Roman Cab Ride

The Fear of Open End Pricing & Getting Take For a Ride

Have you ever arrived in a city and worried about the cost of a cab from the airport into town?  Try it in a foreign country where you can't speak the language.  In my case, the foreign country was Italy.

My wife, in-laws, and I left Dallas at 7:00 p.m. and arrived in London the next morning.  After clearing European customs, we spent the next several hours in Heathrow Airport's Terminal 5, which may be the only airport terminal in the world where it's enjoyable to spend a few hours.  Late in the afternoon, we caught a flight for Rome and arrived, wrung out from traveling, at Rome's Leonardo da Vinci-Fiumicino Airport in the evening. 

Upon arriving, we discovered that the in-laws' 50 pound duffle bag was waiting while our luggage stayed in London, adding frustration to weariness.  We completed the necessary forms with British Air and hit an ATM before figuring out how to get to the apartment we rented for the week.

We planned on taking a taxi to the apartment.  The guidebooks all recommend taxis from the airport to take advantage of the fixed 40 Euro rate for four people and luggage.  By contrast, an airport shuttle to the main train station in Rome costs 11 Euros per person.  Not only is it more expensive, but once you're at the station, it's still necessary to figure out how to navigate the subway and bus system (or take a taxi) to get to your final destination.  As a party of four the cab was a no-brainer.  In fact, I never really considered anything else.

At the cab stand, I learned the flaw in my plan.  The fixed rate was to central Rome only.  The apartment was in a neighborhood located outside of "central" Rome.  When I tried to argue that the apartment was still in Rome, the guy at the cab stand's English started to disappear.  I felt like we were getting played.  Though our apartment was closer to the airport than central Rome, cab stand guy said it was going to cost us more to get there.    

"How much more?" I asked cab stand guy.

He shrugged and held out his hands out to his side as his English suddenly improved.  "Could be 80.  Could be more."

I did some quick math.  At 1.4 Euros to the Dollar that was $112 bucksplus.  Plus how much?  I didn't know.  

"You want a private driver?" cab stand guy asks.  "You save money.  You share a ride."

Cab stand guy motioned to a guy standing beside an unmarked van and engaged him in an fast dialogue, where the apartment's street was mentioned several times.  

Unmarked taxis are not recommended by the guidebooks.  

"Avoid unmarked, unmetered taxis," warns guidebook author, Rick Steves.  "These guys will try to tempt you away from the taxi-stand lineup by offering an immediate (rip-off) ride."

They didn't need to tempt us.  Cab stand guy was doing it for them.

"Quanto?" I asked, showing cab stand guy I memorized a few phrases in Italian.  This was a mistake.

"Cinquantacinque," he said.  I wasn't sure if this was either five, fifteen, fifty, or five hundred.

I switched back to English.  "How much?"

"Fifty-five."

Standing there, wrung out from travel, irritated by the lack of luggage, hungry, and uncertain, I had two choices.  We could take an official taxi that would cost who knows how much or take the unmarked one that cost a flat 55 Euros.

The driver of the unmarked taxi was better dressed and cleaner cut than the taxi drivers.  His van looked in better shape than the official taxis too.  He had an official looking photo ID hanging from a lanyard around his neck.

I bucked the advice of Rick Steves and went with the unmarked car.  We had to wait while he added other passengers heading to a hotel near our apartment, and then he took off.  The guy's driving skills lay somewhere between a NASCAR driver's and a lunatic's, but he got us to the apartment.

After helping take the luggage out of the van, the driver presented a card and offered us a special price of 50 Euros for the return trip.  At the end of the week we took him up on it.  We never even considered another option.

Standing in front of cab stand guy, I was in the same position as most consumers who are standing in front of your field service personnel.  They're anxious.  They're frustrated.  They're worried about getting taken for a ride.

The most reassuring thing you can do is offer them a fixed price.  It takes most of the uncertainty of the unknown away.  This can be complemented with a professional appearance, photo ID badge, and clean, late model service vehicle.  Each is a tangible clue that reassures the consumer about your legitimacy.

Some aspects of the service business are not hard.  Give a price upfront.  Wear uniforms.  Use ID badges.  Take care of your trucks.  Make the customer feel at ease.

