In Part 1 of this article, we introduced the reasoning behind raising your prices to grow your business. We discussed this in terms of pricing versus volume and a concept called price elasticity. In Part 2, we turn our attention to what it means to have prestige pricing, as well as the reaction to price increases from real estate professionals.
Prestige pricing refers to a strategy that convinces a client that a product or service is as high quality as the price tag suggests. This strategy is also called price signaling. The price signals the quality. Even if the quality of a product is low, the high price encourages people to buy it anyway. Cosmetics present the classic example for price signaling. Inexpensive cosmetics don’t sell well. If you make cosmetics, don’t worry about on whom or what it was tested, just make it expensive and it will sell!
Every marketing textbook has the story about the store owner who can’t unload the overstock of widgets. The widgets are priced to sell, but no one will buy them. Due to a miscommunication between management and staff, an employee raises the price of the widgets by 50 percent. Suddenly, the widgets start selling like hotcakes.
In the home inspection industry, the combination of prestige pricing and the inspection’s highly intangible nature means that the demand is not only inelastic, but sometimes, there is an inverse relationship between price and business volume. Depending on where you sit in the market, you may find that raising your prices increases your business volume.
Agent Reaction to Price Increases
Prospective customers don’t generally have a problem with inspectors raising their prices periodically. Our experience, however, shows that some real estate agents react with temporary sticker shock each time that inspectors raise their prices. Although your prospective clients won’t perceive anything out of the ordinary in your pricing (because they may have not had a home inspection recently or at all), the agents know how much you charged previously.
The agents like to look good to their client. If the agent refers a home inspection company and the client finds out that a different company charges $50 less, the client might wonder why the agent did not tell them about that option. The agent wants to be the one who gets a good deal for their clients on all fronts related to the house transaction.
Keep Your Agent in the Loop
The agent looks uninformed and sloppy if he or she tells the client that you charge $375 and you subsequently tell the client that the price is actually $450. The agent’s frustration with you is understandable. They are trying to look well-connected and on top of the transaction. If you don’t keep the agents up to date, you have hurt their ego and possibly their pocketbook if they lose the client’s confidence. It’s an issue of trust.
Keep Agents’ Perspective in Mind
Educate the agent about your pricing. Remember, agents don’t have to think in terms of increasing their fee because they generally get paid a percentage of the selling price. This pricing strategy guarantees that they always stay in step with inflation. In addition, although their commission is negotiable, the range is more or less within an industry standard. In short, agents do not function in the same world or in the same way as professional service providers who compete with other professional service providers. They don’t rely on pricing strategies as a marketing tool that gets them a bigger piece of the pie. Some real estate organizations do use reduced rates as their marketing strategy, but these companies are the exception rather than the rule.
Whatever the cause of the backlash over prices from the agents, experience shows that it’s temporary. If the agents are loyal and are in the habit of referring business to you, they will continue to do so in spite of your increased fees, as long as you keep them in the loop.
Experiment with Pricing
Why not experiment with increasing your prices? You have little to lose and a whole lot to gain. You can always go back to your original pricing, but you’ll never know what it’s like to earn more and work less unless you raise your prices. Don’t forget to keep everyone in the loop, except, of course, your prospective clients. They didn’t know what you charged before, so why inform them of a price increase?
In the end, your goal should be to separate yourself as a service that is a commodity. Not all home inspectors are the same. Better lawyers charge more. Better accountants charge more. Why not home inspectors? A higher fee means that you do have to be better than the others. By charging more money, you may have some extra time to increase your skill sets, as well as put together marketing efforts to target customers who are focused on receiving a quality service instead of simply a lower price.
Good luck on your efforts!