their skills, pay grade and interests. I look for opportunities to outsource wherever I can and not affect the customer’s perception of quality. We train to 20 key touch points, survey to those touch points, coach and reward individuals and teams, aligning their interests with those of the company. We are far from perfect – just ask my coworkers! We have to relentlessly attract and retain the best and brightest, help them with their schooling (almost all my FD’s would be eligible for licensing if we had it here), offer schedules that genuinely give people time off, offer higher than average compensation, treat people like humans by seeking out their perspectives, configure our staff and offerings to serve families who mainly know what they don’t want, envision the future with consumer research and by modifying and enhancing the effectiveness of our offerings, and, to Alan’s point on leading knowledge workers, measure and report everything and clearly identify and reward our A and B players, while sometimes helping our C players to raise their performance or move on.
Alan – I agree wholeheartedly with your premise and specifically, that we are ‘overserving’ our families. I actually did a little research recently on NewCommer’s website and by using their online ‘build a funeral’ feature I was surprised to discover that in fact they are no less expensive than we are… but that perception is there. I’m not sure I’m on the right track here – but I also notice that they utilize non-licensed staff whenever and whereever possible. And I know in Rochester, at least, they don’t lead with a sedan but with the hearse. These are easy examples of how they are keeping costs down without necessarily sacrificing the service they provide.
Mr. Creedy, I think I get it. It just took me a little bit of concentrated thought.
Thanks,
Howard
ok, so share with us. what did you get?
I recently had a third generation owner ask me me how best to improve their operations and I told him to cut the dead wood out of the tree as efficiently as possible. After reading this post maybe I need to take my own advise and go get the saw out again. Thank you Alan.
this is the most concise, to the point article on what needs to be addressed from an opertions standpoint that I have read in years. You are right on target in my book.
As I read your articles I was looking, like so many do for a “magic bullet.” I did not see your point. Frankly, I was blinded about what you where saying by falling into the trap of conventional thinking. Shame on me! What it took for me, to see your point I think, was to look towards the direction in which you pointed, and figure out how your examples arrived at their destinations.
Once I did some study on what you had written, and started to look at highly successful business outside of the funeral business that things started to come together in my mind to have that “Eureka Moment.”
I feel rather foolish when it hit me, because it was so obvious…that is if I am correct.
In regards to your “core business” (or basic service items) on your GPL, be very completive….this is your price leader. Along with your basic service items there are several necessary and ancillary items that must be and may be purchased to effectively deliver the desired service outcome for the family. On these non-core items you carefully address your profit margins to allow you to be overall more profitable perhaps even more than you where before.
Please let me know if I on the right track.
Thanks,
Howard
Howard, you are learning how to fish. You have made my day. It’s a journey. Think of it as hiking a mountain trail. there will be times when the trees will part and you will see great views. other times when you will only see the trail. You have found the right trail. The only nudge I would give you now is that you might still be thinking conventionally. Think, now, instead about what the most important things are to the consumer and then rebuild as if you weren’t doing what you are doing now. Feel free to bounce it off me.
[…] Licensing Laws: Barrier to Survival […]