Uh-oh, The Big Drop Is Stalling Out.

12-11-2008, 07:45 PM

By John Caulfield

Quote:

The six sales reps of Home Town Restyling, a window, siding, and sunroom company in Hiawatha, Iowa, are allowed to offer homeowners a discount for making the purchase tonight. But that discount, says sales manager Tom Casey, never tops $500 on a large order, which, he feels, is fair compensation for the sales rep not having to return on a second visit.
Home improvement sales have traditionally relied on the one-call close and used an escalating series of discounts — The Big Drop — as incentive to persuade reluctant customers to make that immediate decision. Home Town Restyling used The Big Drop technique as recently as five or six years ago, recalls Casey, who has sold home improvement products for 18 years and been the company's sales manager for three.

But, he says, the days of layered discounts are long gone at the company, which instead sells its “product-specific” employee installers and 22-year reputation in Eastern Iowa. Deep discounts, Casey finds, are counterproductive. “People can understand a 5%, even a 7% [discount],” he says. “But when you get over 10%, you start losing credibility. I just don't think people are that gullible.”

NO BLUE-SUEDE SHOES
Changes in consumer attitudes toward buying are causing many companies in the home improvement industry to reexamine their policy when it comes to discounting. Morris Windows & Siding, in Succasanna, N.J., is among them.

In the early months of 2007, the company was at a crossroads. For more than a generation, owner Gerald Damora had been an enthusiastic practitioner of The Big Drop. He'd been using it for so long, he says, that he felt like he “wrote the book” on this established technique. But he could see that this tried-and-true method of moving fence-sitters was fast losing its power to persuade. The reason? “[The Internet] can provide anyone with price information.” And more.

Morris Windows & Siding had also lost four of its 11 salespeople over the previous 14 months. Each had been bringing in $1 million or more in annual business. All this led Damora to conclude that he needed a new, more straightforward sales strategy. So he embraced a no-gimmick approach made popular by General Motors Corp. to sell its Saturn automobiles, and now salespeople, both rookies and veterans, follow a presentation script that limits discounts to 10% off the listed price.

With this new limit, salespeople couldn't get carried away reducing the price in an effort to close at all costs. Damora calls it “the best decision I ever made.” It raised the company's gross margin. It also had a big effect on cancellations: As reps emphasized value over price, buyer's remorse faded, and cancels, which historically ranged between 21% and 26%, dropped to below 9%.

“Customers are receptive to the way we sell,” Damora points out. “They say, ‘Don't even bother coming to us with that blue-suede shoes stuff.'”

POTENT IMPACT
On today's Internet, information about price, product — even a company's past performance — “is everywhere,” observes Alan Levine, director of sales for Legacy Remodeling, a home improvement company in Pittsburgh. That has made a lot of what the industry considered “inside information” transparent to prospects.

So, is this new reality good or bad?

“The shroud of mystery has been removed, and customers have a better sense of why different products cost more,” says Mike Ferguson, vice president of sales for Gold River, Calif.–based K-Designers, which has 11 branches fielding 160 salespeople. “We welcome that,” he adds.
But all that information can be a bit disarming, too. “I've had sales guys call from an owner's home saying, ‘[The homeowner] knows more about our products than I do,'” says Rhonda Ladley-Love, director of sales for Renewal by Andersen of Colorado Springs, Colo.

This is where The Big Drop comes in. Not so long ago, discounts for posting company yard signs, buying back existing windows, etc., could take a price down by as much as 40% or 50% and were considered the nuclear weapon in a salesperson's arsenal of persuasion. In many homes, Internet-generated suspicion has killed The Big Drop's effectiveness. Instead, forward-thinking companies use discounts as one element in a more nuanced and informative in-home presentation that places greater emphasis on competitive differences. “We've tried to move away from [steep discounting] and toward acting like consultants because people are more sophisticated,” says Mike Kuplicki, who co-owns Alure Home Improvements' Owens Corning basement finishing franchise in New York.

Of course, many home improvement companies continue to use steep discounts as a purchase incentive. But they now run the risk of tarnishing their reputations or, worse yet, not being taken seriously. “The only way people can give big drops is when they're giving customers a lower-grade product,” asserts Camille Saleh, corporate sales manager for Cincinnati–based Champion Window. “It's a major turn-off,” Casey says, about following competitors who are using deep discounts into the home.
Some contend that the Internet hasn't necessarily made prospects smarter, just more susceptible to whatever they've read. And what they've read may not be accurate and is sometimes posted maliciously. As a result, salespeople find themselves spending more time countering homeowner perceptions about product quality or their company's reputation. “Consumers can rate you even if they don't do business with you,” observes Bill Stevens, vice president of sales for Unique Home Solutions, in Indianapolis, referring specifically to popular online site Angie's List. “So if someone doesn't like our prices, they can give Unique an ‘F.' That's crazy.”

