The good, bad and ugly of charging for estimates

WHEN IS it acceptable to charge customers for asking the price? Last week a piece of board fell from the second floor window of a building on to the roof of my car.

Luckily, no one was injured, the damage to the car was minor, and the owner of the building was an absolute gentleman in managing the mishap. He offered a sincere apology and requested an estimate of repair.

The company from which the car was purchased charges $10,250 to give an estimate of repair.

The good news from the perspective of the company is that they are able to charge customers up front for the time and resources used to cost a job, an uncommon privilege among many service businesses including hospitality, accounting, financial, insurance, advertising, marketing and communications and training to name a few.

Given that the process took under 10 minutes from start to finish and involved no diagnostic equipment or machinery, I would estimate that the company not only recovered the full cost but likely profited handsomely.

Another positive outcome for the company is hooking the customer with an incentive of a discount equivalent to the cost of the estimate, if and when full repairs are completed. It is also a disincentive to shopping around or taking your business elsewhere.

Perhaps the most attractive advantage to the company is that it clearly communicates to the customer the reality that estimates have value.

But charging for quotations and estimates can negate much, if not all of the ‘good’ it may derive from doing so. Critically, it can exclude a business from the opportunity of being considered as an option — especially in highly competitive industries where market forces operate effectively.

One critical point to note, which appears to elude many business operators, is that consumers are willing to pay for what they value, which may not include every cost of doing business. Consumers will even be resentful of being asked for pay for services where there is no perceived value.

Therefore, if a business chooses to provide complimentary coffee, tea and snacks, there’s no guarantee that customers, will be willing to pay a higher premium for such refreshment, and may instead revert to a competitor with no frills but a lower price.

CONSUMER’S RIGHTS

Consumers guard jealously their right to choose and to have access to a variety of goods and services at fair and competitive prices as outlined by the Consumer Affairs Commission. Customers may view the cost as an effort to stymie or discourage their right to evaluate options — which is frowned upon in a free-market economy.

Pricing your estimates so high, so as to provide a disincentive to those who make take their business elsewhere, does little to actually retain customers.

The questions a visionary manager or leader would ask are: To whom am I losing business? Why? And, how can I avoid it? This may likely force the company to evaluate its cost structure vis à vis the competition and enhance efficiencies where necessary. It can also push them to do a better job of communicating the advantages of hiring them, such as quality guarantees, safety and security of your property, reliable turnaround time, fewer loss of use days, etc — all of which the average customer may not readily consider in making a decision.

Indeed, the average consumer will likely go through an internal decision-making process that includes recognition of needs and wants, information search, evaluation of choices, purchase, and postpurchase evaluation. The job of a service provider is to understand how buyers think and provide information to advance the buying decisionmaking process in their favour during the process.

The key is to not just outline the features of the service, but actual benefits of choosing them to the prospective customer.

Customers may believe that the company is abusing its dominant position in postpurchase after-sales support. In fact, ironically, most if not all car dealers are willing to spend hours allowing for test drives, walking you through the specifications of various car options, and preparing detailed quotations as needed when trying to sell a motor vehicle.

However, once a sale is secured, the after-sale support is far less hospitable. This has grave implications for the lifetime value of a customer and the vertical integration of business lines, which are critical components of the car dealer model.

It is far more profitable to have a customer buy a car from a company and have it serviced and maintained by same until they are ready to repeat the entire process over again — than to turn them off with a short-sighted policy of overcharging for estimates of repair.

Finally, customers are shown to have stronger affinity to businesses that demonstrate high levels of emotional intelligence. Accidents, by their nature, are stressful and costly. It is smart business to make your customers feel supported rather than exploited during the recovery process, which may not only result in them being more loyal to you, but spread positive comments about you by word of mouth.

One love!