RISMEDIA, July 28, 2010—One of the most difficult challenges in selling is to compete against a competitor who is willing to cut cost. Businesses are free to compete on price, service or quality, and consumers are free to make buying decisions on these criteria. But competing on price will only cost you profit. Why do some companies offer discounts? Well first of all, it’s a way to buy market share, kind of like a loss leader in retail. They treat the loss as a way to gain customers. The problem is that if they ever want to raise their fee and make a profit, it will be very difficult to do so. They may get more market share…but not more profit. Both you and your company are sometimes tempted to cut a fee to get one more listing or one more percentage market share; only you can answer, is it worth it?
According to David Knox Productions, there are three fundamental responses to price competition, you can:
-Match their price,
-Differentiate yourself through value-added selling or,
-“Let Go” of the business
Matching price is painful and there will always be competitors who are at a lower price. If you go down that path, you may be busier but have less profit. And you’ll never reach a point at which a competitor will undercut you. Resist the temptation to compete only on price. Remember, market share is for kids, profit is for adults.
Value added selling requires skill. If you were buying a Blu Ray player and found one for $139, another for $179 and a third for $249, you’d probably ask; “What’s the difference?” Your listing presentation must clearly contrast the difference in service and results over a lower fee competition.
To differentiate yourself, you must cite specific benefits that are worth more than the fee difference. Relate all of these to the sellers’ net because the net equity is more important than any specific cost.
Demonstrate to them that by paying more for better service, they will net more from the sale and will do it sooner. Present your sale-to-list ratio, percent expirations, days on market, average sale price, guarantees of service backed up with cancellation clause, target marketing proposal and/or unique service.
‘Letting Go’ of the Business.
As important as value is, it’s even more important to be at a position of strength and stand on principle. Dialog and value won’t help unless you simply decide to say “no” to commission cutting.
If a seller asked you to violate a Federal law as a condition of listing, would you do it? Of course not. Attach that same position of strength to your fee. Once you decide not to cut your fee, you will carry yourself differently. The owners will sense this strength. Instead of wimping out on fee, you will pause, smile and gently explain that you’ve made a choice to deliver higher value and results instead of a lower fee. From this day forward avoid reducing your fee.
The good news is you will never have a low commission listing again. The bad news is—you’ll lose some listings. Many agents feel they would rather have 80% of something than 100% of nothing; bad philosophy.
If you hold firm to your fee, you’ll probably lose 10-15% of the listings you attempt. If you cut your fee by only 1% on all your listings, you’ll lose 15-33% of your profit. (Divide your commission rate into 1 for the real percentage discount. Do the same math on the co-op sales and average it out). What you’ll discover is that a 1% reduction in your fee on 100 listings will require you to list about 20 more homes just to break even.
When a seller says to you, “Another company charges 1% less,” your mission is to sell a net gain that equals the difference.
Make sure commission is the only objection. Ask the seller: “Other than our fee, are you ready to list with me?”
Convert the commission objection to a net equity objection. “Why is our fee an issue?” (Because we need the money). “So the net equity is most important to you, right?” (Yes). Net equity is not only a function of expenses, but of income. Let’s take a look at the three factors of income to you: a) ability to have the home sold at all, b) final sale price as a percentage of list price, and c) time on market.
Now you must compare your statistics: a) expiration rate, b) list-to-sale price ratio, and c) average market time. If you excel against the competition in these categories, then you can offer better results.
Demonstrate that while your fee may be a bit higher, the net is also higher. “Mr. and Mrs. Seller, if the other company doesn’t sell your home at all, can’t negotiate a high sale price, or doesn’t sell it in a reasonable time, you end up losing money instead of gaining.”
Finally, ask the seller, “If our fees weren’t different, who would you hire?” Hopefully, they say “you!” Either way, ask why. Listen to their answer and if appropriate ask, “If you prefer us because of the additional benefits we offer, then wouldn’t you expect to pay more?”
If they don’t see a difference, then you have not established your value added benefit.
Sometimes you just have to let go of business. The sellers that cut your fee will usually be the most demanding, difficult and ungrateful. So treat radical price competition like a storm of locusts…you might just have to ride it out until they’re gone. Spend your time prospecting for good quality listings.
One of the ways to teach sellers the value of an agent is to send them the video titled “Selecting Your Real Estate Agent.” You may e-mail it for online viewing at www.RealEstateConsumerVideos.com. For a free trial, enter Promo Code: “ris.”