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"Are you trying to compete on
price? It can be a very dangerous and futile game for
By Rocky Tapscott
So many small Business
owners lose the fight for Business survival because they
try to compete with their larger competitors on price,
instead of offering some sort of unique benefit or extra
value that the big guys just don't do.
Here's a classic
A friend called me a couple
of days ago and as we talked he mentioned that a couple of
sales people had just knocked on his door
trying to flog an offer of 12 months complete car engine
servicing for only $79 from a local Mechanic.
My first thought was,
"That's one way to own a small Business, start with a
big one and use a marketing strategy like that to try to
get more customers." I can't see how this Mechanic
could possibly last a year in Business with
an offer like that one, let alone make a lot of money.
Let's think about this for
a minute. A normal car will require servicing at least
twice each year, possibly more, but let's say twice for
the purpose of this story.
Any half decent mechanic
will cost a Business around $35 per hour, with car
servicing at a major dealer costing upwards of $60 per
hour. That means that in order for this Business not to
lose any money out of this deal on the front end (apart
from the margin they will make on the parts they supply),
they have to do two complete engine services in less than
As an owner, I would prefer
that the guy doing the service on my car didn't have a gun
to his head while he was trying to do a good job...this of
course doesn't allow for any difficulty removing spark
plugs, bolts, filters or for that matter mistakes on the
part of the Mechanic.
I'd have to say that the likelihood
of professionally completing two full engine services, on
different days, with so many variables, in under 2.2 hours
and leaving a margin for a reasonable profit is fairly remote.
I can understand that this
guy is trying to build up clientele quickly, so the
profits on the front end are likely to be small, but there
are other, far less costly ways of doing it than cutting
prices to the bone and hoping that customers have the
loyalty to come back and pay full price in the future...it
just ain't gonna happen my friend without some other form
of incentive to entice them.
People who price shop and
take him up on his offer will just about always take the
cheapest price no matter who is offering it.
There is no
way that anyone is willingly going to pay the full rate
next year when you have set the precedent by giving them a
full year of services for below cost if someone else is
offering a better deal...unless -
service offered is so much better than anything else
was something very unique about the customer's experience
that makes them want to return and pay full price next
value given is obviously far higher than other Businesses
of the same type in the same area
It takes deep pockets to
fund a Business for at least a year while continuing to
offer superior service, keep highly qualified and motivated
staff and continue to provide extra value while
you are losing money.
Let's take a look at how a
Business owner who has a good idea on some basic marketing
would approach the same situation when starting a new
Let's call our imaginary
Business owner Tom.
Tom has spent the last 13 years
working for a large dealer franchise as a mechanic and
more recently as a Service Adviser. He knows his stuff and is highly
respected by his employer as a diligent, hard working
He likes his work, but he
knows that he could make more money and have a lot more
enjoyment in his life if he was working for himself in his own
He is prepared to sacrifice
some things at the start to build a Business that will
give his family and himself financial freedom in
He knows that starting a
new Business is tough, especially if you have no existing
customers who you can entice over from your previous
Business or employer :-0
He has around $20,000 saved
to launch his Business, which won't go far unless he can
get customers quickly and make a profit almost immediately,
so Tom will have to hit the ground running.
Press releases are always a
great idea to get the initial interest of the local
public, and inexpensive giveaways for the first couple of
weeks can get a few people in the door, but Tom will need
something more robust if he is going to take on the might
of the big service chains like Ultra Tune and K-Mart, and
the dealer for whom he had previously worked.
And there is no way Tom
will ever compete with them on price without sending
himself into Bankruptcy. He wanted to employ the best
Mechanics in the Business, people like himself - highly
trained, customer focused and passionate about doing a
He offers a 100%, no
quibbles, smile on the face money back guarantee, so he knows he
will have to have the best people working for him
to pull it off.
So, let's follow Tom for
the first few weeks and months when starting his new Car
First of all, even before
leaving his paid employment, Tom contacted several other
local Businesses related to the automotive trade and asked
them if they would like to participate in joint ventures
to cross sell each other's products and services.
