Real Issues. Real Answers. Price perception vs. reality

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Price may not be the biggest factor in a building products sale, but it is always a factor. The challenge in our business is that apples-to-apples comparisons seldom are. Most LBM dealers have the cost of valuable services (like deliveries and take-offs) built into their prices. Not to mention the fact that many LBM dealers are staffed by experienced pros armed with decades of knowledge. Still, even if your prices actually are lower, price-focused advertising featuring hard-to-beat loss leaders can be very persuasive. That’s why this month’s Real Issue is: Price perception vs. reality.

This month’s timeless question comes from an Iowa dealer who wrote, “We struggle with the perception among end-customers that our products and services are more expensive than box store options. With big-box store pricing available online, I know that we are typically very competitive, especially when you take into account their de- livery fees and other services we provide at no-charge. But as we know, perception is reality. What marketing strategies are other dealers using to overcome this challenge?”

It’s a great question, with a number of potential answers, making it a perfect fit for our Real Issues survey. As always, we sent the very brief (just two questions!) survey to the subscribers who’ve opted in to receive our email communications. A big thank you to the more than 200 readers who took time to weigh in. If you’d like to join the conversation, please drop me a note with your email address at Rick@LBMJournal.com, and we’d be delighted to get you involved.

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Editor’s note:
LBM Journal’s Real Issues. Real Answers. feature got its start at the suggestion of an astute reader back in 2011, and it continues to be one of our most popular articles. You may notice the byline has changed from me to LBM Journal Readers. The reason is simple: readers suggest the question, and readers provide the answers. It is because of you, our active, engaged, insightful readers, that this feature continues to entertain and instruct. A sincere thank you for making this happen.

—Rick Schumacher

The Question
How would you advise this dealer: “We struggle with the perception among end-customers that our products and services are more expensive than box store options. With big-box store pricing available online, I know that we are typically very competitive, especially when you take into account their delivery fees and other services we provide at no-charge. But as we know, perception is reality. What marketing strategies are other dealers using to overcome this challenge?”

Readers’ Responses
You have to compete head-on with a multi-pronged approach. First, get in the game. E-commerce is not just for the boxes. Put your prices out there. You have little choice. Your audience expects it. Second, develop a pricing strategy that reflects your competitiveness. The Home Depot approach of ‘islands of losses in seas of profits’ applies to you as well. Third, set a marketing plan in motion that explains to your audience that you can and will compete with the boxes. Share examples. Fourth, differentiate.”

“Our organization faces this battle too. We started documenting the negative experiences shared by customers after going to the boxes. Our sales staff then uses this information to enlighten the customers as to what they may be facing as to service and quality of their merchandise.”

“Do competitive shops to verify your prices are in line. Provide a superior shopping experience to the competition.”

“Embrace it and encourage it. Customers who only value price will not allow you to make a living. And you already stated you are price-competitive. Find customers who understand that and exceed their expectations.”

“We don’t market ourselves against the big box stores. We continually push our service as something people find value in.”

“You need to show all of the services you are providing to the consumer that the big boxes may have itemized, like delivery charges. You can also offer a lower price point for the trade or consumer who provides you with all of the proper information needed to quote a job vs. technical services such as blueprint takeoffs, job site visits, product recommendations, showroom visits, etc to determine what is required. Be sure not to give the consumer your intellectual property unless you have a deposit.”

“We talk about box store ‘loss leaders’ strategy. Then add in all that we provide that the boxes don’t. Additionally, we talk about the time it takes to do business at a box versus time at our yard.”

“We spend hours educating our employees on how to ask the right questions and explain the difference in what we can offer compared to the box stores. A large percentage of our pricing inquiries come via phone calls and it’s very important to make sure whoever is taking that call doesn’t just volunteer pricing without asking about product application and delivery details.”

“We always tell customers we’ll match Lowe’s pricing, but they probably don’t want that. We’d have to raise our prices to match them.”

“Ask customer to really compare, not just one or two items.”

“Everything. Word of mouth, targeted advertising, especially on Facebook and other social media, and of course, free estimates (although we remain very careful with line-item pricing).”

“Show them your pricing on a range of items, not just sale items from the box.”

