Tag: funeral pricing

How To Stop Customers From Fixating On Price

Written by Alan Creedy on December 2, 2013. Posted in The Creedy Commentary, Money: Getting it and Keeping it. 11 Comments on How To Stop Customers From Fixating On Price

Equalize Price Points to Crystallize Personal Relevance.

This is the first recession to show a measurable impact on DeathCare. Most surprising have been the many reports from rural and “rustbelt” funeral directors that cremation has recently spiked, not because people in their markets want cremation but BECAUSE THEY CAN’T AFFORD BURIAL. YIKES!!!!

A recent article in Harvard Business Review entitled “How To Get Your Customers to Stop Fixating on Price” outlined 4 strategies. I found the most appealing strategy to be: Equalize Price Points to Crystallize Personal Relevance. The article’s authors pointed out that in :

“most mature markets customers have become unresponsive to marginal changes in value. They have lost interest in how each product option might serve them… [so] they default to price minimization. In fact, (and this was interesting) a list of options at different prices doesn’t make [consumers] examine the relative merits of those options, it activates their predisposition to pare the price.” [emphasis mine]

Not a week after reading the article I found myself experiencing the very strategy I liked the most and it was exciting.

I encountered a funeral director who had courageously narrowed his casket price offerings from a low of $1,100 to a high of less than $3,000. As I stood looking down a row of caskets I actually found myself saying (as if I were a consumer): “Wow, I can pretty much have anything I want.” Having been in so many selection rooms over my career, at first I was shocked. Then I found, to my amazement, a feeling of relief. Here is a picture:

1. Solid Mahogany Urn shaped, Velvet Interior $2,650 2. Brushed Copper, Velvet Interior $2,995 3. Solid Cherry, Urn shaped, Velvet Interior $2,550 4. 18 Ga round end brushed, Velvet $1,740. 5. Oak Veneer, Velvet Interior $1,845 6. 18 Ga two tone blue, square corner, Crepe interior $1,495 7. Stainless brushed velvet interior $2,150 8. L 98 Mandarin $1,150 9. 18 Ga Blue round end, crepe interior $1,575 10. Solid Cherry, Velvet Interior, $2,600.

As I surveyed the selection room above I found myself moving from thinking about what I could afford to which casket I liked best and which would be a good fit for me (just like the research said I would). And, as if I were an actual customer, I felt relief. Some years ago I picked a Pembroke Cherry for my prearrangements. At the time it sold for under $4,000. I watched it creep up above $5,000 but just figured that was inflation. When it went over $6,000 I made a mental note to find something cheaper.

Once a consumer realizes they can get pretty much whatever they want for just about the same price they move from thinking about what they can afford to what they want. The research found that this allowed sellers to price above their normal average.

The implication is this: Let’s say that your average casket and service sale is running about $7,500 and the range of caskets you are currently offering to reach that average is from $2,500 to $15,000. The concept of equalizing your price points would suggest that as you narrow your price range you could accomplish two things:

First, you would change the playing field for handling price shoppers and likely increase volume.

Second, you would (as the research found) be able to realize a higher over-all average casket and service sale on what you are currently serving (say from $7,500 to $8,000 for traditional burial).

Of course, this implies that you have exercised some aggressive tactics to control the wholesale cost of your caskets.

This post first appeared in The Creedy Commentary on June 22, 2010

“If You Find You Are Riding A Dead Horse The Best Strategy is…

Written by Alan Creedy on March 19, 2013. Posted in The Creedy Commentary. 9 Comments on “If You Find You Are Riding A Dead Horse The Best Strategy is…

to dismount.”

Archimedes once said, “Give me a lever long enough and I will move the world”

For the last 30 years we have been pushing harder and harder on one and only one lever with diminishing results and it’s time we stopped.

Many of you, dear readers, know that I have been a bible student most of my adult life. The parallel between our behavior and this one lever has always struck me as akin to idol worship. 30 years ago it was amusing. Today it is tragic.

Having said that and before I continue let me be clear: I am NOT pointing a finger of blame. In the context of the times the behavior is fully understandable. Further, both sides to the resulting co-dependent relationship are equally complicit AND should now forge a new and different relationship because they still need each other. (emphasis on different)

Historically, until 1984 and the passage of the infamous FTC rule, society pretty much dictated what you did when someone you loved died. As a result, customers only had two decisions to make: 1. which funeral home; and 2. what merchandise. Everything was SIMPLE. Then everything changed. Not just because of the FTC. That was only a facilitative event. Because society lost its ability to cause conformity. Seemingly people could make alternative choices (including nothing at all) with no apparent ill effects. We began to experience our now increasing decline in relevancy.

