Don’t you love a good deal? I mean who doesn’t? Most people possess enough common sense to stretch their hard-earned dollars and maximize their purchasing power. Sales and deals interest us, and they even guide our purchasing decisions. Fear of missing out (FOMO) on a deal often leads to impulse purchases. For example, you’re at the grocery store and a bag of coffee is buy one get one free (BOGO). It’s not your normal brand, but because it is such a good deal you get it. Besides, you’ll need coffee next week anyway and with the $7 in savings you can splurge and buy premium ice cream. Interestingly, you had neither coffee nor ice cream on your grocery list. In this case, it appears FOMO and BOGO might have influenced your purchasing decision. Sound familiar?
The thing to note here is in the back end of the deal. It may be that the coffee company wants to get their product out to consumers and uses the product as a loss leader to generate sales. A loss leader is a product or service that is offered at a price that is not profitable but is sold to attract new customers or to sell additional products and services to those customers. Or perhaps the grocery store chain was given an amazing quantity discount that allows them to lower the price and still make a profit, even though their margin might be smaller than normal. Either way, the coffee company and the grocery store used a strategy to influence consumer behavior.
Loss leader strategies may work well with goods because it is easy to calculate per-unit costs and inventories and managers can flex pricing strategies — yet the product itself never changes. In this article, we’ll ask the question, what happens when you apply loss leader strategies to services? And scuba certification courses?
Identifying the Problem
Okay, here goes: Our industry has a problem. A large number of dive centers are taking what most of us agree is highly valuable professional training and reducing it down to bargain basement- discount price levels. They are applying the loss leader strategy to attract customers, but at what cost? It is in the back end where we see the fracturing take place and the cost is the comfort, confidence and competence of the diver. A scuba class has numerous fixed and variable costs. Discounting the price of scuba training dramatically affects profit margins. Most dive centers that are discounting training are banking on the equipment sales and the associated future business with the new customer (that is — servicing gear, travel, continuing education and more gear) to make up for the income that wasn’t made when selling training at a loss.
But here’s where the slope gets slippery. Most dive centers at some point look to find areas to keep costs down while also aiming to recoup better margins in the training department. And the only way to improve those margins is to reduce training expenses. So what gives? In many instances, services are whittled down in the following areas:
Pool Time. Renting pools, by the hour or by the student, is costly. Shaving pool time by a day or two may save hundreds of dollars. Not only is the dive center saving on the pool rental but on the instructor’s hourly rate as well. And for the dive centers that pay their instructors per student, what’s the motivation for the instructor to offer longer pool time? There is none because it then dramatically reduces how much the instructor is ultimately making per hour.
Classroom Time. Typically, the more time the instructor spends teaching, the greater the cost. An instructor paid per student is not motivated to dig deeper and spend more time in a subject area. This is where eLearning becomes a substitute for instructor contact. Now eLearning can be a great tool in diver training, but some dive centers are keeping instructors completely out of the classroom. Paperwork and reviewing knowledge reviews are conducted on the pool deck — often with dozens of distractions all around. Quality time in a low-stress environment to build trust with the instructor and fellow classmates goes away. E-Learning can be a valuable tool, but not at the expense of instructor-student relationship building.
Expertise. Hand in hand with pool time and classroom time is the pay to the instructor. Many dive centers give classes to those instructors whom they pay the least (read that as the least experienced). Many dive centers also make them teach solo, in other words the dive center won’t pay for a co-teaching instructor or divemaster. Yes, the newer instructors need to spread their wings and teach but turning them solo and giving them the lion’s share of classes to save a buck is far from ideal. New instructors can benefit by receiving mentorship from those who have been at it a while.
Location. Some dive centers have switched from deep water diving wells at the local aquatic center to shallow pools at hotels or apartment complexes in an effort to cut costs. In many cases these pools may not meet minimum standards for training and may also lack safety features. If a pool is too shallow, students never really get to master buoyancy control. The same is true for equalization. Also, open-water training costs might get trimmed by replacing boat dives with shore dives. I’m not talking about land locked locations where you would have to drive or fly hours away and the local lake is the most viable way to conduct open water training. I’m talking about my own hometown area in South Florida where there are dozens of diving charter boats. Boat diving is typical in these parts, yet there are dive centers that save on training expenses by conducting all the open water training of the Open Water Diver course off the beach. The students may not venture deeper than 20 feet (6.1 m) during their training.