Winning a customer's business the first time is the biggest challenge.  Once he's had a good experience with you, it's easier to do business with you again.  However, don't take it for granted.  Like our driver, ask for his business and give him a reason to call you back.  Give the customer a bounce back coupon or other repeat business incentive.


(c) 2011 Matt Michel

8 Ways To Use Price Without Discounting To Get More Customers

1. Charge a Guaranteed Price

A guaranteed price is a flat rate price. This is the same as a “not to exceed” estimate. Numerous research studies show that consumers hate open invoices. Consumers do not have the expertise to judge whether a repair should take 30 minutes or three hours. This is why consumers try to pin field service personnel down to a hard number. They pester technicians to say how long a repair will take or how much it will end up costing. If the tech offers a number, that amount becomes “fixed” in the consumer’s mind. Whether intended or not, the tech just offered a flat rate price.

Why not do what more than 90% of consumers want and offer flat rate pricing. Guarantee your prices?


2. Flex Your Prices

You offer some parts and products that are relatively easy for homeowners to obtain and you offer some services that are simple and easy for the homeowner to tackle. By contrast, other parts and products are practically impossible for the layperson to obtain and other services are too distasteful, difficult, or impractical for the average homeowner to consider. Lower the margin on the former parts, products, and services, while raising margins on the latter. This is flex pricing. Retailers have done it for years.

The objective of flex pricing is to generate an average margin equal to, or greater than the company’s target margin, which is the margin necessary to cover overhead, generate a return for the investors’ capital, and provide funds for reserves and future growth. Because you’ll capture more business involving parts, products, and services homeowners can source and provide on their own, you should capture more repair business.


3. Never Charge Overtime

If you allocate your overhead against your standard labor hours, how much is left to charge against overtime hours? None. All you need cover with overtime is your direct costs. Everything else falls to the bottom line.

You field service pay increases for overtime work, but the increase is almost always less than the overtime component of your standard labor. In fact, I’ve never yet met a contractor whose overhead per hour was less the fully burdened top technician or plumber pay per hour. This means contractors could double time for overtime work, charge the customer standard rates, and still drop more to the bottom line.

There is a catch. If you charge standard pricing 24/7, you might pull some business from your standard hours into overtime. As long as your estimate of standard labor hours is accurate, this won’t impact your pricing or bottom line. Since you will capture more after hours calls if you promote “no overtime,” you’ll actually boost sales and the bottom line.

Some contractors avoid overtime work. They charge more to discourage calls that can be delayed. This works for companies with plenty of business that want to avoid burning out field service personnel. Nevertheless, these companies are leaving money on the table. Maybe they should consider adding capacity.


4. Provide Reference Prices

Service Roundtable contractor, Bob Ring, tired of his commercial customers griping about his rates. He asked the Service Roundtable to assemble a pricing reference chart that compares his prices and service delivery with other services, such as copier repairs, lift truck repairs, and so on. Bob’s point was that his prices are in line with other service company prices. He didn’t compare himself with clueless competitors, but successful service companies from different fields.


5. Sell Less For More

Walk into any grocery store and check the prices for packaged goods. Unit prices are higher when packages are smaller. Contractors should prices similarly. Instead of selling refrigerant by the pound, for example, sell it by the ounce and increase the price per ounce.


6. Vary Your Response Charge With Demand

When demand picks up and you’re straining to cover the volume of calls coming in, increase your response charge. Charge more for same day or priority service. Hotels charge more when demand picks up. So do rental cars and airlines. Demand is higher for the Super Bowl than any other football game and the ticket prices escalate accordingly (even so, scalpers prove that the NFL leaves money on the table and could charge even more).

Even the post office charges more for priority service. Why not you?


7. Sell Payments

The entire car leasing industry is built on the premise that people buy based on cash flow rather than total price. This is especially true when the economy falters. It may be challenging to find financing sources, but they’re out there. Independent, local and regional banks have money to lend. Call on them and work out financing arrangements.


8. Sell Breakdown Insurance (But Call It Something Else)

Service Roundtable and Retail Contractor Coalition member Steve Miles added a seasonal breakdown guarantee for a small extra fee. Once the company performs a tune-up, any repairs through the season ending date Steve specified are on the house. Thousands signed up for the program and only a few systems actually needed repairs. The program was a huge success.

Negotiating Price

In the old Popeye cartoons, Wimpy never had enough money for a hamburger. He would offer to pay for today's hamburger in the future. Wimpy was trying to negotiate the terms of a fixed price sale.

