Training Lesson #5
Putting Price in its Place “Why can't someone see the value of my center rather than just shopping for the lowest price?” That's been a consistent refrain in the OBC business over the past few years. Each year, many OBC owners expect “the good old days” to return, but a combination of economic conditions and concessions by major competitors make it tough. Clients used to be lost mainly due to the so-called “Ben Franklin” method. They would add up the perceived positives and negatives of an OBC, compare them to one another…and make a choice. Your ability to change the weight of those perceptions would determine whether you won or lost a potential client. A small change in perception could make all the difference—the unmatched personality of the receptionist, the thoughtful design of the OBC itself, the closing technique of the center manager, the strategic location of the OBC, or maybe the client mix within the center. So what continues to be the driving factor today? PRICE. At a minimum, that's the perception. Many smaller OBC owners feel they are being “beaten up” by larger competitors who have the ability (or strategy…at least for the past few years) to drive prices down. OBC owners tell me this still is a predominant theme in local member networks throughout North America, in many European and in some Asian markets. Prior to my involvement in the OBC industry, my primary background was in the commercial real estate development sector with a large national development firm. In the mid- to late 1980's, most U.S. metropolitan markets were massively overbuilt with office space. Many markets had vacancy rates well over 30%, and landlord concessions were enormous (some markets actually are approaching similar circumstances today). I remember one law firm that did not pay rent for seven years. Seven years!! How did they do it? They would get 2 ½ years of rental concession on a seven year lease, get a new landlord to give a similar concession and ‘buy out' the remaining term after 2 ½ years in the space, move, and start the process all over again. They moved three times within the seven-year period but never paid any rent. Now, that's a pretty outrageous example, but believe me when I say competition was severe, and there are many more stories where that one comes from. What happened to many landlords during this period? A sizable number went out of business or discontinued development. Due in large part to the tenant concessions granted, the value of their companies (or brands) decreased rapidly. More importantly, the value of their real estate decreased significantly. Ultimately, much of it fell into the hands of institutional investors and REITs at dramatically discounted prices. A distinguished friend in the advertising business once told me, “Greatly increased quantities…using cram-down techniques and price discounts without the pull-through support to enhance sales by an equal or greater amount will result in brand degradation, ill will and eventually lower profits.” That's “ad-speak” for “increasing supply and lowering your prices will de-value your brand and your income.” This lesson was learned by many of the late-1980's developers. It's a lesson you may want to heed as you experience your own market dynamics today. So how do you counteract these “cram-down” forces until they dissipate? Allow me to offer a few suggestions: 1. Enhance your own brand equity and its ties to ALLIANCE. Get new testimonials from current clients, brokers or other referral sources. Project confidence in your track record, client base and commitment to client service. While you are meeting with the prospective client, have a current client walk by and say, “You know, my boss wanted me to get the cheapest office I could find. This wasn't the cheapest, but it has made all the difference in our business. I am so glad I convinced her to place me here.” 2. Be willing to say ‘no' and walk away. Granted, some clients will shop for price and price alone. Others, however, read that the market is “concessionary” and expect you to play along. You'll find some prospective clients only push to your level or resistance and actually want to do business with you. Politely stand firm and you may be surprised at the result. 3. Try a trial promotion. Don't erode your price, but you always can attach something of value that the client could compare to a concession elsewhere. The key is to position the offer where the value to the client is greater than the value to you in conceding it (but don't let the prospect know that!). Maybe you keep your rate constant but throw in some game tickets or coupon for free administrative support for a period of time. When the market turns around, you haven't set yourself for the client to renegotiate with you at a lower rate basis. 4. Listen. Sometimes the client can say something that makes all the difference. I've often called it “The Jerry McGuire Principle”. Many people remember the line from that movie—“Show me the money”. My favorite line actually was, “Help ME help YOU.” Yes, prospects are price shopping, but they also are asking you for help. Maybe the prospective client says his boss wants the lowest price, but he also says that his boss is very particular and dislikes the inappropriate behavior of the current receptionist (at the center where he now resides). You know you have the most impressive receptionist in the area. Your receptionist sends the boss a compelling letter stating how much you would like to have his associate at the center. The relative value of your client attention versus price just went up. 5. Attack from the weak side. A lower price is one of the easiest things for a prospective client to inquire about. Focus on the other side—Productivity. “How can we help to make you more productive, Mr. Client? You mentioned that you have lost out on proposals because your competitor had more background research in her proposal. We can out that together for you, and we'll do web research on the first proposal at no charge, just to show you how confident we are in our abilities.” 6. There's no “silver bullet” in the price battle, but put price in its place. Win the war by focusing on your success, your stability and your service. Reposition the dialogue, and price becomes ‘a' factor but not ‘the' factor. |