All of these cost saving measures are to the detriment of the student who does not know any better. How do we know this? It is anecdotally measured in countless conversations with charter dive boat captains and their crew. The general opinion: suppressed diver training is creating weak, incompetent and under-qualified divers who are not adequately prepared for the aquatic environment. And training is being suppressed because dive centers are competing with each other on price.
Competing with the Dive Center Down the Street
We often hear, They offer a $199 Open Water Diver course so we’re going to offer a $99 course, or They are offering a $99 course so we’re going to offer a two-for-one Groupon. The problem with these positions is that the dive centers are competing on price rather than on value. This is not sustainable. There will always be someone, somewhere who will under price you, especially from individuals who want to break into the business and are willing undercut the competition in order to get customers. The reality: If you react to those competitors by discounting your products and services you’ll likely run yourself out of business.
So why do we see this happening so often in our industry? Is it because dive center owners and managers are not good business people? Some would argue this is the case. But frankly I feel it is a result of consumerism. And since we are all consumers in our daily lives, we tend to apply the concepts of consumerism in our dive center business models. Here are three consumerism-driven strategies that erode dive center business models:
Cheap and Quick. Times have changed. And so has the way we acquire hard goods. Thanks to Amazon, Alibaba and other Internet retailers, consumers are able to quickly and easily source items from all over the globe at the cheapest of prices. Products can also arrive quickly — and shipping is free with services like Amazon Prime. This has literally changed how people shop for themselves and for others and has seriously impacted brick and mortar small businesses.
C-Cards are Commodities. A commodity is an economic good that can be bought and sold. But isn’t scuba certification a service? Maybe not. The modern consumer looks at the c-card as the means to the end. In other words, I need this to do that. That c-card is what allows the consumer to dive, get air fills, go on a dive boat, explore a cave system — whatever. So using their consumer skills they shop for the card, not the course. Using a commodity mindset, they end up searching for how to get the thing — the certification card — as quickly and inexpensively as possible. It’s up to us to reverse the commodity mindset when it comes to helping our customers invest in valuable scuba training.
Loss Lead Discounting. Again, consumers love a bargain. So giving free air fills for a year with the purchase of a scuba cylinder may be a loss leader strategy that works. But when dive centers reduce training because of discounting the prices on diving classes, the consumer suffers. And for heaven’s sake stop telling students they’ll get better with their buoyancy and ear clearing when they take your Advanced Open Water class. That proves not enough time was spent on student skill mastery in your Open Water Diver class.
Our consumerism-driven society seems to lead dive centers into these dangerous areas. But it can be truly dangerous for a variety of reasons. In a worst-case scenario it can turn out poorly trained divers who can endanger themselves and others. Divers who get into trouble or feel uncomfortable while diving typically opt out of the sport in short order, so there goes customer retention. By failing to properly train them in the first place, we lose them forever. So, what is the answer? Simply put, you need to stand in the marketplace by selling on value.
RELATED: Marginal Considerations: How Pricing Affects your Bottom Line (we do the math)
The Value of Value Selling
I love this quote attributed to Oscar Wilde, “The fool knows the price of everything and the value of nothing.” Think of it this way. Price is the superficial outward coating, but value is the rich and creamy inner filling. It’s somewhat hidden. Because of this, value needs to be exposed and brought into the open. Consider the following.
You want to buy a camera. So you check out Amazon Prime, B&H Photo and Video, Best Buy and an independent local retailer, Bernie’s Photo Haven. The camera you want is the same price at all three retailers and they each offer free two-day shipping. So you don’t have a lot to compare on. But since you have a Best Buy near you, you could pick it up today. Advantage, Best Buy.
Bernie’s is 10 minutes’ drive farther from your home than Best Buy, but Bernie’s throws in a few things. First is a free tutorial on how to use all the features of your model. Wait a minute. Do you want a tutorial by an actual photo pro or do want to talk to the dude at Best Buy who normally works in the appliances department but is filling in because the camera specialist called in sick? Also, Bernie’s price includes a camera bag. You need a camera bag anyway. Now, that same amount of money spent on the camera comes with a greater value when purchased through Bernie’s. This is a classic example of value selling. And as a side bonus you learn that Bernie’s is a second-generation independently owned shop. And that Bernie’s daughter plays on a soccer team that’s part of your daughter’s traveling league. You just made a good buy and a personal connection. (How’s that for a best buy?)
