In a recent article on Entrepreneur.com, authors and career coaches Paul and Sarah Edwards responded to a reader’s question on how to research competitors’ prices as she started up her own home-based telephone answering service. But the Edwards’ advice isn’t only applicable to telemarketing and communications. Whether they’re new to the industry or just revamping their own pricing structures, contractors in the green industry also can benefit from these five tips on how to get the skinny on your competition.
“Many people pretend to be prospective customers to get pricing information, but, according to the businesspeople we've interviewed, they're usually detected as would-be competitors,” the Edwardses say. “Some business owners tell us they don't give good information to those they suspect of being potential competitors.”
However, there can still be value in making these calls, they say. If a business is in high demand, for instance, people already in the business are usually willing to help newcomers. As evidenced by green industry trade shows, roundtables and other networking opportunities, business owners regularly turn to their industry colleagues to find out how they do business. Likewise, when companies get backlogged with work or receive requests for jobs that aren’t in their areas of expertise, professional industry relationships can turn into shared or traded work over time.
“Of course, when business isn’t exactly booming and business owners are hungry, they're more apt to fear competitors and be closemouthed when a newbie phones for information,” the Edwardses note. In those cases, “the response you get by phoning ‘competitors’ can be a bellwether for just how difficult it will be for you to make it in the business.”
Here are some more suggestions:
HIT THE NET. In the green industry, some business owners – particularly those who perform lawn care or lawn maintenance services – post their prices on their company Web sites. “They know that prospective customers want to know this information, and posting the price serves as a screen to save the time of talking with people who are simply price shopping or who aren't truly prospects for their goods or services,” the Edwardses say. “Of course, this isn't true for all businesses, particularly those that provide highly customized services or sell very upscale products.” Landscape design/build firms would certainly fall into this category, as each project is different from the next and prices for labor, materials, etc., can change dramatically from job to job.
HIRE SOMEONE TO CALL COMPETITORS FOR YOU. Some green industry professionals have been known to employ their friends and family members in this capacity, having them shop around for competitors’ prices. As the Edwardses note, this may involve no more than having them request other companies’ brochures and other sales materials. However, they add that the caller must be prepared to answer some screening questions during the process. As such, someone with experience as a customer of that type of business – for instance, someone who has purchased lawn care services in the past – is best suited to this type of market research interviewing.
CONTACT SIMILAR BUSINESSES YOU WON’T BE COMPETING WITH. In the green industry, trade shows and roundtables are ideal situations for contractors to pick the brains of their industry colleagues without worrying about having to compete with those individuals later on. For instance, a business owner in Massachusetts could easily find out from a Connecticut-based contractor how his company charges for snow removal services. Both in New England, these contractors are likely to experience similar amounts of snowfall from year to year, which makes the markets comparable. It’s unlikely, however, that their businesses are close enough in proximity to have overlapping client bases.
The Edwardses advise identifying comparable companies in cities similar to your own (in terms of cost of living, type of industries and so on), and then contact them by phone, or search for them on the Web. “You can be upfront with them about your plans, pointing out that you'll be working in a different community,” they explain.
CHECK OUT PRICING WEB SITES. “Depending on your industry, there may be a trade association or a Web site that collects and publishes pricing data,” the Edwardses say. “For example, Brenner Books has a nationwide database of prices for ‘business support services.’ Keep in mind, however, that industry reports are based on national or state averages and may not be applicable to your community or clientele. But at minimum, they can give you a ballpark idea.”
TALK WITH CUSTOMERS OF OTHER COMPANIES. Find out from potential clients if they’re satisfied with the service they're getting and what they expect to pay, the Edwardses say. “As you establish rapport with these people, chances are, you'll be able to find out what they're paying now. In the interest of finding out if they can get a better price for equal or better service, most people will provide you with such information.”
Additionally, conversations about potential customers’ current service providers give contractors an opportunity to discover additional services that future customers might like to have and what they would be willing to pay for those services.
“One way or another, you'll be able to find out what others in your business are charging,” the Edwardses say. “The next question is: What are you going to do with this information?”
Consider these questions as you start thinking about and gathering pricing information:
- What pricing strategy do you want to pursue?
- Are you going to quote prices on the lower end of the range of what others are charging?
- Are you going to find the high and low, then split the difference?
- Do you want to offer top-of-the-line service and prices higher than the competition?
“Keep in mind that for most businesses, pricing is like walking a tightrope between being neither too high nor too low,” the Edwardses add. “Pricing too low can hurt your credibility as being a business that provides high-quality service, but pricing too high may result in more business for your competition. Some companies, though, do quite well by positioning themselves as premium services and pricing at the upper end of the spectrum by adding value that enables them to charge more. They find that the more value they add, the more they sell—and price becomes less of a factor in making the final sale.”
Regardless of your company’s pricing strategy, the Edwardses say the best way to determine what people will actually pay is to experiment with your numbers and get reactions from prospective clients. “If they're interested until you mention price, you're probably on the high side,” they say. “If this is the case, you can ask what they were expecting to pay and decide what additional value you might need to offer to get your desired price.” On the other than, if the customer quickly takes you up on your offer, chances are, you're underpricing. To find the balance, some people start low and keep raising their prices until they get resistance.
Also, remember that effectively selling a service isn’t only dependent on price. The Edwardses note that having solid product knowledge of your services and how they compare to those of your competitors is essential. “You should know your competition well enough that you're prepared to answer questions and demonstrate how your product or service compares favorably to others,” they explain, noting that one way to do this is to order or buy something from each of your competitors and work on answering these questions during the sales process:
- What is each competitor doing that sets it apart from others?
What's special about what it's doing? - Who are its customers? Who is the competitor best suited to serve?
- How well are they doing at providing the product or service they claim to offer?
- How, as a customer yourself, do you feel about the product or service?
- How could it be improved? How could you do a better job?
“With these questions in mind, you can identify ways to tailor your business to your personality and the type of customer you seek to serve,” the Edwardses say. “At the same time, determine if there's any new technology that can give you a competitive edge. You may also find that if you give people a reason to call you by offering special benefits like ‘free estimates,’ ‘free consultation’ or other features relative to your business, then they may gladly pay your price.”
Finally, if you find over and over again that most of your competitors are doing things the same way, this is a sign that those methods work, the Edwardses note. There’s no need to reinvent the wheel, so consider how you might provide the same thing, but in your own specialized way.
Paul and Sarah Edwards' new book is The Best Home Businesses for People 50+. Send them questions and get more business information at www.workingfromhome.com.