Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Mon Dec 31, 2007 10:08 am Post subject: How To Compete With Free
“Free” is often considered the most attractive come-on a business can use. It implies no risk and appears to have no down-side for the client. Many businesses have successfully used the tactic and the short-term results can be very promising.
So what might a shop do when a competitor turns to “free?” I am of a different belief and feel very strongly that nothing is ever free. Someone pays for everything and thus, “free” is merely a disguise; A tactic that ignores logic, the urge to get something for nothing. This tactic has been extensively used in my market and I have had a great deal of success competing with it.
Those sold on the technique will not be swayed by my thoughts. Rather this post is addressed to those who feel as I do and wish to compete against “free.” When competitors turn to “free,” many shops feel the only way to compete is to do the same. I feel this ignores a number of serious flaws with the practice and is not effective.
For example, let’s take a small town, with just two shops, shop “A” and shop “B”. This makes it easier to illustrate, though the principle is the same regardless of size. Both shops were doing okay, with an equal distribution of clients. Now a third shop, shop “C,” opens and wishes to capture some of the market. The same scenario might exist with only the two shops and a business slowdown.
Shop C begins to offer free diagnosis of problems. They begin an advertising campaign to make this well known. There are several ways shops A and B could react. First is to wait and see. They continue as in the past and shop C begins to gain clients. At this point many shops decide they must match the offer. Shops A and B start to offer free diagnosis. Clients come to expect free diagnosis, they assume that is the value of the service. Free is no longer an advantage to any of the three and now the ante must be raised. Something else is offered for free and the cycle repeats. This is a common situation in the auto repair trade.
Shop C is not bad, they are simply competing with their strength. If shops B and A play their game, they may be decimated. Instead each shop must compete on its own strength. As stated before, nothing is free. The [heavy] cost of these come-ons must be added back to the price of other services. This causes prices to rise and it is hoped the client will come in for the free items and buy the over-priced items while there. This is a simple law of business and the key to competing with free.
In our example above, let’s say shop B follows shop C, but shop A decides to try a different approach. Instead of continuing as they were before, they decide to compete to their strength. The strong point of shop A is a reputation for honesty and an ability to diagnose problems. To compete, they must make this even more well known.
They begin an advertising campaign. They advertise lowest overall cost, through an honest paid evaluation. “Let us diagnose the problem, and give you an honest evaluation.” They also ask the question, “Why would you trust a shop that only gets paid if they sell you something?” They offer a “second opinion” as a valuable service, and explain the value with examples and testimonials. They also appeal to common sense, with a “nothing is free” message.
Because shop A is not burdened with the [large] loss of funds from offering “free” services, their other services are more competitively priced. This attracts people with straight forward problems. They are also able to spend needed time on diagnosis, further increasing their reputation for accurate problem solving. They are able to fix vehicles right the first time, on time and at the price quoted, far more often. This attracts people with more involved problems. Their reputation grows and they continue to publicize these strengths.
Often people go to shops B and C and are not comfortable. They recall the message and go to shop A for “a second opinion.” To their surprise the cost of repair is less. They too become clients of shop A. Shop A has effectively neutralized the advantage that shops C and B might have had. Shops B and C are now in a position of having nothing unique to offer, unless they change their tactic. Shop A has established their position and B and C can only play catch up, if they indeed catch on.
The points of this post are these. A shop must compete with their strength, not emulate the competition. Emulating competitors, merely makes a shop appear the same as everyone else in the market, reducing their competitive advantage.
Nothing is free, the cost must always be covered somewhere. People are smart, they can be mislead for a while, but common sense will come through, if given a chance. People will always act in what they feel is their own best interest. The long-term solution is forget the tricks, truly act in the client’s best interest and demonstrate that fact effectively.
Good topic Louis. It is a foriegn concept to most shop managers, even though their techs will agree readily with you.
For instance, our dealership sells 350 new cars each month, and apparently has done so for years. We have three years of warranty time on each new car, longer with extended warranties, to convince these people we are the right place to have their cars serviced, even after their warranties expire. So if we kept even 1/2 of the 350 each month, month after month, year after year, by now we would be open 24/7 just to service all those cars.
We'd be the envy of every dealership in the country. Yet we run out of work at 11:00 am many days.