JAUNDICED EYE
There are and always will be that 10% or 15% of customers, Casey estimates, who select a contractor based on price. But prospects using the Internet to research their home improvement purchase are at least as much interested in quality and service. And those Internet researchers, say contractors, are the prospects most likely to view Big Drop pitch finales with a jaundiced eye. “Those old-school tactics just don't work anymore,” Levine says. “As a consumer, if someone comes to my house and gives me a price of $10,000, and then says it's $5,000 if I sign today, I think it's B.S.”

Such attitudes are spreading, but they're also demographic and regional. Kuplicki notes that there are “many levels of computer awareness.” Ferguson, of K-Designers, points out that customers in markets such as Seattle, Los Angeles, San Francisco, and Denver “are younger and more tech savvy.” But while older customers or those who live in rural areas may not be as adept at Internet research, many are just as demanding for other reasons. “As people get older, they start to realize that home ownership has a lot of inherent costs, which aren't as clear to new owners,” Ferguson says. “They take a longer view [about home improvement] because they don't want to be replacing windows again in five years.”

A PRE-QUALIFIER
One thing that all contractors interviewed for this article agree on is that salespeople must be much better prepared. Questions “hit the table faster because of the Internet,” Levine says. “We get a lot of ‘I read this, I read that.'” When a window's energy efficiency is at issue, for example, the six salespeople who work for Legacy Remodeling's Swing Line window and siding division back up product claims with information from the National Fenestration Ratings Council.

In the Internet age, the trick to winning customer confidence, or even attention, is to deliver more than what Internet-informed customers might already know. Jeffrey Fick, vice president of Fick Bros. Roofing Co., in Baltimore, says that more of his customers than ever are using the Internet, including Fick Bros.' own Web site, as a pre-qualifier before scheduling an appointment.

But once his salespeople get into a customer's home, Fick says his company has an advantage because “we primarily install slate roofing, and customers are still pretty unfamiliar with that product.” That opens the door for the salesperson to educate the homeowner and gain trust. Ladley-Love of RBA Colorado notes that though most prospects have heard of Andersen Windows, “they don't know Renewal, so we still have a chance to educate them about us.” Unique Home Solutions plays up the brand exclusivity of the Soft-Lite Windows and Crane siding it installs; while Penguin Windows, in Mukilteo, Wash., emphasizes that it's the only company in its market offering krypton-insulated triple-pane windows. Like Home Town Restyling, Penguin Windows salespeople also never fail to mention that the company's AAMA-certified installers are employees, not subcontractors, says director of operations Vaughn McCourt.

Penguin Windows invests heavily in advertising to generate the 110 to 150 appointments per day it needs. With that much brand exposure, McCourt says, his company has to be a “good citizen.” Mistakes and misunderstandings would make it an easy target — via Internet lists, chat rooms, and bulletin boards — for irate homeowners and competitors.

WHERE'S THE INCENTIVE?
Contractors note that while the Internet has exposed home improvement pricing practices to scrutiny, it has also expanded homeowners' understanding about why certain projects or services cost what they do. “They know we're not ripping them off, but adding value,” says Ferguson of K-Designers.

Casey notices that in cases where leads are generated by the company Web site, prospects have usually done some research. Those prospects, he says, typically ask more pointed questions “about who does your work and about warranties. And they want some guarantee that you're going to be around to finish the job.”

To better appreciate its customers' needs, Home Town Restyling's sales reps survey homeowners to find out, for example, how long they intend to stay in their homes, what kind of products they're looking for, and what criteria they use to choose a home improvement company. “We tell people who are just looking for price that we're probably not right for them,” Casey says. “When we go into a home, we ask the customer, ‘If I can convince you that we have a better staff, offer a better product, and provide better service, would you believe me if I said we were the lowest priced, too?' ”

PRODUCT, PRICE, AND SERVICE
That's not to say that price has lost its place. The Big Drop may be old-school, but home improvement companies must be competitive, Casey says. If anything, the Internet raises the bar to where prospects now demand the best products, service, and low price before they sign. What companies have found is that if everything else is impressive, then a small discount for sparing the company the cost of a second visit can be a strong incentive.

