Put your consumer hat on when thinking of discounting real estate services. The goal is maximizing value in making a purchasing decision when choosing from among the alternatives. In the simplest terms, value is maximized through price, quality, or the combination of the two. The quality (reliability, consistency, features etc.) and price of a service or product are key decision influencers.
But what if the qualities and quality of a service (or product) appear the same? Well then, price rules! Price becomes the safe, certain, measurable difference where differentiation is uncertain.
Commissions are falling
The price of real estate brokerage services, as a percentage of home sale prices, continues to decline. There is evidence that the average residential resale commission in the U.S. has fallen below 5%. This trend is likely to continue and perhaps accelerate.
Price leadership, in an industry with an excess supply of service providers, is an easy and effective strategy to adopt.
So what is the alternative?
Is there an effective alternative to a low price/discounting strategy and will consumers “buy it”?
The marketplace is full of examples where consumers willingly elect to “pay more” for goods and services. When and why do they pay more? Consumers pay more when they believe they can experience more benefits and have a high confidence that their expectations will be realized. For today’s consumer, confidence and the willingness to pay more requires more than ad slogans and smooth talk.
That confidence and willingness are increasingly based upon personal experience, the experience of others, or a performance guarantee.
Minding your P’s and Q’s
An effective alternative to discounting comes down to minding your P’s and Q’s: Delivering greater value by focusing on the relationship between meaningful and substantive quality of the service offering and the price charged.
(V= Value) (Q= Qualities and Quality) (P= Price)
Consumers see things differently
Many brokers/owners and organizations are pursuing the notion that the way to deliver better service quality is to offer more services — as if more and better are synonymous.
Consumers hold another, more simplistic perspective… better is better.
Consumers are willing to pay more for better service. Better service is the Q variable in the Value formula above. Increasing the Quality of service, as a means of enhancing Value, can only be achieved by adopting a total system of service with processes, controls, metrics, performance feedback, recognition/rewards for measurably better service results and higher professional accountability.
The time is now
Quality service delivery requires more than a great attitude and good intentions. Quality service delivery must also include reliability, consistency, accountability, competence, and responsiveness.
Nicholas Murray Butler, a Nobel Peace Prize Laureate and former president of Columbia University once said, “there are three kinds of people in this world: those who make things happen; those who watch things happen; and those who don’t know what’s happening.”
The pricing threat is real and ongoing. Quality, measurably better service, through a total system of managed service delivery has arrived.
Kevin is a Co-Founder, President & COO of Quality Service Certification, Inc. (QSC) and earned an MBA from The University of California – Irvine. With over 20 years of Real Estate experience, his primary focus is on consumer research, developing better service management systems, and sharing the importance of consumer-centric service standards, transparency and accountability to create measurable and meaningful differentiation and long term advantage for those professionals that put customer needs first.
