Price versus quality

Investing in a quality service comes at a cost but is it worthwhile?

Published:  20 August, 2018

The perennial question of ‘price versus quality’ surfaced at the Aftermarket Roundtable discussions earlier this year. From the business perspective, this is more interesting than the ‘price versus cost’ question, which is much easier to answer. So, what are the details behind the quality element?
    
Firstly, let’s start by understanding the definitions of what we are considering – what is price? In detail, it is ‘a value that will purchase a finite quantity, weight or other measure of a good or service’. As this is the basis for the exchange or transfer of ownership, price forms the essential basis of commercial transactions. It may be fixed by a contract, left to be determined by an agreed formula at a future date or negotiated during the course of dealings between the parties involved.

Defining price
In commerce, price is determined by what:

• The buyer is willing to pay

• The seller is willing to accept

Competitors allow a seller to charge. With the mix of product, service, promotion and marketing, it is one of the business variables over which organisations can exercise some degree of control. This is then more commonly known as the ‘market price’.
Importantly, it is a criminal offence to give a misleading indication of price, such as charging for items that are reasonably expected to be included in the advertised, listed or quoted price.

Quantifying quality
Secondly, what is quality? This, perhaps, is much more subjective but is something like ‘the non-inferiority or superiority’ of something or is an inherent or distinguishing characteristic or property. It can also be the nature or degree of the grade of excellence.
    
In manufacturing, for example, a measure of excellence or a state of being free from defects, deficiencies or significant variations. If a vehicle manufacturer reports a defect in one of their vehicles and makes a product recall, customer trust in the quality of the vehicle could be lost.
    
In your aftermarket business, how does all this apply? Actually, in just about everything you do, both internally and externally. For example, internally, your staff need to be able to provide what you need to deliver to your customers, which will include ‘quality’ elements like the work they do, the time needed to conduct the work and the competence to complete the work without faults (even if they develop in the future). This comes with a cost attached (i.e. the wages you pay) and there is probably a certain acceptance that you pay just enough to employ the level of employee needed – which I am sure will be less than a formula one team, who pay the most to get the best – obviously there is a balance.

When you start to consider more expensive elements like workshop equipment, price should not be the first consideration. Capability, reliability and longevity are just as important. These workshop items are acquired to earn you money, so they need to do the job and be reliable.

Image counts
In the direct ‘customer facing’ side of your business, the fixtures and fittings of your premises should not be the cheapest. Look after the design details of your public areas, the quality of the furniture, even something as simple as the coffee or the wi-fi you may provide, should be subject to the price versus quality. It might be provided free of charge but the quality still needs to be acceptable. The perceptions that your customers form will lead to how they perceive the overall quality of your business and, in turn, how your business will treat them and their car. A simple example is how much time, effort and money is spent on the detailed design of many of the vehicle manufacturer’s franchised dealers. They need to portray a certain image of quality.
    
So, externally, the same considerations should apply to your business, including signs that are clear and easy to read, parking that is safe and clean, well lit public areas and the list goes on.
    
When it comes down to the service that you provide to your customers, recent research from the Institute of the Motor Industry (The IMI) showed that although cost remains high on the agenda, with 52% citing it as a key factor, quality of work came in a close second at 44% and rising to 51% amongst women. This was further reinforced by 66% of all respondents and 71% of women feeling that a recognised quality standard was very important when selecting a service provider.

Memorable experience
Customers are also worried about the quality of work but a good overall customer experience will also have a knock-on effect to your business’s reputation and affect how your business is promoted via word of mouth. The value of good customer service is appreciated by most but can be difficult to quantify. Avoid cutting costs if this diminishes the quality of the service you can provide.
    
What are some other key aspects which support the perception of price versus quality from your customer’s perspective? One of the most important will be the price of the work you are charging against the quality of the service you provide. This is not just your hourly rate or the cost of the work but is the complete ‘package’ of what the customer experiences. This will normally include the work being completed correctly and on time but, will also include the choice of parts, the way that the booking-in and final invoice are handled (i.e. a clear explanation of what will be/has been done), also any additional items that are included. These can be additional costs, such as the environmental disposal requirements, or additional items included free of charge, like a check of DTC’s, washer fluid top-up or even cleaning the vehicle before it is returned.
    
As long as all of these customer experiences reinforce their perception of a professional business which employs well trained and competent staff and which delivers a good quality of service, then price becomes a secondary issue. However, the higher the price, the higher the customer’s expectation of quality. The challenge is to deliver what your customers expect at the price they are willing to pay.

Want to know more?
Find out how Neil’s consultancy for garage owners can benefit you please visit xenconsultancy.com.


Aftermarket archive: December 2014 Aftermarket | www.aftermarketonline.net

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    In my line of work I meet a lot of great garage owners. Dedicated men and women,  all committed to repairing their clients’ vehicles to a high standard. They’re intelligent, hard working and persistent people many of which have been in business a good few years.
        
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    Back to that question. “How can my business be more financially successful?”
        
    ‘More’ is a dangerous word and it’s often not attained. A better question would be “What is the maximum revenue, profit and personal income that my business can generate in its current form?”
        
    It is something that a lot of business owners haven’t contemplated. But you really should. Only when you know this, can you decide if your current business is performing at it’s best, and is the vehicle to get you to where you need be financially.
        
    The good news is you don’t need to be an accountant to calculate your maximum net labour revenue. Just using the available hours to sell your labour rate and the number of technicians your employ will get you a long way in the right direction. Take an average hourly rate of £55. It could probably be higher but we’ll come to that in due course. This will yield a maximum net income of £422,000 a year from labour sales with four technicians. If your garage is reaching that level of income (£105,000 per tech) at that labour rate, then you should give yourself a rather large pat on the back. Nice one! Not reaching that? That’s incredibly common. In fact if your garage has a net labour revenue of around 54% of your maximum, then you’ll not be alone as that’s the average for a business when we start to work with them on our business development programme.
        
    Why so low? Why are business owners leaving £50,000 per technician on the table? There are a plethora of reasons but I find the most common answer is one of focus. They’re just focusing on the wrong things.
        
    It’s natural. In fact it’s perfectly understandable why a garage owner focuses on the technical aspect of their business. You know that if you don’t fix the cars in a timely manner to a high standard that your income will suffer and your customers won’t return. So of course you’re interested in technical tools and the latest workshop wizardry that’ll enable you to complete a job that you couldn’t without it, or the same job in less time. But let’s be honest (we’re friends after all) is this laser-like focus healthy? Are you too focused on the next tool, the next gadget, the next BIG THING to the cost of your business? All too often I find that a garage owner is and it’s costing you.

    If you’re not measuring it…
    All that is required is a change of focus. The success of your business is in the data, and if you would like to claw back that £50k per technician (or at least a large chunk of it) then learning how to measure the right data and use it to your advantage is essential. After all: If you’re not measuring it, you can’t improve it.
     
    So, you want to increase your income and profit, what should you be measuring? Here are a couple of metrics to get you started.

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