It seems ridiculous when it occurs in a cartoon. It should seem just as ridiculous when your customers similarly attempt to negotiate with you. When your customer compares your price to a competitor's, is the customer comparing apples to apples or a filet mignon from a nice restaurant with the taco stand? After all, both are using beef. What's the difference?

When your customer wants to throw in something for free or only pay for your hard costs, is this like a consumer asking the hair stylist to add highlights for free? After all, the direct cost of the coloring isn't much. How much of a mark up does the stylist need?

When you customer wants you to cut your price, to "work with you," is this like a consumer asking the DVD store employee to cut the price of a new release by 60%?

If you think these examples are silly when reading them, try watching this video...



Once you offer a price, you simply cannot discount it. For years, Comfortech Idol was held as a competition between salespeople during the HVAC Comfortech Conference. Sales trainers role played as customers and a panel of judges evaluated each salesperson's performance (Greer was in the role of Simon, of course). During one Comfortech Idol, sales trainer Jim Hinshaw, played the role of customer.

"Come on," said Jim, "if you can just come down another $500, I think we can do a deal."

"Done," sighed the salesperson with relief that he finally closed Jim while a hundred of his peers looked on.

Jim rubbed his chin. "Well, you know, if you can find $500 that easily, I'll be you can find another $250..."

Once the salesperson compromised, he acknowledged the price he quoted wasn't the real price. Now, the only question left was how far he would compromise.


How To Discount

In truth, there will be times you will want to negotiate. You will willingly give something up to take the job. Yet, how do you do that while maintaining your credibility?

1. Discount by Addition - Don't change the price, but maybe you do throw in something extra.

2. Discount by Substitution - Substitute a less expensive product, procedure, or materials.

3. Discount by Subtraction - Cut the price, but take something away from the job to justify the cut.

4. Discount by Consideration - Cut the price, but require the customer to do something for you in return (like leave the yard sign up for six months).

5. Discount by Permission - Call someone at the office to get special permission to offer the job at a lower price (note: this won't work for the owner).

These are rational ways to discount. They allow you room to move without compromising your integrity. What if you discount without a rational approach? I'm confronting that very issue from the buyer's side today. Two companies want to print a book for me. The first is a specialist in book production. The company prints lots of books, is professional, and will do a good job.

The second really wants the business. I haven't met the printer, but everyone else in the company has and really likes the guy. He's local, which is a huge advantage. All things being equal, I'd give the job to the local guy everyone likes. But all things aren't equal. His initial price was 60% higher than the first company. When presented with the first company's quote, he said he'd match it.

While the second guy's done good work for us, his expertise isn't book production. Aside from quality concerns, I wonder if I'll get reprints for the same price after his other, more profitable business picks up. I wonder if I'll get prompt turnaround.

Here's the hole the second printer dug for himself. First, I'm nervous that he discounted 60% for this job and wonder if he'll cut corners. Or maybe, I wonder where he'll cut corners.

Next, I wonder if I've overpaid for other work he's performed. After all, he just lowered his price 60%. If he'll compromise 60% on this job, maybe he'll do it on every job. While meeting the first guy's bid may or may not win the job for the second guy, it has made all of his other pricing suspect.


Holding Your Price

Most of the time, you will simply want to hold your price and maintain your integrity. Sometimes this will cost you business. It's wise to continually inform your your customer base about your quality differences. Below is the header of an email marketing piece used by the Service Roundtable(R) to highlight the vast differences in similar seeming services that result in price variation. While you shouldn't go overboard with this message, it is good to remind your customers every now and then that you truly get what you pay for.


Another approach is shown below. This is another Service Roundtable example that was developed at the suggestion of Bobby Ring from Meyer & Depew for commercial service. The strategy here is to compare your service with other industries, such as copier service and forklift service. In light of what other quality service businesses from other industry's charge, your service is probably a good value.


When You Don't Give Fixed Prices

Flat rate pricing makes it easier to hold the line on prices. After all, you and the customer agree to a set price before work begins. Since you will hold that price even if the job runs long, you have every right to expect the homeowner to similarly hold up his end by paying you in full.

If you charge time and materials, it's mushy to the homeowner. There's no commitment on your part, which some homeowners interpret as a call for negotiation when the final bill comes due.

(c) 2009 Matt Michel