He explained to them the
benefits of their participation and how they could expect
to gain a large number of new customers by working with
him in their marketing. Many of these customers would
continue coming for years if they were treated right and
loved their experience dealing with Tom's partners.
He found 5 other Business
people who shared his vision and joined him in Joint
Then he sat down and
thought about his typical customer.
What are her greatest
motoring challenges, fears and problems? How can I offer
something unique that has a high perceived value without
costing a lot of money?
He decided to put
together a series of Free Reports that highlighted his
customers most likely problems, along with the solutions his new Business
and his Joint Venture partners could
provide to solve these problems for them.
He came up with
Reports on -
What to do in the event of a flat tyre - a step by step
guide for safely removing and replacing a flat tyre, along
with tips on reducing tyre wear and extending tyre
Report included a discount voucher for 10% off his
customers next set of tyres (from his local Tyre Joint
Venture partner). This was valued at between $80 - $150,
depending on the vehicle.
to the tyre shop? A small amount of profit on the first
set of tyres, but this comes out of their marketing budget
anyway, and there is a good opportunity for repeat Business
from this new customer that the tyre Business didn't have
before, as long as the tyre shop owner goes out of his way
to keep that new customer coming back for the
next few years.
is also the potential of referrals of friends and family
members if the tyre shop does a wonderful job of keeping
their new customer happy.
How to care for your car's interior and exterior so it
holds it's value for as long as possible and doesn't
require major body or interior trim repairs due to lack of maintenance.
Report included a voucher for a discounted exterior cut
and polish from the local spray paint and panel repair
shop, along with an interior vacuum and upholstery
shampoo, which could increase the cars value by hundreds
of dollars at trade in time. This was valued at $100 or
to panel shop? An couple of hours work by an apprentice, with the
potential of picking up additional work in the future from
this customer, along with work from friends and family if
he does a good job on the initial work.
How to drive defensively and reduce the risk of you or
your family being involved in an accident.
report included a voucher for a discount from a local
defensive driving school or a free lesson for one of his
customers family members from the local driving school.
cost to driving schools? Around one hour of their time, with the
potential of repeat Business from friends and family
members if the initial experience is memorable and the
instructor is courteous, friendly and competent.
How to buy a car without getting ripped off.
all have a story about some dodgy car salesman ripping off
somebody we know. This report focused on the traps to
avoid, techniques for getting a better deal and questions
to ask the dealer. It also included a Voucher for a
discount vehicle inspection and report provided by Tom's
Business for the next vehicle his customer purchased.
uploaded these Free Reports onto his website where they
provide valuable content that not only gave his customers
extra value but attracts other visitors free from the
search engines looking for advice on car service related
gives a printed and bound copy of his Reports to his
customers, and encourages them to go to his website and
sign up for hie Free Newsletter. He mentions the special
deals available on the website and in the Newsletter and
finds a large percentage of his customers decide to
subscribe to get these extras.
many of these search engine visitors to his website are
from places nowhere near Tom's service centre, his Free
Newsletter offers eBooks and automotive products from his
internet affiliate partners based around the World to
subscribers, which generates an additional income stream
for his Business - he makes money while he sleeps!
is developing Multiple Streams Of Income.
you see what Tom is doing here?
of these reports cost him nothing to create,
except a small amount of time, and once they are written,
he can keep giving them to new customers for years, and at
the same time they offer quality content which attracts
search engine visitors to his website! The perceived value to
his customers and visitors is far more than what they cost
adding more great content to his website each week, he
receives more visitors and earns more money online.
Eventually his online income will be a significant part of
starts small, but grows each month as his traffic grows.
He has both an off-line and a Global online Business
servicing the same market with millions of potential
Tom had decided to give new customers a $100 discount on
their initial service, it
would have cost the full $100...ouch!
he gave them vouchers valued at several hundred dollars
instead, his actual cost was nothing for the first three,
and a few dollars on the last one, because his Joint Venture partners willingly contributed
those services as part of their
marketing to gain new customers for themselves.
