Episode 13: Pricing Strategies for HVAC Businesses

Podcast episode 13

0:31 – What will be discussed

0:49 – 3 Ways To Grow A Business

1:12 – Grow a business: make bigger sale

1:50 – Why are people scared of pricing?

2:48 – What dictates pricing?

3:48 – Pricing strategy: Business positioning

4:29 – Pricing strategy: Context

5:13 – Pricing rule: Don’t lower prices

7:03 – Pricing rule: Don’t be scared

7:53 – Pricing rule: Test prices

9:02 – Tip of the week

Hello everybody! Welcome to the hvacbusinessgrowth.com podcast. I’m your host, Nick Bielawski. Again, we have another great show lined up for you today.

Today’s podcast topic is Pricing Strategy.

I’ll just give you a brief overview of what we’re going to go through today. After the introduction, we’re going to talk about what dictates pricing. Then we have some of the rules in terms of price strategy. Then we’re going to finish off with the tip of the week.

In the previous podcast, we’ve spoken about how to grow your business. I want to remind you that there are 3 ways to grow a business. First is the most common which is to get more customers. Secondly, we need to make bigger sales. Thirdly, we need the customers to keep coming back more often.

Let’s go to the second one which is to make bigger sale. Basically, what I’m saying there is you can grow your business just by increasing or changing your prices.

But my question is: “What would a 10% increase in revenue or profit do to your business?”

It doesn’t mean that you can pay yourself more. It doesn’t mean that you’ll have more profit for your business at the end of the year. It doesn’t mean that you can afford to have an extra staff member or 2 so you can work a little bit less. So these are some of the things to consider as we’re going through this podcast and what a good pricing strategy can do for your business.

Why don’t we talk about why people are scared of pricing? One of the things that I believe is that people have a fear of losing customers and being labeled as expensive. You have to consider through that everywhere you look or in most circumstances, somebody is always going to be charging more than you. Even if you are the cheapest provider out there, somebody is probably charging less than what you are as well. I really believe taking the lowest possible price strategy can be quite damaging to your business. If you’re charging too little, then you’re undervaluing your product or service and it’s just dangerous for business.

You need to have good margins in your business if you’re going to make a profit. You also need to have margins so you can go out there and do some really good marketing. If you don’t have enough margins in your business then, you’re not going to be able to do a really good marketing campaign and your sales are going to suffer from there.

Let’s talk about what actually dictates pricing.

First of all, who is the customer?

If you’re in a less affluent area, then obviously your customer base is going to be of a lower socio-economic profile. If you’re in quite an affluent area, then it goes without saying that the people in your area are going to be more affluent. They’re going to be able to spend more money on your heating and cooling products.

It’s worth noting though that in the United States alone, 22% of the population are regarded as affluent. And of those 22% people, they actually control 55% of the spending in the US. So actually having a premium type of pricing strategy can actually be a good idea if you want to hit this particular segment of the market.

Obviously, there are situations where if you price yourself too cheap, then some people will think that there is something wrong with the product or service or the quality is poor. This is why pricing strategy is so important.

How you position yourself actually dictates how you are perceived in the market that actually dictates your pricing strategy. So are you positioned as a premium provider or are you positioning yourself as a low-cost provider?

The way you market yourself is critically important with this. So if you have a poor quality website or if you’re not doing social media and you’re not engaging with customers then your positioning can be quite poor and all you can do is play the cheap price option. However, if you position yourself quite well with your marketing, then you can probably afford to play the premium provider card.

The context is also critically important with your pricing strategy. Are you positioning your products or services as standalone products? Meaning, if it’s a heating and cooling unit or an air conditioner, are they getting the product and nothing else? Are you actually bundling in warranties and guarantees to make the product a little more valuable? Are you using takeaway selling with your marketing? What takeaway selling is, do you have a limited amount of stock available? Obviously, if the stock is limited you can afford to be a little bit premium with your pricing because there’s an under supply. So the context is critically important in your pricing strategy.

Let’s go to a few rules in terms of how to sit your pricing strategy. The first rule that I believe in is you don’t lower your prices in a bid to just win. I said before that if you’re too cheap, people will think that the quality is poor. In the heating and cooling game, you need to have a reputation for really good quality and good service. So, you need to make sure that your margins are actually good.

I want to tell you a quick story about a recent trip to the US. I went to Walmart because I had some extra luggage that I needed to take home. I went to Walmart because I needed a case that would hold together my stocks just long enough to be able to make the trip home. I didn’t need an extra piece of luggage to be able to go travelling with. I just needed it as a storage unit. So, I went to Walmart and got a pretty decent luggage. It was $30. Like I said I wasn’t expecting too much. So, I packed the stock into the suitcase and put it in the plane. When I picked the case up in the other end, the suitcase had aged considerably. It looked like it was about 20 years old and the stitching was coming apart. The moral of the story there is: you get what you pay for.

Walmart has positioned themselves as a cheap provider. I went to Walmart because I wanted something cheap that was going to do the job and nothing else at all. I don’t think you want your heating and cooling systems to fit into that category though, do you? You want them to, obviously, last according to their warranty and you want to give yourself a good reputation in the market. That was just a quick story about pricing.

The second rule that I have about pricing is: don’t be scared. You might have a competitor in the industry who has really cheap prices and may seem to have a big budget. They’re doing radio advertising and good newspaper advertising. But the trick here is that you don’t actually know anything about this company that’s doing this bombardment type of advertising. They might be losing money with what they’re doing. It might be an unsustainable business model. So, don’t be scared and don’t fear your competitors. Obviously you need to be wary of them but there are numerous cases of big name competitors going into markets and trying to play their bombardment type of strategy with cheap pricing and big advertising. They just run out of budget really quickly because the margins aren’t big enough.

The third rule that I have, and that’s probably one of the most important things that you can do, is testing of your prices. So, test the amounts; test different pricing plans.

For your pricing plans, what you can do is increase the price of the product but let people pay it off over a longer period of time. This may or may not be good for your cash flow. If you need big slabs of cash straight away then you might want to go for the one-time payment option.  But having payment plans are fantastic for your cash flow if you can actually do it.

There are situations with some finance companies where the finance company actually pays out the full amount to you and they delay getting payment from a customer over a specified period of time. It might be 6 months or 1 to 2 years. So that’s a good situation where actually having a flexible pricing strategy can actually be good for you. You can get more money in the long run and better cash flow for your business.

Now it’s time for another HVAC Business Growth tip of the week. This week’s tip of the week is this: only paying customers matter.

Hopefully you’re going to be considering some of these pricing strategies that we’ve talked about and you’re going to have a good look at how you’re pricing your products and services. What I don’t want you to do is ask your next-door neighbor or ask somebody else in the industry. The only thing that matters or the only vote that counts is that of the paying customer. So they all vote with their faith.

So I want you to go out there, test different prices and look at the data. I think you’ll be really surprised that the cheap low-cost strategy probably isn’t the best.

So that’s all we’ve got time for today’s show. I’m Nick Bielawski. I want to thank you for listening. If you have any good comments about the show, just head over to the blog or iTunes and just leave your comments. The same goes if you have any question as well. Just leave them on this blog and I will do my best to answer them as soon as I can.

Episode 13: Pricing Strategies for HVAC Businesses

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