Fick Bros. Roofing Co. prices jobs “to the penny,” Fick says, so that salespeople can showcase the company's estimating process to justify a job's costs. But the company also offers a “sales cost savings” program that gives customers 10% off up to $1,000 if they sign that night.
“One of the things the Internet has done has been to drive down [customers'] price perception,” says Ladley-Love, who instructs the company's 25 salespeople to be “as transparent as possible” about pricing, which, she says, “is the only objection we get to a sale.” The composite windows that RBA sells are at the upper end of the replacement window category, and salespeople for RBA Colorado give homeowners three options to buy, including a “preferred customer” option that knocks off $275 per opening if the customer signs that night and locks in prices for five years if the contract closes in five days.

THE RATING GAME
To assure homeowners about its reliability and performance, RBA Colorado regularly directs prospects to the Web site of the local Better Business Bureau, of which it is a member. Ladley-Love says that her salespeople also get occasional questions from prospects about why <i>Consumer Reports</i> doesn't include Renewal in its rankings. (<i>Consumer Reports</i> doesn't rate installation services, she explains.)
Other contractors, however, express ambivalence about the myriad online consumer forums that rate home improvement companies on various metrics. The best known of these is Angie's List, which has 650,000 members encouraged to evaluate providers of 300 different types of services by filing reports (see “The ‘A' List,” on page 25 of this issue). Levine, for one, calls Angie's List “fantastic,” and notes that Legacy Remodeling won an award from the List last year for the Pittsburgh market.

But some feel that Internet forums can be a breeding ground for falsehoods, with competitors posting baseless negative evaluations and remarks. “You find all kinds of ridiculous stuff” on the site of the Better Business Bureau, says Casey, who notes that the BBB, unlike Angie's List, doesn't allow contractors to reply.

Kuplicki says that Alure Home Improvements has its own internal rating system that requires a response to all customer complaints within 24 hours. What especially bugs him is when homeowners post negative ratings on consumer forums for minor, purely subjective complaints such as “because they don't like our prices or we don't service their area.”
To defuse negative ratings, Alure salespeople will ask the homeowner to name his or her favorite restaurant. “We'll go online and show them all the negative reviews, and the positive ones. Then we'll ask, ‘Is that going to make you not eat there again?'” But what Kuplicki and other contractors lose sleep over is their fear that bad reviews, along with the blizzard of other information on the Internet, might be keeping homeowners from calling their companies in the first place.

12-11-2008, 10:18 PM

Its about f**king time we heard this. I sell cabinets among other things and I still get these idiots from time to time that tell me they are going to Menards because the cabinets are 73% off regular price. Good posting Mike, a lot of smart people don't buy the old balogna anymore.

I just reread, they are still doing the drop, but its packaged a little different.

12-11-2008, 11:57 PM

This article make a lot of sense. These are good sales-closing tools.

12-12-2008, 12:54 AM

I find it ironic in the first part of the article how they say the big drop is dead, but they are still propents of the little drop!

Further they go on to describe the little drop as basically a selling method, or a selling skill, making it sound as if it's the only skill the sales people they employ have.

AS IF IT'S A SKILL!!!???

"Tell me about your sales training?"

"Oh, yes... I spent 5 years selling windows and had many hours of sales training..."

"And what exactly did they teach you?"

"I learned after many hours and hours of extensive training, roll playing and hours of studying how to lower the price 5%."

Ridiculous.

12-12-2008, 12:29 PM

"including a “preferred customer” option that knocks off $275 per opening if the customer signs that night and locks in prices for five years if the contract closes in five days."

$275 discount per window sounds like a big drop to me!

The article sort of makes me laugh, I've been saying for the past couple of years that internet shoppers do not generally fall for the big drop. "So it's $11,000 if we sign tonight and $16,000 if we sign in a week, I can't understand how you could offer our neighbors a $11,000 price in a week from now but not us?" <---try to answer that by claiming that your gas and time for a return trip costs you $5,000!

BTW, one of the companies in the article is now out of business.

12-12-2008, 04:45 PM

Yeah, when I reread the article I realized its right up there with the "Big Event".
In Minnesota a sale has to be a real sale if you advertise it, but you can advertise your having an "Event" all you want and not change pricing. So now we have the GM Dealers Big Event and the Slumberland Furniture Event.

