How to plan your pricing strategy

April 7, 2017 -  By

iS497122370price-tagThink about your last major purchase. Whether it was a product like a vehicle, appliance or computer or a service like pest management, electrical work or a plumbing repair, did you purchase the most expensive option you could find, assuming it was the best overall value? If you did, you’re in the minority of all purchasers. Few buyers purchase the most expensive option available.

Alternatively, did you purchase the least expensive option you could find, assuming it was the best overall value? If you did, you also are in the minority. Some buyers purchase the least expensive option available, but most do not. Most purchases are made somewhere in the middle of the price range.

Why would it be any different for landscape and snow contractors? It’s not. The highest priced option and the lowest priced option fail to attract the majority of the purchasers.

Developing a pricing strategy begins with the recognition that price matters but only as it relates to benefits. Value is the difference between the overall cost of ownership and the overall benefits of ownership. Price never stands alone. The often-repeated statement of “price is all that matters these days” is simply untrue. This statement reflects a lack of awareness of the reality that exists in the buyer’s mind.

Remember, the total cost of ownership includes time spent with salespeople and account managers, setup costs, installation costs, costs involved with learning, ongoing educational costs, repair costs and more. The total cost of ownership may greatly exceed the transaction amount. Buyers will always factor the total cost of ownership into their decision-making process. Often, it’s done subconsciously, without much awareness that it’s happening. Similarly, the total benefits of ownership may be much greater than the obvious benefits listed. The greater the total benefit and the less the total cost, the more value.

In the landscape/snow industry, price may very well be the primary decision-making criteria for a specific property or customer segment, but it’s certainly not all that matters for the market as a whole.

Develop Creative Strategies

Within each market segment, there are rich opportunities to develop and implement creative pricing strategies with a keen eye toward achieving profit objectives. Pricing strategy is not dictated by the market or by the buyer; it’s dictated by the seller.

Earlier in my career, I had some interesting experiences providing estate care services in an affluent market segment. These folks valued their time and the hassle-free enjoyment of their property. They wanted to be able to play golf, entertain friends and family and relax. The last thing they wanted to do was manage contractors. The more proactive and productive we were, the more our clients could enjoy their beautiful properties. The less visible we were, the less we were on their minds. Price was never part of the conversation. This segment called for a unique pricing strategy to ensure we captured all the revenue we could without taking advantage of the situation or violating our client’s trust.

I also have experience providing commercial landscape maintenance and enhancement services in a competitive market where price mattered immensely. We devised creative, thoughtful and intentional pricing strategies to successfully acquire and renew properties, while maximizing enhancement opportunities—without exposing ourselves along the way.

I’ve encountered many contractors who are discouraged when it comes to pricing. They feel the walls closing in on them by downward price pressures and rising operating costs. If they lose a contract, they assume it was because of price, but it rarely is. When you lose a contract, it often means you were outsold. Price never matters on its own. It only matters as part of the value equation. Don’t buy the lie that price is all that matters.

A better option is to develop pricing strategies within defined customer segments to position yourself for success. Each market segment has its own unique value equation. Learn what it is. Understand the price elasticity that exists. Study the competition. Position yourself with a creative, thoughtful and intentional pricing strategy that reflects your cost structure, profit objectives and, most of all, the benefits offered.

Photo: ©istock.com/marekuliasz


To view Harwood’s list for pricing strategy considerations, click here.

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About the Author:

Harwood is a Managing Partner with GrowTheBench and Pro-Motion Consulting. Reach him at Phil@GrowTheBench.com. He is a Landscape Industry Certified Manager, NALP Trailblazer, NALP Consultant, and Certified Snow Professional. Harwood holds a BA in Marketing and Executive MBA with Honors from Michigan State University.

1 Comment on "How to plan your pricing strategy"

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  1. Mike Voories says:

    Great article with some great points!
    I think contractors should be very careful pricing themselves in the middle of the crowd. It works for some, just like selling on low price works for some. May I suggest at least considering being the expensive option? A certain segment of purchasers associate high price with quality. Ford Motor Company maintains their Lincoln brand for a reason. Several clothing companies have found tremendous success with this logic. It works in the service industry too.