But our surveys say 76% of our customers are likely to return.
As Deming said, the most important numbers can't be known.
As an aside to this topic, research always shows that of the ten most powerfull words in advertising, free, new and improved always are included, and always rank close to the top of the list.
When people pay me for advice, I tell them how to use the word free in different ways than other consultants do. I demonstrate how they can give away things of great value to prospects, but that cost the business little.
It is actually better than giving away free oil changes and the like.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Wed Jan 02, 2008 8:13 pm Post subject:
Bud wrote:
Good topic Louis. It is a foriegn concept to most shop managers, even though their techs will agree readily with you.
For instance, our dealership sells 350 new cars each month, and apparently has done so for years. We have three years of warranty time on each new car, longer with extended warranties, to convince these people we are the right place to have their cars serviced, even after their warranties expire. So if we kept even 1/2 of the 350 each month, month after month, year after year, by now we would be open 24/7 just to service all those cars.
We'd be the envy of every dealership in the country. Yet we run out of work at 11:00 am many days.
But our surveys say 76% of our customers are likely to return.
As Deming said, the most important numbers can't be known.
Hi Bud,
That is a fact that most dealerships cannot deal with. Numbers are normally their life, and I find their greatest weakness. I find this makes them very easy to compete with. The thirty-percent increase in sales I project for the next year will come almost totally from their current base.
Its amazing how the word free attractes people like moths to a light bulb and honestly think they are getting something for nothing.Free TV,Free upgrades even free car repairs under warranty right? My wife and I were looking online at new office furniture.One of the shipping options at a local box store was -
"Add $50.00 to your order and receive our free next business day delivery" The 50 bucks must be a tip because the shipping is free!
_________________ Jason Clark owner/tech
Clarks Automotive
Wellington Ontario
Canada
Joined: 15 May 2007 Posts: 146 Location: Garden City, KS
Posted: Mon Jan 07, 2008 4:19 pm Post subject:
I feel the only reason people react to it is because we've trained them to do so. "Free coffee, free tire rotations (sometimes for life), free doughnuts, free oil (or filter, or entire service), etc, etc, etc.
Go to a restaurant: free refills. Now we expect it.
Go to a catalog or website: free shipping. Now we expect it.
Go to an eye doctor: free rims. Now we expect it.
Go to grocery store: buy one get one free.
Free has become a misleading term now-days.
Great post, Louis. Later, Matt.
_________________ Matt Fanslow
ASE CMAT/L1
Crag-Technologies, Inc
www.wavehook.com
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Mon Jan 07, 2008 9:40 pm Post subject:
louis wrote:
Hi Bud,
That is a fact that most dealerships cannot deal with. Numbers are normally their life, and I find their greatest weakness. I find this makes them very easy to compete with. The thirty-percent increase in sales I project for the next year will come almost totally from their current base.
Louis,
How do the numbers make them easy to compeate with? How is it their greatest weakness?
I know that around here they offer the lowest price oil changes of anybody. Then they try to upsell other services.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
That is a fact that most dealerships cannot deal with. Numbers are normally their life, and I find their greatest weakness. I find this makes them very easy to compete with. The thirty-percent increase in sales I project for the next year will come almost totally from their current base.
Louis,
How do the numbers make them easy to compeate with? How is it their greatest weakness?
I know that around here they offer the lowest price oil changes of anybody. Then they try to upsell other services.
Ok, Louis, why do you always get the easy questions here, and I get the hard ones on the advertising forum? Maybe we should switch forums for awhile.
I remember your "Just Say No" advertising campaign you ran against dealers.
Dave, you're going to like the answer to your question that Louis puts up here.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Tue Jan 08, 2008 8:23 pm Post subject:
Jason wrote:
Its amazing how the word free attractes people like moths to a light bulb and honestly think they are getting something for nothing.Free TV,Free upgrades even free car repairs under warranty right? My wife and I were looking online at new office furniture.One of the shipping options at a local box store was -
"Add $50.00 to your order and receive our free next business day delivery" The 50 bucks must be a tip because the shipping is free!
MattFMN wrote:
I feel the only reason people react to it is because we've trained them to do so. "Free coffee, free tire rotations (sometimes for life), free doughnuts, free oil (or filter, or entire service), etc, etc, etc.
