Escape pricing pressure Get paid what you’re worth by Wayne Einhorn, Co-Founder, Entrepreneurial Development Institute Most consumers have a tendency to oversimplify anything that they do not fully understand. This is the reason why we are so easily manipulated by the media and advertising. We are products of an impatient culture – we do not invest our time easily. Rarely do we as consumers invest the time to understand the true value of our purchases unless it is readily available. How many of us investigate value thoroughly when we purchase a car? If we did we would compute value in the following way: • What is the estimated annual maintenance cost? Cost for brake work, filters, oil change, tune up, etc. for the particular model of car; • Cost of tires, insurance, body work, replacing a key, or a computer chip. The cost of other major repairs and the history of occurrence for the particular model; • Warranty costs and resale value, and; • Finally, how all this comes together in an overall value calculation incorporating price as only one variable. This process is just too much work for the average consumer and therefore it is easier to oversimplify and allow ourselves to level the playing field. In the end, we justify it by generalizing and concluding that “they are all the same.” This behaviour exists in almost every industry, validating that human nature, like water, often takes the path of least resistance. The internet has accelerated this desire to commoditize. Consumers are able to shop a need and look at hundreds of sources in a matter of minutes. An individual can open multiple windows and compare vendors side by side without even getting up from their breakfast table. The only differentiator
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becomes price. Therefore, this simple approach promotes the trend of turning our products and services into commodities. Other examples of this trend include hotels, flights, and rental cars, all of which have been largely commoditized through pricing comparisons at sites like www.expedia.ca or www.hotels.com or www.hotwire.com. Our services in the real estate industry are no exception. We are often compared with the competition solely on commission rates and never on the value that we provide. Would you ever consider shopping online for the best price from a doctor, dentist, or even a chiropractor? As such, we have not seen these professional service providers competing for business on a common website with price as their key customer benefit. Some industry players don’t actually believe that we’re worth the money we charge. Although it rarely happens in public, there are those among us who believe that we are not worth what we charge. They are the segment of the industry that quietly discounts commission hoping no one will notice except the client making the decision on the specific deal. This business model
is a downward spiraling plunge into nonprofitability. I would urge anyone who wants to discount the price of their real estate services to take an honest look at their costs and their operating risk. Often, when considering our pricing model, we forget to factor in the real costs of our business; the risk associated with our revenue model, and, the lifestyle we are working for. The true test is the real value we bring consumers and our ability to communicate it. If we do not believe what we are worth, we do a poor job of illustrating our value to the consumer. Once we have a hard look at our pricing model and understand that we are worth every penny we charge, we have to become experts at illustrating our value to the consumer. If the tens of thousands of realtors were unable to pay the significant fees paid to MLS providers and real estate boards, who would maintain the data that so many buyers, sellers, banks, trust companies, and other industry stakeholders depend on? How can you translate this and other benefits into an explanation of tangible dollars that you will contribute to your client’s proceeds? We provide the practical answer to this question and