“In the LBM industry, sometimes we do a very poor job of telling our story. When we do, at times we say something generic like, we offer better service, or a better value. From a customer’s perspective, what do those words really mean? Not much. The old saying, ‘if your price is too high, then your story is too short,’ partially applies here. The message also needs to be meaningful from the customer’s point of view, bringing value to their individual situation. Specifically, what do I save when doing business with you, be it time, dollars, reduced risk, or something else. Or will doing business with you help me to grow my business or address my pain points. Tell that story, and your true value will be known.”

“Talk about quality differences, services that you provide, boom truck availability, work with contractors’ customers in making product selections, in-house credit rather than dealing with a third-party for credit, we have a professional staff to help with take- offs and estimates, plus they are very knowledgeable on local code issues.”

“We pull up Home Depot’s website and show the customer their pricing and offer to let them match their price, as we keep our contractor prices below Home Depot pricing.”

“Not everything is apples for apples, especially on windows and doors. I always start there, because the quality is not always the same at the big box stores. Then I also talk to my customers about the value we offer before and after the sale. At the end of the day, the service and delivery expertise we provide normally outweighs the cost of a cheaper product.”

“We do not sell contractors who are focused on price, price, price. Find guys who are willing to pay a fair price, and value what you have to offer. That can be easier said than done, though.”

“Emphasize the fact that you’re local, as well as the services that you offer for no extra charge.”

“Invoice to invoice comparison. First, get the end customer to cut all the pricing on an invoice, and try to compare line-for-line descriptions, looking for upcharges, hidden extras, various add- on fees. Compare what an independent dealer offers to the service capabilities of a big box. Let’s face it, the big box staff has many more struggles in the steps and procedures they must follow. Those struggles are time-consuming to the end customers; those struggles affect bottom lines. The same goes true for materials and everything that is needed to complete a job on time.
It almost come down to ordering a ‘typical’ or ‘standard’ project from the Big Box for the least amount of error opportunities. Meanwhile, the independent seems to excel at the more complex projects. Might this have something to do with the experience (in the industry) of the staff at both types of dealers? I know as a distributor rep, I can go into the Big Box weekly and train a new employee. At most independents, I am able to build on my training with the staff, who tend to be experienced and have longer employment terms. There is dollar value to all of that. However, some end consumers just don’t want to come out of their mindset…all the proper sales techniques aren’t going to alter the minds of someone who buys strictly on price.”

“Focus on value over price. Delivery is value. House Account is value, being able to deliver product with a fork truck is value, having deep inventory is value, competitive pricing is the market entry fee, providing value is what is worth the additional cost. Price. Quality. Speed. Pick two. No one can deliver all three. If the competition is saying they will do all three, they won’t be in business long and you’ll be there.”

“That’s actually a good thing, as it allows you to approach only those customers you want to have relationships with rather than being tied up with customers chasing the cheapest price.”

“Price encompasses more than just the product. From the quality I see at their stores, do they buy just #2 spruce, or do they buy #2 premium grade? Do they have salespeople who go to jobsites, do they measure for door units, do they have expertise and experienced outside sale people? Do they give material options to save contractor money?”

“Promote value over price. Work to make sure that your core customers realize that difference and advertise to make sure the customers’ perception of reality reflects your competitive pricing as well as overall better quality and the value of your services.”

“My advice is always, build relationships with your customer, we simply cannot just do transactions. Trust, integrity and service almost always win over pricing.”

“I ask and inform the customer. Did you purchase it? If no, why not? Most time you will find it is not the product they really wanted or that the construction was not the same. I have also found that it is not available, and they will have to wait for it to come in. The big box stores do this a lot. Just yesterday they had an offer. Buy this and get this free. The only thing they had in stock was the free one. This happens a lot.”

“Inform the customer what all your price includes: delivery, no hassle return service, quality material, service and accurate estimates.”

“We tell the truth about why they our sometimes higher prices are actually a bargain: service, friendly faces, local support, fast delivery, great follow-thru, easy special orders, etc.”

“We mention the value of the products and services they receive when buying from a dealer like us as opposed to the typical minimal service and inferior products from a big-box store.”

“We tell our customers that our prices are the lowest in the industry. That’s true. They might be skeptical at first but once they become customers, they realize that we are indeed ahead of the pack.”

