Price is what you pay, value is what you get. Warren Buffet (2008)
“Follow this example. I go to a car lot and see a truck I want to buy. I love everything about the truck, and it is exactly what I need. We start discussing price and your bottom price is around $20,000. Not wanting to jump to any quick decisions, I thank you and walk to the car lot across the street. Now at the car lot across the street, I see the exact same truck. Same features, same color, and same mileage. The only different thing about the truck is the price. On the window of the truck is an $18,000 sticker. The same truck, just $2,000 less. Why would I want to buy the truck at the other dealer?”
This is a literal example of what is happening in the construction industry today. The quote above came directly from a potential client as we were discussing a new project for which we had submitted a proposal. Our business had been simplified to represent a new truck from a car lot, and a multi-million dollar contract was the sticker price.
Being Better Stewards
With the crash of the stock market and the recession, there is justification in being better stewards of our financial resources. Construction costs have hit new lows, and owners are looking to take advantage of the reduced prices. What most owners do not realize is that material costs have not decreased that much over the past several years. In fact, the costs of many materials have actually increased and are on the rise. Dropping costs in construction values have come from depressed labor pools and people willing to take less in hourly wage in order to stay busy and work. Regardless of the real cost drivers, the lower construction costs are forcing us all to be very tight with our bids. As we are discovering, there are a handful of low bid contractors that are making it difficult for others to stay in the black.
Internally, we began to discuss what things made us worth to pay the extra amount. What added value did we provide to the client? We started a list: a unique delivery process, established industry relationships, proposed construction materials, unique technology tools, proven past performance with similar projects, and etc. These were all things that added additional value, and with a project of this size, they were all things that were very important for the project’s long-term success.
Our focus shifted to a goal to show the client how we created value. We demonstrated to them how we added value through our service, delivery, staff, and design ideas. We demonstrated value that warranted additional upfront investment to make sure things were done right the first time and that we would stand behind the end product. Value our competition did not have.
We Want You for the Job
After several negotiations, site tours, and meetings, we were eventually awarded the project close to the price we had originally bid. When we asked the client about why they selected us they answered, “We liked you guys. We felt comfortable that you would take care of us through this effort. Your past references spoke highly of your service, and in the end, we wanted you to do the job.”
We successfully communicated value.
For Value, Would You Consider Paying More?
Now if we were to go back to the car analogy – what if the $20,000 lot had a 200 point inspection on each car it sold before you drove off the lot? They also had a 100,000 mile full-service warranty on the vehicle, and the highest customer service rating in the City of any car dealer? What if you had a contact person at the dealership you could call at any time if you had questions concerning your vehicle as long as you owned the car? What if they checked in with you two times/year just to see how you were enjoying the vehicle? What if these are all things the other dealer does not offer. Would you consider paying more? Yes, they are both selling cars, but they are not both selling ‘value.’
We need to spread the message of value in this world of price-driven commodity.
It is often a tough sell, but when done right, we will have happier owners, and our
industry will be able to thrive once again.
by Timothy B. Barr, CPSM
Director of Business Development and Marketing
Legacy Building Services, Inc.