Go to a restaurant: free refills. Now we expect it.
Go to a catalog or website: free shipping. Now we expect it.
Go to an eye doctor: free rims. Now we expect it.
Go to grocery store: buy one get one free.
Free has become a misleading term now-days.
Great post, Louis. Later, Matt.
Hi Jason and Matt,
Free is effective, short-term. The problem is it is always an escalating net sum gain, returning to zero as you mention. Human nature is such that whatever is received, in time will be an entitlement. Sort of the old "What have you done for me lately," thing. To continue to get the same reaction, takes bigger and bigger free offers.
It is also a practiced that can easily be copied by anyone. There is really nothing special required to give away services. Creating value is another matter.
Nothing is free, everything is paid for by someone. Free offers always relate to higher cost elsewhere, no matter how cleverly they are disguised. A shrewd competitor need only point this out to clients and the practice of "free" is seen for what it is, a deception.
Deception is no way to build long lasting relationships. Truly providing value in an above-board manner can always win, long term.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Tue Jan 08, 2008 8:42 pm Post subject:
Dave wrote:
louis wrote:
Hi Bud,
That is a fact that most dealerships cannot deal with. Numbers are normally their life, and I find their greatest weakness. I find this makes them very easy to compete with. The thirty-percent increase in sales I project for the next year will come almost totally from their current base.
Louis,
How do the numbers make them easy to compeate with? How is it their greatest weakness?
I know that around here they offer the lowest price oil changes of anybody. Then they try to upsell other services.
Hi Dave,
Most folks that closely watch numbers have no idea what they are watching. Those that truly understand variation realize that the most important things have no numbers. Not that numbers are inherently bad, they are not. Properly applied they can be useful.
Not understanding numbers leads to seeing everything as a "special cause." Something to be dealt with by direct action; Sales down? Offer a loss leader oil change and then upsell needed services.
Instead, why not consider why sales are down. It may be common cause variation; The way things are done. Perhaps people are tired of being baited in with loss leaders and sold over-priced things to cover the cost? This may have people scared to the point they would rather drive a broken vehicle than face the normal repair ordeal? Over time such practices may have effectively shrunken the market? People avoid maintenance, trade cars, try to do it themselves, even put up with problems that could be fixed.
If you like, I will post a piece I wrote a while back on competing with oil change specials (OCS). It’s call, “Just say know no.”
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Wed Jan 09, 2008 9:55 pm Post subject:
louis wrote:
If you like, I will post a piece I wrote a while back on competing with oil change specials (OCS). It’s call, “Just say know no.”
Louis,
I would like to see your ideas on that.
What we have done confronted with someone that says they can have their oil changed cheaper elsewhere, is to agree with them. Then we explain the value of our service. Not only do we change the oil, we use the proper oil for their vehicle, we use a good quality filter, we air up all the tires including the spare, we test the coolant, test the brake fluid, test the battery, etc. and report our findings. The majority of the time we wind up doing the services.
When this approach does not work that they are welcome to have their oil changed at XXXX but, if any thing else is recommended or needs done, please bring the vehicle back to us.
Thanks,
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Jan 10, 2008 8:05 pm Post subject:
Hi Dave,
I think you are right on the money. If others wish to loose money on oil changes or whatever, I'm glad to give them a hand. My theory is, "Never interrupt a competitor, when they're making a mistake." Two years ago, business must have been real slow around town. A great many shops were advertising oil changes from $10 to $15.
A local dealer was doing oil changes on Toyota, for $12.95 with a Toyota oil filter and Castrol. Of course every oil change was accompanied by a "list of needed repair."
Our message was simply, take the cheap oil change and bring the list to AGCO. Just say no and call AGCO. It was so successful, I was really sort of sorry to see them discontinue the specials.
The following news article ran on our website and was quite popular. The radio message followed much the same format:
----------------------------------------------------------------------------------
The AGCO Automotive “Just Say No,” campaign seems to be working very well. Our
intention is to help folks avoid the all too common “up-sells” often targeted toward the
unsuspecting. We suggest if you suspect you are being approached with an automotive
“up-sell,” JUST SAY NO AND CALL AGCO.
