Price or Value: What do your customers really want?

What do your customers really want? According to business consultant Ted Garrison, most of them want answers to their problems, and successful contractors learn how to offer them the best solutions.

Ted Garrison

Business consultant Ted Garrison.

Garrison, owner of Construction 3.0 Strategies, offered his insights at a Frame Building Expo workshop this past February in St. Louis. He challenges builders to stop working cheap and start finding smarter ways to do business.

“If you’re going to go out there to beat your competition, to out-muscle them and battle them on price, you will eventually lose,” he contends. “You have to out-think them with a superior strategy.”

Garrison maintains there are three basic types of customers: about 27 percent who are price driven (the ones who just want it “cheap, cheap, cheap”); 17 percent who shop for value; and 56 percent who are ‘vacillating’.

The key is finding the right client. “The 27 percent – the price driven – they’re not your customer,” he says. “They will bleed you dry.”

The 17 percent, “we love these guys”, Garrison goes on. “They call up their contractor and say: ‘build it’.”

A field of opportunity, however, is with the 56 percent. “The 56 percent will buy price or value,” Garrison contends. When will they choose price over value? “They choose price when they don’t understand the difference in value offered by the two contractors.”

Add the 56 percent and the 17 percent and you get a nice slice of 73 percent in an $800,000 billion a year industry. “This still adds up to $600,000 billion a year,” Garrison points out.

That’s where the smart contractor steps in.

“Very few people wake up in the morning and think: I want somebody to build me something,” Garrison continues. “But many people wake up in the morning with problems. Do they want to solve those problems? Absolutely! Most people are afraid of hiring contractors but they want to hire someone who will help them solve their problems.”

To do that, listen carefully to your potential customer and give them the answers they need, not just words, but viable options.  “Don’t ask your customers what they want, ask them what they need,” he says.

Speak their language, not yours. “Customers don’t understand technical terms. When a customer gets confused, how does he choose? By price,” Garrison says, adding, “You need to be different. You need to be selling the solution to their problem. When you do this, your competition is minimized.”

“Do they care how the building is built,” he asks then answers: “They don’t care if it’s steel, concrete or paper-mache, as long as it works.”

If you can’t do the job alone, broaden your own team to include suppliers or other trustworthy contractors to help you.

If a customer questions your price, maybe what they are really questioning is the value of your work. “If he thinks he’s got a great deal, that the value is there, he’ll pay for it,” Garrison contends. “It’s all a matter of perception.”

A case in point, Garrison notes, is the price of gasoline. For anyone who thinks $4 a gallon is too expensive, Garrison challenges him or her to “take all that stuff you have in the back of your pickup truck and carry it 20 miles and for that I’ll pay you $4. A good deal?” he asks. “That truck will carry it for $4.” And while complaining about the $4 gasoline, many people go into the gas station and buy a bottle of water that sells for $8 a gallon. “Who did a better job of marketing, Coca Cola or Shell?” he asks, adding, “It’s all perception … If you provide sufficient value, they’ll knock your door down getting to you.”

Being someone who can give the customer the solution to a problem is especially important in today’s climate where there are more contractors than ever before. “In 1960 there were 800,000 contractors in the United States,” Garrison points out. “In 2003 there were 2.6 million contractors in the United States. Unfortunately, the dollar’s buying power remained the same. Triple the competition, what happens to price? The whole time I’ve been in the industry I’ve watched profit margins get smaller and smaller.”

Garrison doesn’t discount the contractor who tries to lower his prices by first lowering his costs, but warns against being the kind of contractor who plays the dangerous game of pricing below his own costs; that simply bloodies the waters in a price war you’re sure to lose.

Instead of beating each other up, Garrison says: “create a new market … differentiate yourself.”

He behooves contractors to answer three critical questions for each project:

• What are you selling?
• What’s your customer’s problem?
• How can you solve that problem uniquely or better?

“Find out what the customers wants so you can promise it and deliver it,” he says. “After finding out what they want, then come up with an innovative solution, a better idea, and while your price doesn’t become insignificant, it does becomes less important. Then start to look at the idea.”

Bottom line, he advocates: “You can’t just be the same as somebody else. Better value requires innovation. Better solutions come from innovations.”

Additional Points to Ponder

Good planning leads to good customer service. Good customer service leads to a successful business. Points to ponder from Ted Garrison:

• Too many people in the construction industry are insane! Albert Einstein defined insanity as: “Doing the same thing over and over and expecting to get different results.”

• Your client’s needs are your opportunities.

• Focus on where you can solve problems, not just build things.

• Focus on delivering greater value to the client throughout the entire system to reach full potential.

• A new environment needs new measurements: financial perspective, customer perspective, internal operational perspective and innovation and learning perspective.

• “If a top management team cannot clearly articulate the five or six fundamental industry trends that most threaten its firm’s continued success, it is not in control of the firm’s destiny.” – Gary Hamel and C.K. Prahalad, Competing for the Future.

• The most successful companies are realistic about conditions – Jim Collins, Good to Great

• Professor John Kotter says the biggest challenge in making a leap into a new direction is creating a sense of urgency. Ted Garrison says: “The good news is, the current economic situation has created a sense of urgency.”

• Left-brained capabilities “are necessary, but no longer sufficient…the ‘right-brain’ qualities of inventiveness, empathy, joyfulness and meaning – increasingly will determine who flourishes and who flounders.” – Daniel Pin, A Whole New Mind.

• “The more information we have before the event, the easier it is to predict the final outcome. The less information we have before the event, the harder it is to predict the final outcome. However, the lack of information will never change the final outcome. Think proactively – not reactively.” – Ted Garrison

• Throw away the box – think outside the box.

• The more complex a system the greater the need for collaboration

• Assign risk to the individual or organization best capable of managing that risk – anything else actually increases risk.