By Jeffrey Barman | Apr 27, 2009
In my previous four columns, I examined Market Price Follower, Low Price Leader, Mixed Prices for Mixed Machines, and Consistent Price Promoter. This month, I conclude my review of my five pricing strategies to maximize profitability by exploring High Price Leader.
A Google search shows that the quotation from this column’s headline is generally attributed to James Crooks, or Crook, depending where one looks. Yet the whole of the English-language Internet contains almost no further information. Mr. Crooks’s biography is limited to a basic Wikipedia entry, and that presumes that the Crooks in question was a Scottish-born sea merchant who made his fortune in Canada at the turn of the 19th century.
This utter lack of proof of attribution for this relatively famous quote may be due to the fact that Crooks was actually an unknown conductor, or because he died well before Larry Page applied to Stanford, or that Crooks just didn’t say it. If the true-life information presented in Mr. Crooks’s “Behind the Music” special would otherwise offend the reader, I preemptively apologize.
Continuing our research, enter the phrase “high price leader” into Google and 0.07 seconds later you will get back a mere 1,800 unhelpful links (not counting, for future readers, this article). Why, in our always-on age of information, is there so little data about a simple, obvious pricing strategy? Why is basic, important information flat-out missing?
Additionally, why do so many highly experienced, successful store owners choose High Price Leader, yet so few store owners in total practice it nationally? Why, I demand, apocryphally banging my shoe on the table for emphasis.
Let’s start to answer these questions by attacking the conductor metaphor. “You” is you, my reader and fellow store owner; the “orchestra” is your store’s trade area; and the “crowd” consists of your competitors.
So how shall you “lead?” How shall you turn your back on your competitors, face your store’s profitability, satisfy your customers, and maximize your return on your investment? The answer is found in High Price Leader.
High Price Leader is an easy strategy to explain. Your objective as the owner of a High Price Leader laundromat is to run the best store in your marketplace, and to charge the highest prices accordingly.
By best, I mean providing your customer with: the greatest number of relatively new and fully-functioning washers and dryers; total cleanliness; appropriate indoor temperatures year-round; lengthy operating hours; modern interior design; useful ancillary services; comfortable seating; entertaining diversions suitable to the mixed demographics of your customer base; bright lighting; and, preferably, friendly, well-trained, full-time attendants. All of that would make for a good start.
If any of the above strikes you as “too hard” or “too expensive” then High Price Leader is not for you. It behooves the owner of a High Price Leader not to need much hand-holding on how to open, run and maintain an unequivocally great store.
By highest prices, I mean that you charge more than every other store in your marketplace. Your prices should be one to two quarters higher on your smallest washers, and higher by two to three quarters on your larger ones. If you have a card store, please, do take advantage of your ability to price in non-quarter increments, but still charge the highest prices.
By marketplace, I mean how ever you choose to define your trade area. High Price Leaders need not be in dense, urban trade areas; though when they are, they often do gangbuster business. Rural, less populated areas also work well for this pricing strategy. This is especially true in areas where residential water usage costs a premium, or where homeowners rely primarily on wells.
If you are one of the few store owners in America with both a captive customer base and little to no competition, you should choose High Price Leader by default, with the bonus that your store need only be classified as fantastic, rather than as amazing. Conversely, if your marketplace’s High Price store is not performing as a first-class Leader – by not providing total customer satisfaction - a great opportunity is open for you to come in, fill the void, and take over.
To most experienced store owners, the rationale for choosing the High Price Leader strategy is elegantly simple: it maximizes profits. Of my five pricing strategies, High Price Leader, when implemented correctly, produces the greatest profits and highest return on investment. Nevertheless, it is used by few owners for three reasons.
First, there is the category of owners who do not believe. They will have read my entire series of articles and embraced the concept of strategic pricing, but do not believe in this particular strategy. For these owners, no less experienced or thoughtful, High Price Leader runs against what they see as the most important part of the pricing strategy, price. Suffice to say, I believe they are mistaken. I have shown why in many past columns, and will do so again in the future.
It is not that our customers do not care about price. Rather, it is that they care more about value, both absolute, as in the vend price charged for the machines, and relative, as in the total store experience. High Price Leader works on the premise that most customers overall, and all of the most profitable types of customers, choose their laundromat by placing significantly greater emphasis on the latter value.
Second, there is the group of owners who do not understand. Some just don’t survey and don’t know what their competitors charge. More often, they will notice that you increased prices, but fail to recognize why you have done so.
This is a much larger group than the first, and they are likely not my most avid readers. They are a High Price Leader store’s best kind of competitor, because their reaction to your higher prices will most likely be illogical and inconsistent with the principles of strategic pricing.
If, in an ill-fated bid to gain market share, your competitors lower their prices in relation to your higher prices, they will win only if they simultaneously adopt the Low Price Leader strategy. This is unlikely, as it requires similar leadership skills to execute correctly. Remember, being a Low Price Follower is the worst decision you can make.
If they raise their prices to match yours, they will be playing directly into your strengths, as your store will still be the value leader, but with the added benefit of no longer being the price leader. This would be such a mistake on your competitor’s part that you will need to restrain yourself from raising your prices yet again.
If they leave their prices unchanged, which failing the adoption of Low Price Leader will normally be their best and most commonly used counter-strategy, they will still leave you with unfettered access to the customer base that you sought when you chose to become the High Price Leader in the first place.
Third, there are the owners who do not have what it takes. Note that much of what is required is actually out of these owners’ control. In becoming the High Price Leader you will normally have made the largest capital investment in your store in your marketplace. Many owners, even if they fervently wish to be High Price Leaders, simply do not have the wherewithal to make such an investment.
You must have a large store. Additionally, if you do not own the real estate, you must have a long enough lease term, at a low enough cost, to allow you the ability to take a long-term view on recouping your investment.
In addition to these important practicalities, what it takes to be a High Price Leader is self-imposed leadership. Frankly, this is where most store owners will fail.
You must have the courage to reject the patently false notion that owners who raise prices will lose all their customers. Instead, you must make your customers’ chore of washing their family’s clothes sufficiently enjoyable such that price ceases to be a factor in their decision-making process. You must make your store your customers’ only practical choice if they value their time and their surroundings whatsoever.
You must commit to working hard every day to maximize first-time customers’ experience, and to meet returning customers’ high expectations. If you don’t have the time and energy to do so, then your store (or stores, plural) must be profitable enough to support hiring a full-time manager who does.
As is the case for my other pricing strategies (though less so for Market Price Follower), you must ensure that your outside marketing programs and your signage are consistently informing potential customers about your store’s strengths and competitive advantages.
Ultimately, you must be prepared to turn your back on the competitive crowd. If you follow-through on your store’s value quotient, you will soon have a large core of loyal customers, spreading the word to their friends. That is priceless, unbuyable marketing.
A final note of caution. I suspect that many readers, especially those new to the business, will prefer the sound of this strategy over all others. However, if your store is not able to be the clear leader in your marketplace due to one or more of the practicalities just mentioned, all the personal vision, hard work and good intentions in the world will not overcome your obstacles to success. Defer your dream of being a High Price Leader until the circumstances of your store allow you to do so, and choose a strategy that better fits your store’s attributes.
The primary season has come to an end. I have reviewed each of my five pricing strategies in depth, both pros and cons. The time has come for you to vote. While you consider your options, I will be spending the next few months updating my chain’s daily turns analyses and visiting my competitors to revise my surveys. We will continue our discussion shortly. Have a great summer.