“1. Stop. 2. Fighting a multi-billion-dollar company’s pricing image with your marketing budget is just not possible. Customers assume and will continue to assume you are higher priced. Customer will also assume and will continue to assume you offer higher service and better products. 3. Customers don’t buy on price, they buy on value.”

“We never found selling against ‘Big Box’ stores to be an issue simply because we’re the experts. Here’s what we tell customers: ‘We’ve been plying our trade for more than 50 years. We have a dozen books of our previous projects, with the names of our past clients. Feel free to contact them and ask them how we did. We know what we’re doing. We know what your needs are. We’ve helped other folks just like you with, literally, hundreds of projects just like yours. We’ve guided our customers through hugely successful outcomes. ‘This is what I’m sure you want.’ Who can answer ‘no’ to those statements? In a big box store, the salesperson who comes over to greet you in the millwork department, was a patio furniture ‘expert’ just a few seconds before you walked in. When you leave the store, he, or she will become an ‘expert’ in the electrical, or plumbing department. The approach that I’ve outlined is tried and true. We know how well it works. There’s no comparison. If you needed open heart surgery, would you go to a dentist? Don’t be afraid to ask your prospect that question.”

“We always try to provide the best price possible. However, if you will bring me their printed quote, I will meet or beat their price.”

“We encourage price comparison and offer to go up on our price to meet the competition. This startles consumers, and often locks in their loyalty. We also pamper our customers with attention they rarely receive elsewhere.”

“Work one-on-one with customers to learn if they want to pay per delivery and pickup, or stay at a current no-charge program. Answers for homeowners won’t be the same as for the contractor, and one size does not fit all.”

“We take the following approach. Once a week, we conduct a competitive price shop with the big boxes on the most price-sensitive items in our market.

We will always be close if not match those prices. We price shop other less sensitive items anywhere between every other week or up to every six weeks. In our advertising, we will display these prices in a table that shows ours and

the boxes prices. We may be the same price, higher or lower. We always publish what we find when we shop. We always display the date of the price shop. Our customers appreciate us doing the shopping for them. Sometimes they will still price shop and want us to match, but because we are an independent, they will accept this explanation. We say we always want to be competitive; however, we can’t always match every price. How about this price, it is the best we can do? We have found that in the first place, our customers want to buy from us, or they wouldn’t come into our store. As a result, 95% of the time, they will accept what we offer. What we have learned is that they appreciate our effort to listen to them and respond the best we can. We are still in business after 110 years.”

“I market our products as ‘the best available’. Since I do not sell the same grade of lumber as the big box store, I don’t have to compete on price.”

“Stop competing on price, you’ll never win that battle!”

“Post big box prices and your price on 10 to 15 random items in the store and advertise them.”

“Hopefully your industry knowledge is much greater than that of the ever- changing employees at the big box store. You must sell yourself and the service that you provide and will continue to offer.”

“We use our OSR’s and professional estimators to sell the value to builders and homeowner builders. Our floor sales staff always ask the person in the store or on the phone, ‘what are you building?’ This gives us the chance to sell our services and expertise.”

“We have chosen to attempt to build an online community of our own, Facebook, Instagram, Twitter, plus a small local TV budget. As a smaller independent, we are unable to financially match the boxes’ media budgets. We find we have to fight the price image one job and one customer at a time. Even customers who know better, many times let the low-price advertising sway their purchase decisions away and are uncomfortable asking for a better (or, actually any) price. A price match policy helps but does not guarantee your customer will ask when he thinks you may be out of line.”

“We explain to those customers that our quality and knowledge far outweigh price and try and show them the difference in product. We are also very competitive with boxes on price if not less expensive in most cases.”

“We go to great lengths to sell our value proposition overall to our customers… service, educational opportunities, knowledgeable salespeople, fair pricing, etc.”

“We pull up their website and show them their prices compared to ours.”

“With the added expertise we can supply, there are fewer trips back for missing or forgotten items. As an over-simplified example: We know you need a nut with a bolt, and we know to remind you if you only ask for the bolt. Many times, the boxes only know you are asking for the bolt and that is all you get. Consumers also need to beware of ‘box only’ products that are made to a cheaper spec than the products we stock from the same manufacturer. I could go on and on.”

