Price is What You Pay…

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?”

The Quote
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.

Adding Val­ue
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.

Cre­at­ing Val­ue
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.

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