How to Compete Without Chopping Prices

Dec 3, 2009

Whether you diversify or specialize, offering quality and service allows shops to get what they deserve.

Price-cutting competitors are like rust on a steel awl: as soon as you clean it off, it starts forming again. As soon as one cheap restyler goes out of business, another one takes his place.

And, just like insidious oxidation, price-cutters can’t be ignored. If you don’t pay attention, they’ll erode your shop’s business.

One way to respond to price competition is to meet or beat it in the lowball game. Unfortunately, there always seems to be somebody willing to go even lower and your bottom line suffers as a result. Admittedly, depending on your shop’s finances, that may be the only way to go. But there are alternative strategies that can allow you to build your business even if you’re not the cheapest shop in town.

The Benefits of Diversification

One way is to diversify your shop so that you can afford to pass up a job or two without worrying about its impact on your bottom line.

Pete Bennett, owner of CoachCraft Inc., Lexington, Ky., provides as many restyling services as he can think of in a successful effort to build revenue and fully use his shop’s capacity. He bought the business in 1991 and is the third owner since its founding in 1953.

Bennett believes it is the largest shop in Lexington, but doesn’t let market position blind him to the impact of competition.

“You get some guys working out of their garages, no insurance, no license fees, no workman’s comp, buying parts COD. Their biggest expense is their Yellow Pages ad,” he says. “I’d be foolish to not pay attention to them. As long as we’re promoting quality and being fair about pricing, I don’t worry too much about our competitors.”

CoachCraft sells and installs everything from headliners to carpets, with specialists to design and produce custom upholstery and seat covers as well as complete leather interiors. The company also installs lumbar support systems, heated seats, wood-grain dashes, sunroofs, and convertible tops from the hydraulics to the frame and canvas. Truck bedliners and covers are naturals for the shop. Repair and restoration is a big part of the business, too.

Volume is important, but not at the expense of quality, according to Bennett, who believes better work supports higher prices.

“The quality speaks for itself. For example, when we install a sunroof, we do a one-piece headliner instead of a two-piece. Ours looks more professional and less like an aftermarket sunroof.”

By offering a wide variety of related products and services, Bennett avoids some of the vagaries of the marketplace. If one thing goes out of style-if Paris Hilton’s dog jumps out of her car and moonroofs become unfashionable next year, for example-his sales won’t be hit too hard.

Conversely, if a product category gets hot, Bennett probably already has the inventory and technicians in place to handle it, giving him a good jump on the competitor who has to track down suppliers or learn a new technique to respond to the demand.

He’s also able to cross-sell customers, adding profitable volume to many jobs and building repeat retail business, which is difficult if you only sell one product.

Bennett’s diversity strategy goes a step beyond many shops’. While 90 percent of his work is on cars and trucks, he also does a fair amount for boat owners. In addition, CoachCraft takes on commercial upholstery jobs for restaurants and other businesses. He also bids on jobs for the nearby University of Kentucky, especially the athletic department.

It’s all about fully utilizing the shop’s capacity so that desperate measures-like cutting prices to stay afloat-aren’t necessary.

Understand Your Customers

Bennett not only tries to attract many different types of work, he also maintains a balance between retail customers and dealer subcontracts. He estimates that his business is split just about equally between the two.

Retail jobs generate a higher profit margin, of course, but the dealer business provides volume to maintain capacity utilization. Because he has both, Bennett can afford to maintain his prices, even to dealers.

“Dealers who come to us for restyling-sunroofs and leather kits-are pretty price-conscious. They play us off against the competition. We walk away from a lot of business. If it’s a package deal, a sunroof and a leather kit combo, I may give them a little bit of a break.”

He takes a similarly firm stand with retail customers who bring in their own aftermarket trim covers or reproductions.

“Some people buy the products online and beg us to put it on,” he explains. “I tell them I’m missing the opportunity to make a few dollars of profit on the parts, so I’m going to have to mark up my labor. They usually go along with that, especially when they figure out they can’t install it themselves.”

Lee Muntean, owner of AAA Convertible & Sun Roofs in Costa Mesa, Calif., has adopted exactly the opposite strategy for beating the competition. He targets a niche market and does one thing-but he does it very, very well.

Muntean specializes in convertible tops for high-end foreign cars, a niche he finds easy to defend because the quality demands are so high.

“There are a lot of people who can put a canvas top on, but they can’t deal with the fine work, especially the mechanicals,” he observes. “With a Porsche, just like adjusting braces on your teeth, you have to adjust the framework periodically for 30 days. Your average trim shop can’t do that for the price they charge.”

Muntean’s shop, basically a one-man operation, has been open for 10 years. He briefly staffed up to take a standard approach offering to do just about any kind of work and sell a variety of restyling accessory lines, but decided that he would make more money specializing in a niche market. Now, his reputation for quality work keeps him plenty busy.

It also provides a strong floor under his prices.

“If customers don’t want to pay for quality, I don’t bother. They can go someplace else,” Muntean says with confidence.

Like Bennett, Muntean handles both retail and subcontract customers. His pricing for dealers and general repair shops isn’t driven by a need to beat the competition, but there is another factor he takes into account: the dealer’s margin.

When it comes to pricing work subcontracted to him by body shops and garages, he’s careful to allow them to make a profit without undercutting his retail price.

“One thing I don’t want them to do is give the jobs away. That hurts me,” he says.

In the ideal situation, the garage’s customer would pay the same if he came directly to Muntean and vice versa.

Any restyling shop owner will tell you there is always somebody willing to undercut your price. One way to respond is to make a knee-jerk price cut of your own. As these two successful restylers demonstrate, though, that’s not necessarily the only way to build your business.