“Stand behind the product you sell. Always return a customer phone call. Know about the product you sell, how it is used and whether it applies to your customer needs. Knowledge is power. Giving advice and showing your expertise on product allows the customer to trust what you say and come back. If you are more pricey, they know they are going to be taken care of.”

“Are big box stores really your competition?”

“Big Box stores are all about the price and never quality of the product. They even fight with one another. They will ask a big-name manufacturer to make concessions for them to compete with the other box stores like changing gear ratios, RPMs, etc. for a special cheaper price. This is where the buying groups come in. We belong to LBM Advantage. A great and upcoming group of people that look out for you first. Keep your staff well-trained, up-to-date on the newest and greatest, and offer only the best. Don’t be stingy with giving away samples and charging for delivery. There is no more free delivery anymore. Make sure that if a customer comes in call them by name.”

“Marketing with comparison shopping. Using the same product and showing the everyday price is one method that shows some success. This is easier while the customer is in the store. If a customer makes a comment about the pricing, you can show your price vs theirs and if yours is cheaper, then great. If you are a little higher then explaining the hidden cost such as time and gas can usually make that light bulb click. The other examples we successfully use are niche products and high margin items. The niche items are ones you purchase on closeouts, on sale, or at trade shows at a discount and make those products cheaper than even big box stores. These few items can speak volumes for your store. The high margin items are the same idea but different application. Take time to go through your store and find items that have high margins that customers also know the relative pricing. For example, our screws and nails have a huge markup, and all of our customers know how much 1lb and 5lb boxes of screws are at big box stores. By keeping all of these items slightly cheaper than the big box store across the board, we became known as a store that can compete with anyone. The question becomes would you rather make a 35% margin on $1,000,000 in sales or 40% margin on $750,000 in sales, and where is your store’s break-even point?”

“Other dealers sometimes live in constant fear of losing a job to a competitor, big box, or other entity. They get involved in bidding wars, dropping their price regardless of whether or not the job is cost-effective for them, or fits their company’s business model, or culture. Businesses had to lose a project to someone, or anyone else. They haven’t learned a basic fact of doing business; you can’t sell everyone. Some potential clients may have unrealistic demands, period. Still others need to have the detail, or scope of the work explained in depth. This is done in order to justify the selling price. If the time is taken to ‘close’ the prospect, by addressing all of the prospective client’s questions and concerns, the salesperson will almost always walk away with the signed contract.
In our 21st Century business climate, often salespeople are long on wishful thinking and short on patience. As in every other aspect of American life, too many salespeople look for instant gratification without being willing to invest the time to justify their selling price. There are no lost sales, there are only ‘un-closed leads.’ The sales department hasn’t done their job properly if there is any doubt left in the prospects’ mind with regard to perceived value, or where they should spend their hard earned dollars. With more than 50-years experience in our business, we often do things the ‘old fashioned way,’ with presentations of finished jobs and satisfied customers. There is no doubt that our longevity in business makes for an easier sell. But that should not deter companies that haven’t been around as long as others.

Train your people—and that includes every member of your organization—to do their due diligence in telling your company’s story, and mission. We constantly project our image. We are ‘the specialist’ when it comes to what we do. Using the example that, ‘if they needed open heart surgery, they wouldn’t go to a dentist,’ we emphasize the fact that, for the project that they’re proposing to have done, they couldn’t find themselves in better hands. This philosophy keeps our close ratio very high.”

“We shop the big boxes frequently and create a price comparison guide for our sales people. It shows our price and their price on about 50 items. So, when a customer confronts us on an item, we show it to them. The most important value of this is to make our people more confident and secondarily lets the customers know that we’re serious about our pricing.”

“Overcoming price objections, even when they are not justified, is tricky business. This is when your salespeople show their skill, and that they are not just an order-taker. When you quote a price, always follow up. Ask for the order. When the customer responds, deal with any objections directly. Point out your values and remind the customer of what else you are giving them. Then ask for the order again. When a customer asks for just a price, ask when they need it. Give them the delivery you can provide and ask for the order. Don’t just make the conversation about price. If you have to be the cheapest on every order, every line item, you will not be very successful. Differentiate your company in as many ways as possible. The art is to not have the lowest price and still get the order.”