Joint Venture partners benefited because Tom was sending
them a new customer who they never had before, and they
have the opportunity to offer these new customers a
similar deal as Tom had done with other Joint Venture
partners, creating a lifetime customer for themselves in
with every service, along with the Special Reports he gave
every customer, Tom had a junior serviceman carefully
vacuum the interior and wash the exterior of every customers
This took an extra 20 minutes per service, but the
employee's hourly rate was low and Tom was charging more
than the other Mechanics in the area anyway because he was giving
a superior service.
also made sure he asked for and received every customers'
home and email address before they left his store, because
he will be offering them special discounts as a way of
saying thankyou for giving him their Business.
put all of those email addresses into the database that
came with his website and then he will make regular offers
to his ever growing list of happy customers
customer leaves the store with a feeling of deep
satisfaction because -
has just received tremendous value, even though she has
paid full price for the service, the special Reports and
Vouchers increase the value she received by a significant
car was returned clean and tidy at no extra charge
has promised to send her additional special offers in the
future as a reward for being a valued client
has one of the most important things any Business can have
- a happy, satisfied customer.
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the full details,
so Tom now has a customer, it's on to stage 2 - he has to
keep her coming back...
read a few books on marketing, Tom knew that making a
profit on the front end, or initial sale, wasn't really
the main focus of a successful Business.
back-end or future sales that he should be interested in. He
knew that the lifetime value of each new customer was
several thousand dollars.
By the way, we will discuss Lifetime Customer Value in greater
detail in a future Newsletter.
didn't want to lose money on the front end if possible,
but he knew that by keeping customers coming back by
offering great service and exceptional value, his success
in his new venture was assured.
this is what Tom decided to do.
Five days after each customer's car was serviced, they
received a Thankyou Note
in the mail from Tom.
often have you received a thankyou note from the
Businesses you deal with in the last month? Or the last
year, for that matter...it just doesn't happen, does it?
this thankyou note was hand addressed by Tom's office
girl, had a real stamp on it, and came in a plain white
I have included a copy of it below that you may
want to use as a template for your own thankyou notes to
your clients in the future...
Tom's Car Garage
44 Service Way
It's Tom from Tom's Car Garage here.
I just wanted to thank you for letting
us service your car the other day. I really appreciate you
trusting us with your lovely automobile.
the second reason for sending you this letter is that when
one of the team was cleaning the interior of your car, he inadvertently
vacuumed up $2.45 while doing the floor.
found your money when he emptied the vacuum cleaner later
in the day, and he immediately gave it to me, but because
you had already left by that time, I thought I would return it to you now.
apologise for missing you the other day, and I have taped
$3.00 to the top of this letter. I hope this meets with
again for letting us service your car, and I hope to see
you again when your next service is due.
Please hand me or whoever is at the front counter this
note on your next visit, and I will make sure you receive
a special Bonus and a 10% discount for being a valued
again for your Business Kim.
promise you'll be delighted
our service or it's Free.
us on the web at -
Kim's thoughts at this point.
a nice thing for Tom to do. Isn't he an honest man?
has just had her car professionally serviced, it came back
unexpectedly clean inside and out, and now Tom has sent
her a series of free, value laded Special Reports plus a thankyou letter
containing the change he found while
cleaning the interior of her car!
she gets a discount and a mystery bonus on her next visit!
you think Kim will tell her friends and family about the
great service she received from Tom? You betcha she
you think she will be receptive to Tom's next letter
telling her about a great deal she can get at the local
car parts store because she is one of Tom's preferred
any number of special offers he makes to her through his
Joint Venture partners via mail and email over the next
few months until her car is due for a service again? Will
she get Tom to service her car again? Of course.
imagine how much potential profit there is for Tom in each
new relationship he forms like this one with a happy
how much referral Business he will get from these
customers becoming evangelists for his Service Centre if
he just asks for referrals each time a customer comes in
to his workshop extremely happy with their service?
all it cost Tom was $3.00, a few minutes of his
receptionists time and a stamp...
does this compare to offering a full years service for $79
and trying to survive competing on price?
right, there is no comparison, is there.
Business will be going gangbusters in 12 months time with
a legion of happy customers, the $79 one still won't have
made a profit unless he can turn those initial sales into
backend profits along the way somehow.