Because customers only had one decision to make once they had selected a funeral home there was only one financial lever available with which to impact revenue. This:

Of course you can also increase volume. But that can take years because the public continues to stubbornly refuse to die at our convenience.

From this single lever grew a “co-dependent” relationship that is also understandable. Tacitly, manufacturers agreed to make practitioners their sole source of distribution and practitioners developed an over reliance (dependence) on the manufacturer for strategic direction. That was great when their challenges and goals were aligned. Unfortunately, that is no longer true. So, for 30 years now we have responded to a market turning away from traditional burial by pushing harder and harder on the one lever. This may be what has caused the cremation rate to spike by 250% in 2008. Who knows?

This is where the idol parallel strikes me. Families today don’t know what they want or need! To meet this challenge requires people skills. Skills like listening, guiding, teaching, relationship and trust building. To paraphrase god, “your idols cannot speak, they cannot listen, they cannot guide.” In fact, if they have any influence at all it is mostly negative.

Should the casket companies close up and go home? Should we stop selling caskets? Emphatically NO! But the question is begged:

“How is pushing so hard on that lever working for you?”

Instead a new alliance should be formed. Caskets need to take their rightful place as merchandise we sell…not “what we are.” We need, as a profession, to realize that we offer something valuable to society. For all of history mankind has demonstrated consistent needs when dealing with loss. Our current society is ignoring those needs but that doesn’t make them any less real. Replacing our real value to society with a piece of furniture only encourages that irrelevance. I think that for those who want burial we can do both. For those who want cremation we have a moral obligation to help them understand their needs. That means that instead of investing in a new selection room you need to invest in training.

I know both the funeral director side and the vendor side. The casket obsession has impaired the ability to adapt on both sides. U.S. vendors are severely hampered by their inability to become efficient both in distribution and in manufacturing by simple things that wouldn’t exist outside a co-dependent relationship. For instance, they have all realized that they would be dramatically better off by limiting the number of SKU’s they carry. At a recent supplier sales meeting I assured them there was not a funeral director in the country that wouldn’t support a reduction if it would hold down wholesale costs “AS LONG AS THEY CONTINUED TO SUPPLY THEIR FAVORITES.”

We are both (vendors and practitioners) in the same boat. It’s sinking. We should talk.

But maybe I am wrong. Maybe a box can replace a caring ear, an experienced word of wisdom.

A Broken Business Model: Wringing More Money Out of Your Best Customers Is Not Sustainable

Written by Alan Creedy on July 23, 2012. Posted in The Creedy Commentary. 4 Comments on A Broken Business Model: Wringing More Money Out of Your Best Customers Is Not Sustainable

This image illustrates so well the folly of our more than century old pricing model. All was good until the market changed about 30 years ago. Because we didn’t know anything else (and neither did our advisors) our response to the growth in cremation has been to beef up our burial prices and focus on merchandising with the resulting effect that we are only wringing more money out of our best customers. And our best customers are saying “ENOUGH!”

Beginning with the global economic debacle of 2008 the cremation rate has accelerated. The hardest hit have been (surprisingly) the rural communities where cremation has in, some instances, jumped from the mid 20% to as much as 50%. One of my funeral home consulting clients recently told me:

“It’s not that my families want cremation…they just can’t afford burial.”

The Fault Is In The Pricing Strategy

For more than 100 years the standard pricing strategy in business has been what is known as “Cost-Led Pricing.” And it is this pricing strategy that has prevailed in DeathCare since the Mid 1800’s. Only last month I read an article in one of our trade journals once again advocating this outmoded strategy.

Cost-Led Pricing works this way:

To calculate your prices using this method is relatively easy. You only need to know a few things:

Your overhead
Your anticipated call volume
The amount of profit you want to make
Your marginal contribution on merchandise sales.

So, let’s pretend we have a 100 call funeral home that has merchandise sales that look like this:

Units Cost Markup Retail Revenue

Caskets 75 $1,100 2.5 $2,750 $206,250

Vaults 50 $800 1.85 $1,480 $74,000

Mdse rev $280,250

cost of sales

Caskets $82,500

Vaults $40,000

Total COS ($122,500)

Contribution To OH $157,750

Once we have estimated our merchandise contribution to overhead we tote up our budgeted overhead and tack on our hoped for profit to determine overhead plus profit.