“I explain that the low-price competitors will break-even or sometimes sell commodity products at a loss because they rely on/steer you towards ‘add-on’ sale Items at a huge mark-up to make up the loss on commodities.”

“Our builders know our prices are competitive and our service levels kill the boxes. Retail consumers need more info such as tagging items in the store, ‘Lower Than Lowe’s,’ or ‘Beat The Depot.’ The fact is that box store margins are up. Stockholders need to see good profits. We can be competitive through strategic pricing on our products. Shop your competition. Make sure your blind items are priced as high as the boxes. You can afford to sell power tools at cost or lower if your other margins are higher to make up for it. How much will you lose in the big scheme of things if you sell a drill at $10 below cost to make an impression. It is all about the perception.”

“We continually compare prices via internet. We are located in a rural area of N.C. which gives us a little advantage. We can be slightly higher and justify it by the time and gas it takes to get to a big box store. From our location, that is an hour either way you travel. We post on our Facebook page sales we are having, for example, we are currently running a paint sale. When special buys are presented to us, we take advantage of them and also post that with the sale price. This usually is comparable to or less than the big box stores. We also try to have the ‘hard to find’ products that our customers are looking for. Word-of-mouth goes a long way in this small community.     Customer service is a biggie! We go out of our way to find the product our customer is looking for. Again, word of mouth. We are very diversified. We not only carry building supplies, we carry crab pot supplies, landscaping supplies, and have a hardware store. We promote this on five local radio stations. Our local station has been very instrumental in making that happen. Keeping our name out there so they don’t forget about us is the main goal in the radio spots. Having a key phrase helps. Ours is, ‘Your local source for building and crabbing supplies.’ That is at the end of every radio spot. As we are a small business, that takes up pretty much all of our advertising budget. We have seen several new customers because they heard our radio spot, saw it on Facebook, or a friend told them about us. It’s working.”

“We have aggressively looked at all aspects of our pricing structure to maximize profit while consistently keeping our core products extremely competitive, even with the box stores. (Think your milk, bread, and butter- type items). The struggle is definitely real as this is a slow process to break the stigma of having very high-quality material at very high prices. We are re-merchandising our entire store and are planning a largely publicized re-grand opening with other events through the summer. Since we are mostly pro-based, most of our steps forward so far have come through word of mouth among the contractors. They may be in competition, but they definitely talk to each other.”

“Keep doing the ‘little’ extra things. Something as simple as taking a moment to visit goes a long way to thank the customer and welcome them back.”

“We find that the majority of consumers have questions about what they

need to complete a project. From our experience, the thing that big box stores don’t have is a high level of experienced, knowledgeable staff and in-person customer service. Our success has always come from being the experts and delivering that expertise though a high-level of customer service. The free delivery and other free services are bonuses.”

“Product expertise is typically more dependable and at a higher level at the dealer, as compared to the big-box store, insuring a better opportunity to have the right mix of products for the specific purpose.”

“The most tried and true strategy for smaller companies to differentiate is to seek alternative products and learn the differences. Remain in the same categories, but don’t fall into the trap, ‘We have to have that brand.’ If the

consumer walks in and recognizes three products that are in the local box store, the perception is that all the products are essentially the same. Choose products that are different and have a story to tell. Consumers still want to deal with their neighbors and keep their money local, but when you look the same it becomes a price game, and we know who wins that one. Remember, the best-selling feature that a product can boast, is that it’s ‘not available at the box stores.’”

“It’s not possible to satisfy all customers. The ‘Iron Triangle’ speaks to this. Time, Cost, Quality. Pick two, you can’t have all three. Promote the aspects of your business that are strong for you.”

“The biggest issue is customer service. When a customer calls with any issue, it’s taken care of. They get answers in a timely manner and the customer’s concerns are answered by a professional. The big box stores have clerks who often aren’t knowledgeable, and they have a high turnover of help, so it can be tougher to get follow up.”

“Ben Franklin said it best: ‘The bitterness of poor quality remains long after the sweetness of low price is forgotten.’”

“Service is the key to success. Your people will need to make the difference, low pricing isn’t always the most important factor when determining where people buy their products.”

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