12-12-2008, 05:13 PM

Quote:

Originally Posted by dougchips

"including a “preferred customer” option that knocks off $275 per opening if the customer signs that night and locks in prices for five years if the contract closes in five days."

$275 discount per window sounds like a big drop to me!

The article sort of makes me laugh, I've been saying for the past couple of years that internet shoppers do not generally fall for the big drop. "So it's $11,000 if we sign tonight and $16,000 if we sign in a week, I can't understand how you could offer our neighbors a $11,000 price in a week from now but not us?" <---try to answer that by claiming that your gas and time for a return trip costs you $5,000!

BTW, one of the companies in the article is now out of business.

The secret is you need to be really good at reading the customer to see what kind of person they are. I have always in the past tried to be low pressure and as far from the big guys as possible. But sometimes you get a home owner that you know is just dieing to hear they they are going to get that special price cause they want to tell all their friends about the GREAT deal they just got.

How about instead of the big drop, the "big addition" when you get the free gutters with your $30/ft gutter guards

Sometimes when I am out on a siding estimate, I will look for that really crappy storm door and price a new one into the job to be "given" away. Sets you apart from the others, and makes the customer say "gee I really hate that old storm door that never shuts this is a good deal"

12-12-2008, 06:05 PM

Sometimes when I am out on a siding estimate, I will look for that really crappy storm door and price a new one into the job to be "given" away. Sets you apart from the others, and makes the customer say "gee I really hate that old storm door that never shuts this is a good deal"

Smart move.

12-11-2008, 10:18 PM	#2
silvertree Guest Posts: n/a	Re: Uh-oh, The Big Drop Is Stalling Out. Its about f*king time we heard this. I sell cabinets among other things and I still get these idiots from time to time that tell me they are going to Menards because the cabinets are 73% off regular price. Good posting Mike, a lot of smart people don't buy the old balogna anymore. I just reread, they are still doing the drop, but its packaged a little different. Last edited by silvertree; 12-11-2008 at 10:46 PM.*

12-11-2008, 11:57 PM	#3
pcplumber Guest Posts: n/a	Re: Uh-oh, The Big Drop Is Stalling Out. This article make a lot of sense. These are good sales-closing tools.

12-12-2008, 12:54 AM	#4
Mike Finley Guest Posts: n/a	Re: Uh-oh, The Big Drop Is Stalling Out. I find it ironic in the first part of the article how they say the big drop is dead, but they are still propents of the little drop! Further they go on to describe the little drop as basically a selling method, or a selling skill, making it sound as if it's the only skill the sales people they employ have. AS IF IT'S A SKILL!!!??? "Tell me about your sales training?" "Oh, yes... I spent 5 years selling windows and had many hours of sales training..." "And what exactly did they teach you?" "I learned after many hours and hours of extensive training, roll playing and hours of studying how to lower the price 5%." Ridiculous.

12-12-2008, 12:29 PM	#5
dougchips Guest Posts: n/a	Re: Uh-oh, The Big Drop Is Stalling Out. "including a “preferred customer” option that knocks off $275 per opening if the customer signs that night and locks in prices for five years if the contract closes in five days." $275 discount per window sounds like a big drop to me! The article sort of makes me laugh, I've been saying for the past couple of years that internet shoppers do not generally fall for the big drop. "So it's $11,000 if we sign tonight and $16,000 if we sign in a week, I can't understand how you could offer our neighbors a $11,000 price in a week from now but not us?" <---try to answer that by claiming that your gas and time for a return trip costs you $5,000! BTW, one of the companies in the article is now out of business.

12-12-2008, 04:45 PM	#6
silvertree Guest Posts: n/a	Re: Uh-oh, The Big Drop Is Stalling Out. Yeah, when I reread the article I realized its right up there with the "Big Event". In Minnesota a sale has to be a real sale if you advertise it, but you can advertise your having an "Event" all you want and not change pricing. So now we have the GM Dealers Big Event and the Slumberland Furniture Event.

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12-12-2008, 06:05 PM	#8
silvertree Guest Posts: n/a	Re: Uh-oh, The Big Drop Is Stalling Out. Sometimes when I am out on a siding estimate, I will look for that really crappy storm door and price a new one into the job to be "given" away. Sets you apart from the others, and makes the customer say "gee I really hate that old storm door that never shuts this is a good deal" Smart move.

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