OverHead $445,000

Desired profit $50,000

Overhead Plus Desired Profit $495,000

Less contribution from Mdse sales ($157,750)

Overhead and profit less mdse contrib. $337,250

Calls 100

Full Service Charge $3,372.50

Our final steps are to reduce the overhead plus profit number by the estimated net contribution from merchandise sales to calculate an estimated net amount to be recovered from our service charges and then to divide that by the estimated call volume for the coming year.

Here’s The Problem:

When I work with clients I ask rhetorical questions to help them start thinking for themselves. In this case my question would be: Who is missing from this equation? But I won’t do that to you.

If it’s not obvious to you the problem here is that the consumer is excluded from the conversation and consumers are never excluded from the conversation...for long. They always have a vote and right now they are voting with their checkbook.

Worse is the second problem:

Cost-Led Pricing strategy enables you to ignore the Sins of a bloated overhead and assume the unconscious laziness that avoids the constant search for the necessary efficiencies all businesses must continually seek.

Next week: I will share with you the alternative pricing strategy and how it will enable you to build a veritable competitive fortress. The Cost-Led Pricing strategy in America Started to die in the 1970’s and is now pretty much dead in the majority of consumer facing industries EXCEPT DeathCare. For many DeathCare practitioners the transition will be a major challenge. Perhaps THE major challenge of their lives but it is a transition we all must make.

EXPERT OPINION: HOW TO CALCULATE YOUR SHARE-OF-WALLET

Written by Alan Creedy on February 20, 2012. Posted in Practitioner Forum: Insights and Ideas, The Creedy Commentary. 3 Comments on EXPERT OPINION: HOW TO CALCULATE YOUR SHARE-OF-WALLET

A few years ago we came to the realization that there was a real necessity to review our system. Not all calls are equal in service type, in merchandise and in revenue. The old system indicated that direct cremation had the same market share value as a traditional burial. In a sense that is true. Every individual death accounts for a decision made by a family on the choice of a funeral provider. In the strictest sense calculating market share would be accurate.

However, we devised a system to track a broader range of information, and in a fairly easy and cost-effective way, to clarify what was occurring in our market. In so doing, we still track market share but we added the component of revenue and service type share to the study.

To initiate the process we identified the various service types that we were interested in tracking for both the traditional burial and cremation services. These included the following service types: chapel service, church service, graveside service, cremation with visitation and memorial service, cremation with memorial service, cremation only, ship-in/ship-out and miscellaneous services.

We then itemized the charges for each service type from our own General Price List. When funeral merchandise was included we used our average casket, outer burial container and memorial package in our computations.

The next step was to obtain our competitors General Price Lists and build the same packages for each competitor. In these computations, we selected merchandise as close as possible to the merchandise we included in our own packages for comparative purposes.

After sending all of this information to our resident Excel expert to build an appropriate tracking spreadsheet, we began tracking information from the local obituaries daily and then auditing our results at the end of the month with the competitors’ websites. For the most part, traditional services are simple to track and input into the correct service type. Traditional burials in the chapel, church or graveside service categories are easy to detect from the obituary. Determining cremation services has been more of a challenge. The question is raised particularly often when the memorial service is held at a church following cremation. It is difficult to discern if the funeral home is involved in these services or not. Do we book the case as a “cremation with memorial service” or “cremation only”?

When reviewing the information now, we are not only able to see the true market share of which percentage of deaths went to which funeral home in our area, we can now see the percentage of the revenue expended those same funeral services among our competitors.

For example, in a given time period of a month, our firm may have accounted for 41% of the market share. But based upon the call mix for that period, our revenue share may account for 47% of the dollars expended on funeral service.

Although we understand these are not exact figures, because we are comparing averages in regards to merchandise selected, we feel confident that this study gives us added insight to what is occurring in our community.

From the data we enter we can look at traditional burial separately from cremation, and look at each service type alone to see what families are choosing from all of the funeral providers in the area. It becomes a clearer way to see trends developing in service types and the funeral homes families are choosing to provide them.

Two additional bits of data we are collecting are age of the deceased and if the memorial gifts published in the obituary call for donations to the funeral home to help pay expenses. This information gives us more anecdotal results. With the first we can calculate the average age of the deceased for each of our competitors. The second gives us an indication as to the ability for families to pay for the services they select.

For example, if a competitor shows 21% market share and 18% revenue share with a high mix of cremation and a large percent of the families asking for donations to help offset funeral costs we can extrapolate that that competitor may have an accounts receivable issue which may be affecting their business model.

Much of this is unscientific and speculative to an extent, but it does clarify our community and what is happening with the dollars expended in our industry.