Sales guru Brian Tracy says this: The research says that the value is the difference between the price you charge and the benefits the customer perceives they will get. If the customer perceives they will get a lot of benefit for the price they pay, then their perception of value is very high. The good news is you can control that by showing benefit and measuring on value, and the individual will change their purchase decision-making process. You have control of the value offering.
Here’s another favorite quote, this one by billionaire businessman Warren Buffett, “Price is what you pay. Value is what you get.” Think about it.
Let’s take a look at the value selling process through an example from another industry. Let’s say you are a full-service lawn company. As a lawn company you want to advertise your services, what you do and what’s unique to your company. You also have many other lawn companies you are competing against and their services are all around a certain price point per month. Now, here comes another guy in a pickup truck with a lawnmower. He wants to break into the market too, so he undercuts all the competition. Now a downward business spiral exists as the lawn companies begin a price war competing with each other on prices.
Instead, you as the savvy lawn company positions on value and retains a high price point than all of your competition. Here are the six steps of the value selling process:
1. Identify the Customers’ Problems. Picture an infomercial. The first things they show are all the negative things that people have to deal with. It’s always shot in black and white, with frustrated acting people. Think infomercial when you identify customers’ problems. Are you tired of having a bad looking lawn? Are you sick of mowing your lawn on weekends and not spending time with your family? Are your sprinklers a problem? Do you hate weeds? These are all called pain points and they are effective at identifying what problems the customers have that you can solve.
2. Illustrate the Better Outcomes. Here is where you have an answer to every one of your customers’ pain points. For example, they will be able to have more time with their family. They won’t have to do lawnmower repair and maintenance, nor go out and buy oil and gas. They don’t have to go to the store and buy pipes and sprinkler heads. You have now identified where you will come along and help make their life easier and more enjoyable.
3. Clear, Compelling and Memorable Differentiation. At this point it is appropriate to move into how you differentiate yourself from the competitors. We’re your full-service lawn company and here’s what makes us different. For instance, you may work from home and you might need quiet in order to make conference calls. Or you might have little kids at home that need to take naps. We’ll run our equipment when it’s inconvenient for you. For that reason, we have a special scheduling app that allows you to schedule service. Also, after we do your lawn, we check the sprinkler system to make sure we haven’t knocked off sprinkler heads. And if we have, we repair them on the spot. Also, if we ever notice weeds or see brown spots we immediately mix the right amount of product to put on your lawn and take care of it for you. Now you have positioned yourself as a business that cares about its customers. And, that becomes a very clear and compelling differentiation.
4. Proof of Value. You now want to support your claims by sharing your scope of success. We’ve done award-winning houses in the neighborhood. We serve the church down the street. We also serve the local country club. Look on our Yelp page to see what others say. Show that you have talent and that other people trust you. It is important to prove that you can offer the value.
5. Cost of Inaction. This is a reminder of the pain points of what happens when people don’t use your company, but it’s packaged in a different way. If you don’t use us, then you’re going to miss out on football games. You’re going to miss out on time with the family. You’re going to have to continually do lawnmower repair. Think of this too — if you decide to do all our services with different companies, you could have a sprinkler company, a weed control company and a lawn company. That’s three different schedules and three different bills. We’ll do it all in one. There’s your cost of inaction and it stimulates FOMO.
6. Return on Investment. This is when you show financial return on the investment of doing business with you. Let people roll through the numbers. Have you ever had your sprinklers knocked off by a lawn service and wasted a ton of money by going with us because we check after every service. What could you be doing with your spare time on weekends while we’re handling your lawn needs? How much would you save in equipment, maintenance, oil and gas? The return on investment is where it all comes together. Now when you share your monthly price — and let’s say your monthly price is $50 or even $100 more than your competition — the customer is not shocked. The customer thinks, If I go with you I get fewer hassles and more free time, I have a great looking lawn, I’ll be the envy of the neighborhood without having to do any of the heavy lifting. Sign me up!