It often works like this: A low price oil change, tire rotation or even a bargain price on tires
may be used to lure the client in. The client is then informed they need all sorts of additional
repair. Often it is suggested the repair needed is “on special” or “can be done right now.” These
may be tip offs, particularly if no symptoms were present. JUST SAY NO AND CALL AGCO.
Favorite “up-sells” include:
1.) Struts and shocks
2.) Fuel injection flush
3.) Engine flush
4.) Transmission flush
5.) Brake repair
It is not uncommon for AGCO Automotive to inspect the vehicle and find little or nothing wrong.
This after the client was advised by another shop, that hundreds of dollars in repairs were needed.
Worse, often the parts suggested by some of these places may not be as good as the original
equipment parts removed.
We have seen recommendations to replace a fine set of original equipment Lexus struts,
in excellent condition, with a cheap set of aftermarket struts. Don’t be taken in, JUST SAY NO
AND CALL AGCO.
We can inspect the vehicle and if you actually need repair, AGCO Automotive can perform
a professional installation using top quality original equipment parts. The parts made for your
vehicle, not just something that fits. Remember, JUST SAY NO AND CALL AGCO.
-----------------------------------------------------------------------------------
I also have a longer piece I wrote, explaining the concept in more detail. I am unable to locate it at this time, but will post it when I do. Thanks Dave, I appreciate the reply.
Joined: 09 Dec 2007 Posts: 21 Location: Lathrop MO
Posted: Thu Jan 10, 2008 11:01 pm Post subject:
Hi Louis,
I'm not advacating shop C's tatic of offer free diagnosis as a good one, mostly because it's a dangerous path to even start going down.....But, I think shop C did play to their strength. They had something the other two shops were likely lacking; Time. They need to meet people, get people in the door to know them and since they were the new guy in town they had the ability to "give away" their time....It would be good to spend it wisely. Instead of spending it to try to sell an over priced item or sell unecesary work perhaps they could use it to get to know the people that just came in the door.
Now just take it one step further and ask yourself if the people that reacted to their "free" ad and willing to try the "new guy" just to get it would be good long term clients.....hmm. Maybe it would be good to do something like this and when the new customer comes in to get his free diagnosis the shop made it clear to him this is a one time deal, next time there will be a fee and why?
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Fri Jan 11, 2008 3:19 pm Post subject:
Jeff S wrote:
Hi Louis,
I'm not advacating shop C's tatic of offer free diagnosis as a good one, mostly because it's a dangerous path to even start going down.....But, I think shop C did play to their strength. They had something the other two shops were likely lacking; Time. They need to meet people, get people in the door to know them and since they were the new guy in town they had the ability to "give away" their time....It would be good to spend it wisely. Instead of spending it to try to sell an over priced item or sell unecesary work perhaps they could use it to get to know the people that just came in the door.
Now just take it one step further and ask yourself if the people that reacted to their "free" ad and willing to try the "new guy" just to get it would be good long term clients.....hmm. Maybe it would be good to do something like this and when the new customer comes in to get his free diagnosis the shop made it clear to him this is a one time deal, next time there will be a fee and why?
Hi Jeff,
I did not mean to imply the tactic of offering free services can not work. I feel the tactic is easily competed with and the results are often temporary and disappointing in the longer term. Time is little different than any other things of value. For instance shop C might also give away oil filters, wiper blades or even tires as an extreme example.
A few of the problems that I see are these. This is a very easy tactic to match. Shops A and B, supposedly with more resources, may be able to give more things away than shop C. This can be a hard and expensive contest to win. Eventually prices rise to cover the cost.
A bigger concern, in my opinion, is the cost of offering no charge services. Nothing is free, everything has a cost. The overhead does not change when services are offered for free. The cost must still be covered and is normally done by higher prices somewhere else.
I receive a diagnosis from shop C and an estimate. I then return to shop A and the estimate is less, because they do not have the burden of free diagnosis. I now do not feel good about shop C and decide not to use them in the future. Now even if shop C changes policy, I may never know, because I will not try them again.
The point I hope to make is not that free can never work. Rather it is that free can quite easily be competed against. People are pretty smart, it does not take long to figure out that nothing is free. They also have long memories . . .
Thanks Jeff, I appreciate your reply and your opinion. It is good to see you post.
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My wife and I were looking online at new office furniture.One of the shipping options at a local box store was -