Scott Meierhoffer is currently Chief Executive Officer of Meierhoffer Funeral Home & Crematory in St. Joseph, Missouri and its affiliates which include: Pettijohn & Crawford Family Funeral Service, Mound City, Missouri; Bailey & Cox Family Funeral Service, Plattsburg, Lathrop and Polo, Missouri; Family Service Group, Horizon Cremation Center, Family PALS pet Crematory, St. Joseph Memorial Park, Mount Auburn Cemetery and Ashland Mausoleum, all of St. Joseph, Missouri. Operations at these facilities include traditional funeral, cremation and cemetery services as well as pre-arranged funeral planning, pet cremation, reception and catering services and floral and gift shop. A licensed funeral director in the State of Missouri since 1994, Meierhoffer is a member of Selected Independent Funeral Homes.

A Different Way To Think About Packaging

Written by Alan Creedy on August 3, 2010. Posted in The Creedy Commentary. 3 Comments on A Different Way To Think About Packaging

for the past 4 weeks I have been attempting to spark a conversation about Pricing Strategy against the backdrop of a recent Harvard Business Review article: “How to Stop Customers From Fixating on Price.” Candace Franco responded with great insight:

“Very thought provoking … but here is one I’d like to talk over with someone … why are most of the package offerings I see on GPL’s categorized by final disposition? Such as cremation with full service etc. why not categorize by ceremony … such as “religious remembrance”, “life celebration”, maybe even a “destination” offering? I really like the idea of an “expeditious” package for those who think they want quick. To me the value of what you all do is in the service not the final disposition. The way it is now service always feels like an add on when I think it should be the focus.”

We need to think about this insight and, hopefully, talk about it. My take is we categorize this way partly because customers often start with “I want cremation” so we think we are responding to that issue. But I also think that it is our way of saying: “With casket or without casket”.

Candace’s point has gotten me to wondering if we couldn’t sidestep that issue and do a better job of relating with families if we just let go of the casket issue altogether. Why not have a Catholic Funeral Plan, a Military Honors plan, a Simple plan, etc, etc, etc. I can anticipate that someone might say “too complicated”. 38 caskets on display is complicated…not to mention expensive.

I wonder…

How To Stop Customers From Fixating on Price Part 4

Written by Alan Creedy on July 27, 2010. Posted in The Creedy Commentary. 4 Comments on How To Stop Customers From Fixating on Price Part 4

Partition Prices to Highlight Overlooked Benefits

This is the 4^th and last in a series on pricing strategy based on an article from Harvard Business Review of the same title. The purpose of this series is to stimulate thought and conversation among practitioners about pricing as a strategy rather than simply as a way of driving revenue. So far we have covered the following 3 pricing stragies:

“Equalizing Price Points to Crystallize Personal Relevance”

“Using Price Structure to Clarify Your Advantage”

“Willfully Overpricing to Stimulate Curiosity”

We have also presented a brief discussion of the commoditized consumer.

Partitioning Prices to Highlight Overlooked Benefits is the most difficult to grasp and execute. The research found that poorly executed it has the ability to alienate customers. They see it as burdensome and a form of “bait and switch”. Think luggage fees that have been partitioned out of the normal ticket price for airlines.

If done correctly, however, partitioning can have a powerful effect on buying behavior. Basically, the partitioning strategy is based on the proven premise that customers don’t really tune into benefits they might find valuable unless they know their value. So, if you include items within a package and the buyer doesn’t know the value of the individual items included in the package they don’t really have a way of distinguishing between product or package offerings.

According to research, “Presenting a cost as a set of smaller mandatory charges invites closer analysis and therefore increases the likelihood that a customer will revise a routine consumption behavior.” Basically, this means that if you use package pricing you need to set a frame of reference by either identifying the individual prices of the items in the package or by clearly showing that the cumulative value of items in the package exceed the package price by a specific amount. Say, for instance, that to induce people to buy your best burial package you include better quality caskets, a video memorial and DVD, 10 death certificates and your premium level register book. If you don’t partition those items as having a specific price customers may not see the value of going from better to best.

Let’s be even more specific: Let’s say you offer a “good”, “better” and “best” packages. In your good package you offer two caskets. In your better package you offer 3 and in your best package you offer a choice of 4 caskets. Partioning strategy tells us that you should should show the value of the caskets in each package. That doesn’t mean the price of each casket but something more like you would see in a retail advertisement. Think of a “callout” bubble next to the pictures of caskets that says something like: “A value of $2,995” or (for your Best Package) “A value of $4,495”.