Value Selling as the Solution
Let’s do a 180-degree turn on the concept of abbreviating training and contact time to reduce costs or using training as a loss leader for equipment sales as a way to get more customers. What if instead you delivered a premium experience with tremendous value and in turn charged appropriately for it and made healthy margins? Unlike the loss leader strategy, value selling does not hurt your business or our industry. Instead, it bolsters it.
Ready, Set, Action
Sit down with your most trusted team members and go through the process of enhancing value in every area of your dive center operations:
Find every area in which you can improve. Examine how to improve your courses, your customer service, your retail area, your parking lot — everything. View this through your customers’ eyes and do not be afraid of costs at this point because you are just exploring options.
Research your competition. I mean really know what they are doing. Course details, product lines, services, prices, location, everything. Again, view this through the customers’ eyes. Study the areas that they are both weak and strong and then focus how you can differentiate on both their weak and strong points.
Plan a course of action to make changes. Set a budget and create new price points and margins.
Next, put your heart and soul into providing the very best scuba training and services available.
Landscaping Your Dive Center
So, let’s take the landscaping metaphor used in this article and apply it to your dive center. Here are some notes on the six key points of value selling. Go over this with your staff and brainstorm ways you can weed out the bargain-basement selling mindset and replace it with lush, beautiful, value-added sales and service strategies that bring in more green — and more happy customers, too.
First, identify customers’ problems. Do you see underwater images and wish you could be there? Do you want to travel? Tired of not being certified? Are you frustrated with not knowing where to get certified because of all the different options out there? Is your equipment old and in need of repair? Has it been a while since you have been diving and think your skills may be rusty? These are the pain points that people are going through.
Next, illustrate the better outcomes with your help. We will turn you into a confident, well-trained diver. Not just a certified diver, but a confident, well-trained diver. You will enjoy satisfaction diving worldwide. Increase your bottom time because of better air consumption. Have dive skills that your buddies are envious of. Enjoy pain free diving with your ears. Lose your anxieties and be excited to go on every dive. These are the promises that need to be made when the customer comes to you.
Number three, here’s where you position yourself against the competition through clear, compelling and memorable differentiation. We are your full service diving professionals. Throw that term out there — because you are. You work, so we offer custom schedules that accommodate your busy lifestyle. We are all-inclusive. You’ll have no hidden costs or pressure decisions to make. We focus on areas that abbreviated training leaves divers lacking. We want you to be comfortable and skilled at diving. You will feel comfortable and confident under water. We get to know you as well as your strengths and weaknesses underwater and we take time to help you develop total comfort and skill mastery as a diver. Consider how these value propositions can differentiate you from the store down the street.
Number four is your proof of value. Remember proof of value is also known as social proof. People want real examples of how your promises work. Some of the best divers have taken our classes. We have a customer who is an accountant and he relieves stress by diving with us. We have a homeschooling parent who took our class with her kids and taught them an underwater science curriculum. We had a customer who took a refresher and told us he learned more in our refresher class than in his beginning class at another dive center. Many dive pros come to us for their training. We certified the mayor.- Also, encourage written testimonials from customers and invite them to use social media comment sites like Yelp! so that people can get reviews from others, not just you.
Number five is the cost of inaction. What happens if they don’t use your dive center or don’t take your particular classes? Someone else may not give you the same quality time honing your skills underwater. This can lead you to feeling anxious and uncomfortable when diving. Plus you may need to watch out for additional fees. Abbreviated training won’t adequately prepare you for diving — and is a leading reason why new divers drop out. You don’t want to be faced with those issues after such an important investment. Remind customers that you value their investment of time and money. It gets them thinking differently about the value of what they’re getting into and making a purchase decision.
And then finally, remind customers of their return on investment when they do business with you. With our all-inclusive scuba diver course your investment provides you convenient scheduling, no hidden fees and plenty of time spent training you to be a safe, confident, happy new scuba diver. Make the right investment in you, your safety, your comfort and enjoy a lifetime of scuba diving adventures. This is the closing. And now the person is not comparing you on price — they are comparing you on value with other businesses.
Now, it’s up to you and your sales and instructional staff to deliver the goods. This involves more than talking the talk. You must structure your pricing and course scheduling accordingly. Yes, it will take a bit of effort on your part, but you’ll soon find that once employed, the concept of value selling is priceless.
