Last week I addressed our broken pricing model referred to as Cost-Led-Pricing. Apropos of everything this article came to my attention
underscoring the problem created by our outdated pricing strategy and causing me to wonder if maybe we won’t need to eventually reintroduce Burial Associations.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.
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…
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
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
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