The research concluded that “to those who saw the price partitioned, quality mattered: the better package induced more people to choose the more expensive [product]…people are unlikely to factor a benefit into their choice unless an explicit charge is made for it.”

funeral pricing, funeral home management, funeral consulting, funeral price strategy, funeral price shoppers

How To Stop Customers From Fixating on Price Part 3

Written by Alan Creedy on July 20, 2010. Posted in The Creedy Commentary. 2 Comments on How To Stop Customers From Fixating on Price Part 3

Part 3 Willfully Overpricing to Stimulate Curiosity

Last week we discussed the commoditized customer and the second of 4 pricing strategies: “Using Price Structure to Clarify Your Advantage.” If you didn’t think I was certifiable last week there is a good chance you will be thinking about sending me for treatment this week. Please remember: our goal is to use these insights to begin to rethink funeral service’ pricing strategy.

According to the article from Harvard Business Review, from which these discussions originate, this week’s strategy has proven to be particularly effective for mature industries. Their examples range from coffee to high priced elevator systems.

In a price competitive mature market the logic behind willful overpricing seems counterintuitive. At the same time, I can well remember that our primary pricing strategy at the funeral home I managed was to be $100 higher than anyone else. This “strategy” is one I have often encountered as well as its evil twin: being $100 lower than anyone else.

According to research, customers don’t automatically dismiss the higher price model. Instead, a higher price often seems to motivate them to take a closer look. That closer look could (and should) reveal information they care about that works in your favor. (it bears repeating here that the point of all these strategies is to get consumers focused on value over price) Some of the things I can think of are quality (“your mother never leaves our care”) or reputation, or an unconditional guarantee, etc.

In one experiment products were priced at an 80% premium. Subjects were able to recall twice as much product information than the comparison products; this enabled them to cite more arguments in favor of buying the products. “The overpricing also evoked a more passionate response to the products which led to a willingness to pay much more than was originally intended. By contrast, people who were exposed to a premium close to their expectations (10%) or one that was outlandishly high (190%) simply acted according to their pretested inclination…” THIS IS IMPORTANT because most funeral homes in price competitive markets are only marginally higher than the lower priced firms. This research would tell us they are not enough higher to provoke the necessary attention to value.

The implication is that a price range exists above what customers thought they would pay that causes them to ask value questions. Willfull overpricing can reverse the downward “price cutting” trend common to mature products and services. Starbucks deliberately set a price point for a product that, at the time, most restaurants gave away. The price made people rethink the importance of coffee in their lives.

In another example Kone, the Finnish elevator company, used willful overpricing to introduce innovation. In the 1990’s the elevator industry had become very price competitive. In this highly commoditized market Kone introduced an innovation that the market (being entirely price focused) was unprepared to take into consideration.

In order to provoke consideration of their advantage, Kone began responding to RFP’s with two proposals: A normal proposal with old features and normal pricing and a much higher priced proposal for their innovative elevator system. It took a while but it caused buyers to talk about the new concept and even to call Kone for an explanation. The high price enabled them to have conversations about value with people who wanted to know why it was higher priced.

How could this work in funeral service?

Why not create two price lists: one that is price competitive but strips out all the liability and quality of service (in fact one that maybe highlights some of your competitor’s disadvantages without mentioning them by name) and another that highlights features, safeguards and other benefits that are included. For instance: Transfer of remains to the funeral home:

Normal: use of a 3^rd party trade service at our convenience. We are not responsible for problems or errors $350

Full service: The deceased never leaves our care, two attendants and a Cadillac Funeral Coach within 2 hours of the first call. $650

I just made these up but maybe you can think of some better ones.

A last point of caution: the research suggested that if you use this strategy the overpricing should be 50-80% above what people expect. What price shoppers expect is generally a function of your competitor’s prices.

So, the next time someone says “your price is a lot higher than the others.” see it as an opportunity. The trick is not to focus on the value that YOU think is important but the value THEY think is important.

funeral pricing, funeral home management, funeral consulting, funeral price strategy, funeral price shoppers

How To Stop Customers From Fixating on Price: Part 2

Written by Alan Creedy on July 13, 2010. Posted in The Creedy Commentary. 4 Comments on How To Stop Customers From Fixating on Price: Part 2

Part 2: “Using Price to Clarify Your Advantage”

Increasingly, funeral markets are being commoditized. This series is adapted from an article in Harvard Business Review entitled “How to Stop Customers from Fixating on Price.” You can purchase a pdf copy directly by clicking on the link. In the article the authors point out that:

“Most people think commoditization occurs only when competing products or vendors are indistinguishable in terms of features or capabilities. But research tells us that commoditization is as much psychological as it is physical.

