Building A Competitive Fortress Through Your Pricing Strategy

Last week I addressed our broken pricing model referred to as Cost-Led-Pricing.  Apropos of everything this article came to my attention

Tough times add hardship to heartache: More families ask for help paying for funerals

underscoring the problem created by our outdated pricing strategy and causing me to wonder if maybe we won’t need to eventually reintroduce Burial Associations.

Before I introduce the alternative to cost-led-pricing some discussion is warranted.  This will not be an easy transition for most of you.  In fact, it will take  sacrifice for many.  But it is the right thing to do if you want to preserve your business and not only remain relevant but increase your relevance and dominance in your community.

Where Cost-Led Pricing is a relatively easy approach to pricing ignoring the consumer and the need to seek improved efficiencies and continually contain costs this alternative strategy is complicated and will require discipline.  The payoff is simple...especially in an industry so dominated by the old outmoded strategy: Firms that successfully make this transition will survive and ultimately dominate their market for the long term.

To underscore this a story is in order

Recently, I was working as a funeral home consultant with a firm serving in excess of 540 calls.  Over some 40+ years the second generation owner had built the firm from something in the neighborhood of 50 calls.

The only remarkable features of this firm were the genuine caring and sincerity of the owner.   The adjectives I would use to describe him are humble, quiet, gentle and kind.  The facility was nice but only adequate.  You would not be embarrassed to use it but it was not the “Taj Mahal” type that has become popular of late.  The fleet was also adequate.  The staff was well trained and, like the owner, kind and caring.   Although actively thinking about it, they were not yet into receptions, dove releases and the like.

OK, you say, so what.  Well, the rest of the story is that recently this gentleman’s market had been invaded by one of this country’s most aggressive funeral homes.  I know this company well and they never fail.  They bought a local facility with the express purpose of putting my client out of business.   Several years later my client had quietly handed this firm their hat and run them out of town.

What Happened?

Like you I had to know.  So, I started asking.  My client didn’t sit on his heels but he didn’t really do anything dramatic either.  No big ad campaigns.  No aggressive preneed.  Just “steady as you go.”   

Then one day as I was reviewing his customer contracts I realized how he had become the dominant factor in his community by a factor of 2.5:1 and run this other firm out of town.  I had seen his strategy a few times before but not very often and whenever I have seen it I also see a veritable competitive fortress and a financially brick-solid company.

My client and a handful of other firms in the country, without being sophisticated or going to MBA school, practiced the alternative to Cost-Led-Pricing…

Price-Led-Costing.

He set fair prices (note, and this is very important, I said fair not low) and controlled costs to drive a profit.  He does not price advertise.

This strategy puts the consumer at the head of the table and somehow they know it intuitively.

While he did not invent it Sam Walton of Walmart popularized this strategy and over the last 40 years most consumer facing industries have successfully deployed it in one form or another.

Price-Led-Costing determines a price first.  A price is selected at which the consumer feels the value and the product / service are roughly equivalent.  Then costs are controlled in order to drive a profit at that price.   The NewComer Funeral Homes are an example of Price-Led-Costing as a formal Strategy.  This is not the same as a Discount strategy like a Cremation Society

DANGER

If you are thinking at all you can see that transitioning to this strategy is going to take some pretty dramatic steps.  For today simply let me make a few points:

  • Decide to make the transition a process over time
  • Begin by focusing on cutting costs
  • Decide if you have the stomach for it (there will be pain and reward)
  • DO NOT CONFUSE Price-Led-Costing with discount pricing it is as different as night and day

Next Week:

I will play the heretic in challenging some of your paradigms as you begin thinking about cost containment in an article entitled: Licensing Laws–Barrier To Survival

Comments

  1. Howard Beckham says:

    Mr. Creedy, I agree to your point, but I am still unclear about how you arrive at your answer or what your answer really is. I am not familier with the “Newcomer Price Strategy,” upon what it is based or how it is calculated. From their web page it looks like a “discounter.” You have presented an interisting idea but the information you have presented is like ordering a steak and potato and the waiter only bring the potato to the table… where’s the beef?

