The Garrison Report #2006-2

Differentiate Your Business by Focusing on the Client

The best way to differentiate your business from your competitors is to offer greater value to the client. Focusing on the client's needs and desires is the best way to do that. This is an important concept because the only true value is value perceived by the client -- not the contractor. The good news is very few contractors take the time to understand clients' problems. Instead they attempt to tell the clients how great they are. However, after a while all these presentations sound alike and the clients simply resort to the default button -- price! The author knows because he's been put to sleep by similar presentations when he was the client.

The best news is that this approach can have a positive impact on the bottom line for both negotiated and hard-bid contractors. Of course, the potential is greater for the negotiated contractors; the bidding contractor can't ignore the benefits of this approach. However, it definitely will not work on all prospects because some do care only about price and don't evaluate value or performance. Avoid them because they will bleed you dry.

Unfortunately, too many contractors resist selling based on value because they believe that prospects care only about price, but this isn't true. Thomas J. Winninger reports in Price Wars that only 27 percent of consumers are focused on price. The author's advice is to ignore them. However, don't jump to the conclusion that all prospects that are forced to take the low bidder don't care about value and performance, but we will come back to that later.On the other end of the spectrum are the 17 percent of prospects who always buy based on value; they simply want the best. The problem is contractors often don't see those prospects; they already have their contractor, so their work never hits the street. The key is the 56 percent in the middle because they will buy based on price or value. They buy based on price when they don't understand value; therefore, it's up to the contractor to explain the value, or the prospect hits the default button.

The problem is that the above statistics can create a misleading interpretation. Since most contractors don't see the top 17 percent, they assume they don't exist. Everyone sees the bottom 27 percent, who are clearly price-driven. The confusion comes over the middle 56 percent. If they are educated to value, they will default to value. Therefore, if they aren't educated, they seem to care only about price. In reality, if we educate the middle group to value, 73 percent (17 percent plus 56 percent) of prospects would actually buy based on value. Based on projected 2006 volumes, this is the equivalent of more than $850 billion worth of work.

To illustrate how people focus on price when they don't understand value, the author asks his seminar audiences a question: "How many people think gas at three dollars a gallon is too high?" Usually most people raise their hands. He then says, let me rephrase the question, "How many people would walk 20 miles to save three dollars?" The hands go down. It's the same question simply phrased differently. The first question focused on price, while the second question focused on value. Understand, price is always too high, but when people understand value, the price impact is reduced.

So how can we add value for the prospect before we even sign a contract? The answer is to address their needs and concerns. The author suggests that contractors and designers start by asking their prospects a simple question: "What are your concerns and fears about this project?" The answer to this question will identify the prospect's hot buttons and what she places value on. Now you can spend your precious face-to-face time addressing those issues without even knowing the specifics of the project.

This approach requires a fundamental shift in the way many contractors and designers think. The author's favorite definition of a client is "someone under the protection of." Therefore, it's your responsibility to convince the prospect that you have their best interests at heart. This starts by focusing on their concerns. After all, they are hiring an architect or contractor to eliminate a problem, not create one.

When you take time to address their concerns and explain how your approach is designed to eliminate or at the very least minimize those issues, the prospect will begin to think of you differently. The feeling they will get is, this contractor understands our problems. This approach creates a definite competitive advantage because most of your competition doesn't do this. This works because prospects are interested in their problems, not yours. So the more you focus on the elimination of their problems, the more they will feel comfortable with you.

How does this work in the competitive bid market? The author agrees this approach wouldn't help you get the job since they will select the contractor based on low price. However, if you sit down after the award of the contract and take this approach, you can remove many of the obstacles that owners put up to protect themselves from contractors. They create barriers because they simply don't trust the contractor. But developing trust turns things around. The author received an e-mail from a subscriber to The Garrison Report. He wrote that he agreed with the idea of reaching out to the customer. However, after reading The Garrison Report for months, the company decided to raise the bar. They made an even greater effort on their part to reach out to the customer on one of their bid projects. The result was they made a bigger profit than normal and the customer said it their best project. Many prospects who are forced to bid work will respond to this approach and are worthy customers. Those prospects who want only to hammer the price lower are the ones to avoid.

However, the greatest opportunities occur in negotiated work because the process can actually influence the selection. In essence, by asking the suggested opening question, the contractor is performing a risk analysis. You are identifying the prospect's perceived risks and explaining how you will eliminate or at least minimize them. While the author can't provide a guarantee, it's a safe bet that if you can reduce the prospect's perceived risks in his selection process, he will place a high value on your bid.

A variation of the gas question for prospects might be, "Would you rather pay a little more up front and eliminate the risk of contractor-generated change orders, schedule delays, litigation, and quality problems?" In essence, the contractor is advising the prospect that while his price may be a little higher, he has added a great deal of value by reducing the prospect's risk. Many prospects will understand this concept when it's explained properly. The contractor is protecting the client by taking on the risk of performance. This isn't a high-risk situation for the contractor, when the contractor understands what must be done. The contractor must perform a risk analysis of the actual project, but that is something that will be discussed in the next issue of The Garrison Report.

In this report we started the process by discussing a risk analysis on the prospect's concerns in awarding the contract. In reality, most prospects are unsure how to select a contractor, so they hide behind the low bid. This approach gives them cover: "Well, we selected the low bidder, what do you want from me?" However, if you can provide enough value that they can differentiate their contractor options, many of those prospects will use that difference to select the contractor. This creates a win-win situation. The prospect becomes a happy a client because his risks have been removed, and the contractor gains more profit from both the individual project and the fact that it's easier to obtain repeat business and referrals due to happy clients. As the title of Jack Trout's book indicates, Differentiate or Die.

 

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