A commoditized market is one in which buyers display rampant skepticism, routinized behaviors, minimal expectations and a strong preference for swift and effortless transactions regardless of product differentiation. The key is not what you do to your product but what you do to your customer. You must find a way to reengage a customer who is past caring. Commoditized customers choose on the basis of price because they have become convinced that the options available are equally palatable and the minor differences are not worth investigating. Fresh rounds of innovation go unnoticed and better formulated marketing messages don’t get through. The best way to get them to sit up and take notice is to take price and alter it in a surprising or challenging way.”

In part 1 of this series we discussed the first of four strategies for altering your pricing strategy: “Equalizing Price Points” Today’s approach uses price structure to clarify advantage. Remember our goal is to cause the commoditized customer to take notice of the advantages we offer by altering the way we price.

In the reference article the authors cite Goodyear’s struggle many years ago as they developed newer and better tires. We are enamored of the many real and valuable benefits legitimate funeral homes offer relative to such things as service, quality, merchandise and our ability to facilitate the bereavement process.

Goodyear adapted their pricing strategy in a way that caused customers to stop and think about the differences instead of thinking that “a tire is just a tire”. Like us, Goodyear engineers were enamored with the many technological and complex improvements in quality and tread life they were innovating. The problem was that customers didn’t care because tires were priced by quality not what customers valued about quality. When Goodyear changed their pricing strategy by aligning price with tread life consumers stopped opting for the cheapest tire and changed their buying behavior completely.

How could we alter our pricing strategy in ways that consumers would focus on value? I am not sure I know any longer what consumers value; but the majority, I am convinced, still feel that “Mom’s Body” is a sacred thing. Given that as an assumption, here are two ideas that I am throwing on the wall for reaction:

1. All the funeral homes I work with are operated by people who have a high level of personal integrity. That integrity creates “value” boundaries expressed in a variety of ways. But the most common is the attention to detail and the quality of the measures they take to protect and preserve the body…including the process of cremation. Such things as “chain of custody”, internal control procedures, safeguards, licensing and the consistency and clarity of processes are important to them. This may or may not be true of low cost providers or discounters. I am told that often it is not. Most frequently they cut corners, outsource a lot of work and are not always as diligent about safeguards. The problem is the customer doesn’t know this. Or worse, they don’t know if they care.

So, let’s say integrity and trust are valued at your firm and you hope that they help distinguish your service. Hampered as you are by integrity, it makes it difficult for you to offer the same low price to compete. And your integrity prevents you from cutting the corners to enable you to do that.

What if you made cutting corners the customer’s choice? You could do this by creating packages based on the level of care the customer wanted rather than the quality of service.

Here is one small example. Let’s say you do all your own cremations, “chain of custody” is rigorously observed, etc etc. But, you have a discounter who says he will do a direct cremation for $549. You might create a competing offer in which it is carefully and respectfully disclosed that for that low price you outsource in the same way your competitor does, you cannot guarantee any of the values you normally offer and you require a “hold harmless” agreement in the event anything happens whether within your control or not.

According to the principal of using price structure to clarify your advantage potential customers will be forced to think about how sacred mom’s body really is.

2. How about suggested prices? Here is one that is totally outside the box. We are required to offer General Price Lists listing our prices. But what if those prices were only a suggested reference point instead of fixed. In other words you would make it clear to customers that they need only pay for the value they feel they have received. For those of you who offer unconditional guarantees think of this as a reverse guarantee.

Am I out of my mind? Not really, The Museums of Modern Art and American History in New York City have been doing this for years. The admission fee is clearly presented as a suggestion. Restaurants in cities like Vienna, Berlin, Seattle and Denver are trying it too. They are finding the “Pay-What-You-Want” model is both sustainable and competitive. Research shows that customers, on average, pay 86% of the suggested price. This average is a blend of those that paid full suggested price and those that paid less, but everyone paid something. I shared this with a funeral director friend (thinking he might ask me to step out of his car) and he recalled a time when a family was so delighted with his service they deliberately overpaid his bill by $500.

The point is: by offering price as a suggestion you create a situation where people start thinking about what they value and pay for it accordingly.

We have two more strategies to discuss, but this one deserves input. Think about how you could alter your pricing strategy by aligning what customers value with price instead. Be creative. We need to get their attention.