    • Alan Creedy says:

      Howard, your comment relative to beef causes me to think you are disappointed that I am not spoon feeding you answers…a difficult proposition in a blog but also contrary to my intent. Note in my header it says “Critical Thinking for Progressive Professionals.” My intention is to enable practitioners to think for themselves by presenting new and old insights in provocative ways. Giving you the answers would be unfair to you and to my paying clients who enlist my help for a fee to accelerate their own adaptive process. How it is unfair to them should be obvious how it is unfair to you is contained in my belief system: Teach a man to fish and he will eat for a lifetime.
      I use NewComer as an illustration within the DeathCare industry of a brilliantly well thought out and executed strategy predicated on a Price-led-costing platform. Yes, it does look like a discounter until you study it closely. Yes, I could tell you how it is different but then that is what people pay me for. But, I will give you a hint. Most discounters in DeathCare (not all) practice a “make it up as I go along and hope it works out” approach. It’s a form of lunacy, I admit, but there it is.
      Price-led-costing, conversely is a tightly disciplined business model that requires “real time” activity monitoring. Mrs. Fields Cookies for example credits their success to knowing which type of cookie to stop making at a specific time in the evening for each individual store. When I owned a retail flower shop I created a system that allowed me to accurately predict our sales for the coming weekend by Wednesday night. This enabled me to cut raw material waste and labor significantly. The system was later adopted by most of the major retail florists for the same reason.
      If you want to know why NewComers is a Price-Led-Costing Strategy like Walmart and not a discounter you can pay me or you can buy a plane ticket like I did and spend some hotel and restaurant time and study them on site.
      For me The Beef is in helping my clients think for themselves. That way I know that they will continue to be able to eat when I go home.

      • Howard Beckham says:

        Mr. Creedy, I appreciate your answer and did not consider it “turse.” I am just trying to understand some in context to funeral homes and the application of marketing. I have heard on Newcomer’s but still know nothing about them. I try to learn from everyone something that can be helpful to my boss. One thing is clear to me is that the convential model has come to an end of it’s life cycle. To paraphrase Steve Jobs we must “think differently.”
        The price of a plane ticket and the hotel should be well worth the education.
        Howard

  2. Allan, I’d like to know more and am a little confused as I have seen market where Newcomer has location and they seem to be all about discounted price. I agree that we cannot ring more out of our customers and that our pricing structure is flawed. Looking forward to your insight

    • Alan Creedy says:

      Frank, Sorry for any confusion. I took the opportunity to clarify some points, albeit a little sharply in my response to Howard. However, next week’s post will give you some more to chew on relative to this issue or at least a taste of how I approach this with my clients.
      Your confusion, however, in case it extends to others, may derive from my use of NewComers as an example. Walmart too looks like a discounter and, in many respects is. The difference however is that they manage their margins. If you will go and study Newcomers as I have you will see that they are disciplined, have done their homework well. For them price is a point of differentiation but they are not cheap as so many “bottom feeders” in our industry become. Instead they make deliberate and clear choices about which costs should be maintained and which should go. Again next week’s post will give you some more hints.
      One Last Point to stir the pot just to keep it stirred. I have been saying for some time that our profession is beginning to overserve the public. NewComer, I think, has figured out the right ratio of service to value perception. That statement offends many many people in the profession because their belief is that if they just provide more service people will like them more and more will come. I truly feel bad about that but The proof is, sadly, in the pudding.

  3. Rick Baldwin says:

    This is really good stuff. Retail pricing, and the fact of the declining average sale, is among the most pressing problems facing funeral homes today. Good work here —-

  4. I’m right there with you on this one. The over-service attitude to success has dominated many a discussion at meetings. But it always seems to come from folks operating in the traditional belt. I long for discussions with successful folks that have figured out how to tighten their belts, still provide great services, remain profitable all in a 50%+ cremation world.

    • Alan Creedy says:

      Dale, stay tuned to the last installment of this series which will be posted monday. I will be tipping quite a few sacred cows. So, get the tar heated up and the feathers plucked and the rail splintered. It should be interesting.

Trackbacks

Speak Your Mind

*

css.php