What is a market position? One good way to explain it is to think about retail stores that sell clothing. Any chain you can think of picks a position based on demographic appeal. Wal-Mart and Kmart, for instance, are low-cost clothing providers. Dillard's, Macy's, and Foley's take the mid-range position. Saks Fifth Avenue, Nordstrom, and Neiman Marcus position themselves as high-end providers of clothing.
The market position of a business -- from service level to product quality and price -- shapes expectations well before customers walk in the door. Market position is about image, sales presentation, and product delivery -- in other words, the overall client experience or so-called intangibles. Sure, market position and price point have to do with product quality. But they have more to do with the customer experience and perceived value.
A high-end market position doesn't necessarily mean selling big-dollar items. It does, however, mean selling items at higher markups because consumers believe they're getting something back.
Let's look at an example from our industry. Take Sears, a company that's been successful selling remodeling services at 200% to 300% of their cost (for a 67% to 75% gross profit margin). For many years, Sears has been selling windows, siding, and cabinet refacing in most of your markets. I've spoken with contractors who've bid against Sears, only to have Sears get the job when it's charging twice the price. Then, to their surprise, Sears hires them as subs to install the job. The customer ends up with a similar product installed by exactly the same installation crew.
Why did they choose Sears when it cost twice as much? Peace of mind, security, and perceived value. We can all learn a lot from studying companies like Sears, which has proven better than anyone in remodeling that you can sell at higher margins.
You may choose not to increase your markup to 200% or even 100%, but you should move your pricing up. We all need to be paid as professionals and have our companies make a 10% to 20% pretax net profit. I don't think any reasonable consumer would begrudge that kind of profit. Remember, if you raise your pricing 10%, you can lose 10% of the jobs you would have previously booked and make more money with less effort and cost.
Pick your position
Choosing market position is a decision that will dictate how the phone is answered, how vehicles and marketing materials look, how salespeople and installers dress, how production systems should flow, what products to sell, what kind of people are recruited, and what the company culture should be.
I believe most contractors are worth more than they're charging. I also believe they could charge more even if they didn't change a thing except their understanding of what value really means to a customer.
We sometimes struggle with what is fair, based on what we would be willing to pay. The flaw in that thinking is that most of us are not our own demographic customers. We're do-it-yourselfers and the customer we want is a do-it-for-me. It's OK not to be your own customer, just like it's OK for the person who sells Cadillacs not to buy one, because he or she is not the demographic customer for that product.
Most remodelers want to create a win-win situation with their customers. But when our prices are too low, we're losing while the customers are winning. My suggestion is to focus your company on being a mid- to high-end price provider.
The good news is, we don't have to condition the consumer to buy this way. They already do. It's our job to recognize this and choose our market position and price point accordingly. --Doug Dwyer is president of DreamMaker Bath amp; Kitchen, based in Waco, Texas, and a NARI director-at-large.