The “Retailization” of Funeral Service

Written by Alan Creedy on June 28, 2010. Posted in The Creedy Commentary. 4 Comments on The “Retailization” of Funeral Service

How “The Hawthorne Effect” got us off focus

The formal casket and vault merchandising systems so common today in funeral homes are a relatively new innovation. But their impact is disproportionate to their value.

The industry began experimenting with formal merchandising systems sometime in the late 1960’s. I don’t know whether it was Buddy Hunter of OGR or Wilber Krieger of NSM who first began to promote it in a systematic way. By the time I arrived on the scene in 1980 there were more than a dozen “self-styled” merchandising “experts” consulting with funeral homes. Interestingly, none of them were directly associated with a casket supplier. The National Foundation of Funeral Service had a full selection room set up in their building in Evanston, Illinois and many of the “experts” would hold week-long classes on the proper way to present caskets. Each had a different approach but one thing they held as gospel: The maximum number of caskets displayed should not exceed 20 and, preferably 18.

The first official vendor-supplied merchandising system was offered in the early 1980’s by National Casket Company. It consisted of a “garden” setting featuring caskets “floating” on plexiglass biers placed in pine bark settings threaded by Astroturf pathways. It worked. Users claimed a $500 increase in average sale. And that’s something else that was consistent. No matter what system you used the average increase in revenue was $500.

Being new to the scene and wanting to make my mark I judiciously decided to stay out of the casket merchandising business. Too much “Red Ocean.” More important, I believed the casket obsession to be a distraction from the true value of the societal contribution we make. I am not saying caskets aren’t important. I am saying that they are only a prop in a much more important event.

In the early to mid 1980’s the major casket vendors began to offer their own proprietary merchandising systems all offering the same $500 average increase. I confess I didn’t pay too much attention. But one important thing I did notice was that the gospel had changed. These new vendor-created systems required no less than 35 units on display. This attracted my attention because all the “self-styled” experts had declared with much authority that the maximum was 20. (as an aside current non industry research would seem to support the position of those “self-styled” experts). In any event, it finally dawned on me that this was an ingenious way to drive more inventory into the field with the resultant bump in cash flow for casket vendors.

Then Alton Doody enters the picture with the theory that the “look and feel” of a retail store will make customers feel more comfortable and user friendly. (really??) I can only imagine the angst that the introduction of “cheeks” and “butts” caused those companies that had to retrieve all that excess inventory. Amazingly, funeral directors all over the country were spending upwards of $50,000 to refit their selection rooms with, of course, the standard $500 increase in average sale.

At a conference in the late ‘90’s my naiveté on this matter was finally busted. Three funeral homes presented on the topic of merchandising. The first speaker shared his strategy which included investing in excess of $50,000 per selection room to achieve…you guessed it…an average of $500 increase in average sale. The second spent spent $30,000 for his new selection room but he had done all the work himself with the same results. But the third and final speaker brought down the house in his opening remarks as he apologetically said he felt embarrassed to share what his new selection room cost him. After one of those pregnant pauses he said, “I only spent $1.49…and, by the way, I brought it with me.” Whereupon he demonstrated his three ring binder.

A lightbulb went off in my head as two things became clear: First, if all these iterations of casket merchandising over (then) 20 years actually produced an increase in average sale of $500 then the current average burial sale (as reported by Federated) should have been several times higher than it was. Second, it wasn’t the systems or techniques that were producing results. There were too many variations claiming the same thing. Rather, what we were seeing was originally identified by a study of workforce production by Westinghouse in the 1950’s. Called the “Hawthorne Effect”, it basically states that improvements in performance don’t always occur because of a new way of doing things but because one is paying attention to the behavior that produces the result. In other words your awareness of your activities and the corresponding results is increased.

So, my point is simple: Virtually any system you use will be effective in direct proportion to your enthusiasm and focus. If you need to spend $50,000 it will be effective. But maybe you are one of those lucky ones who only need to spend $1.49 to accomplish the same thing.

But here is the key, whether you spend $50,000 or $1.49 are you spending it for the right thing? Casket merchandising is about Best Practice. It has distracted us from Best Purpose which is what we contribute to society and the compelling reason people call us. By the way, am I the only one curious about why all these cumulative $500 increases in average sale over the last 30 years don’t show up in the trendline for adult funerals?

This post may be reproduced in whole or in part provided proper attribution is given.

How Do You Handle Price Shoppers?

Written by Alan Creedy on June 14, 2010. Posted in The Creedy Commentary, Practitioner Forum: Insights and Ideas. 2 Comments on How Do You Handle Price Shoppers?

