Pricing: Response Charges Part 2

January 28, 2004

By: Matt Michel

Regardless of your pricing method, the response charge should be set by design, not happenstance. Ideally, your hourly rate should be set at the level where you do not need the revenue from your response charge to be profitable. Then, you can use the response charge purely as a marketing tool.

From a marketing standpoint, there are four common marketing approaches, which will be covered in the next article.

1. Low Price Approach
Some companies set the response charge a token amount for a response charge and market this. When people call and ask for a price, they quote the response charge. “We charge $25 for a service call,” they cheerfully respond. This is a classic retail strategy of quoting a low opening price. Wal-Mart, Home Depot, CompUSA and a host of other retailers market low opening prices.

Why bother? Why not, for example, state that you do not charge by the hour? Consumers want you to quote *something.* When you state that you do not charge by the hour, the homeowner thinks you are being evasive.

Even a low response charge can make a positive contribution to the bottom line. Twenty-five dollars doesn’t sound like much, but if you run 350 annual service calls per truck, a $25 charge delivers $8,750 in gross profit per vehicle. California super plumber, Maurice Maio was an advocate of the $25 charge.

2. Response Charge As Promotion
Other companies give away their response charge as a promotion. Ahron Katz who sold the Dallas A-ABC to a consolidator used to send out $60 coupons, which was the amount of his response charge.

3. Demand Management
Some companies use the response charge to control demand. Gary Katz (Ahron’s son) changes his response charge for Total Service in Minneapolis based on incoming call volume.

Same day service costs more. Priority service (two to three days) costs a little less. Service when he can get to them doesn’t involve a charge at all. Gary then focuses his marketing efforts on the customers who are willing to pay a little more for better, faster service.

Frank Blau implemented a similar approach in Milwaukee. His call takers give people an option to pay more for faster service. Almost all are willing to pay more for faster service and those who are willing to live with a hot or cold house for a few more days in order to save a few dollars are probably not good customer for Blau.

4. Service Agreement Benefit
I’ve always liked the idea of giving away the response charge to service agreement customers. It gives these key customers one more tangible benefit.

The first Comanche Resolution is to review your response charge pricing. What are you trying to accomplish with it? Should you raise it or lower it?

Source: Comanche Marketing. Reprinted by permission.
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Copyright © 2003 Matt Michel

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