As I was preparing this week’s article my friend, Dale Clock, posted this question and a followup on his blog Dale Time. (please click on the highlighted words and read his full comments) This is a phenomenon that has become all too familiar and one that deserves discussion and feedback. How do you handle price shoppers? Do you have a system? How successful are you? You can comment on his blog or mine.

Now is the time to share.

The irony of Dale’s question is that this week’s article in The Creedy Commentary is about pricing strategy and is entitled “How to stop customers from fixating on price.” It is based on recent research reported on in an article in Harvard Business Review. I decided to delay my article in favor of helping Dale hear from even more readers. So stay tuned.

Should Packages Be Discounted?

Written by Alan Creedy on April 15, 2010. Posted in The Creedy Commentary. 5 Comments on Should Packages Be Discounted?

5 insights to packaging funerals

Numerous funeral homes are implementing and experimenting with package pricing with excellent success. But little is known about the principles of packaging (elsewhere known as bundling) outside of the fact that fast food and car dealerships have been doing it for years. Those that have adopted package plans find it has helped them in two ways. First, it has improved their average overall sale and second, it has improved the arrangement process for their clients by making it easier.

Why package?

Packaging provides two advantages: First it is a convenience for families. Most families find the task of selecting from the laundry list of items required by the FTC rule to be onerous if not confusing. By synthesizing this information into simplified packages it is easier for them to make choices that please them. So, a primary factor is the emotional convenience and customer friendly nature of simplification. Second, by pulling together the various elements of a given service type into a single price, value perception is enhanced as people accept services that are “already paid for”. The key in any pricing strategy is to help people feel they are getting a little more than they are paying for and packaging is the best way to accomplish that.

Packaging do’s and don’ts

Many people bungle packaging by thinking they have to cram a lot of extra items into it that people don’t really want. Ask yourself this question: is your purpose in packaging to somehow magically persuade people to pay you more? If so, don’t expect the consumer to be fooled. If, instead, the items included in a package are there because they make sense to your funeral arrangers then it is likely to be perceived as value to the consumer as well.

Keep it simple. Studies consistently show that when making complex decisions people feel most comfortable if you break their choices down into groups of three: burial, cremation or mausoleum entombment for instance. For this reason, all of the better programs we have seen offer a good, better best package and these are presented in two sets: packages for burial and packages for cremation. A package should be presentable on a single 8.5 x 11 sheet of paper. Most find it easier to design the best package and then simply reduce it for the remaining two categories.

Don’t let people unbundle your package. The packages are offered for the convenience of the customer. If they want to delete items to lower the price then gently and respectfully take it away and suggest you go back to the itemized price list. Keep your discipline. The first one to flinch loses.

To Discount or not to discount?

The prevailing wisdom among professional pricing strategists is that the cumulative price of the individual items included in the package should be greater than the package price. They also believe the resulting discount should be in the neighborhood of 10%. In funeral service we believe this is debatable. Given that it is a true convenience factor in the arrangement process, discounting may or may not be necessary. That being said, it is our belief that most funeral directors err on the side of giving too much discount and that discounts should be more in the neighborhood of 5% on traditional burial and perhaps 7.5% (splitting the difference between 5 and 10%) for cremation. Our reasoning is that discounts of more than that could have the unpleasant effect of sending a signal that you have too much margin in your prices. Our research supports this as pricing strategists warn bundlers that they should be careful not to discount too deeply. Enough to encourage people to take the package not so much that you are sending a signal that will backfire on you. Finally, if you do discount, the amount of the discount should be prominently displayed on your presentation material and also on your statement of goods and services.

Presentation:

The Federal Trade Commission Rule requires you to present every arranger with an itemized General Price List. But it does not require you to go over it in detail. We recommend you present it immediately by saying “we are required to give you a copy of our general price list and you should take this with you when you leave.” Then lay it on the table for them and immediately say, “Many of the families we serve prefer, however, to review our package plans in order to simplify the process of making decisions. Let’s talk a little bit about what kind of service you were thinking about.”

Of course, you need to come up with a script that you are comfortable with.

When someone making arrangements suggests deleting an item to cut the cost we recommend you say something on the order of: “Well, that is included at no extra charge in the package price. But if you prefer we can build a custom service using our itemized price list.” Then stop talking.

Including Merchandise

There is some debate as to whether to include merchandise in your packages. Most successful programs do include at least caskets and urns. Vaults may be more difficult to include as they may not be used in 100% of the services you perform. The number of choices within a package should be limited compared to an average selection room and quality should fit the package level.