Flat Rate Part 1

The controversy over flat rate pricing continues to amaze me. It continues to amaze me that there’s any controversy at all.

For those who may not be aware of it, flat rate pricing involves offering a single, up front price before starting a repair. This contrasts with time and materials pricing where a price is given for the material, but the labor is open-ended. Flat rate has been present in the automotive industry for a long time. Frankly, it’s been present in most service industries for a long time, but only a minority of service companies use it.

For the record, I’m a strong advocate for flat rate pricing, but not for the usual reasons. I like flat rate because consumers like it.

Back when I was running a contractor organization and we made the leap to flat rate, I commissioned a consumer survey about flat rate pricing. At the time, we estimated that roughly 3{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} of air conditioning contractors were using flat rate. Yet, one out of every two consumers preferred it.

To me, that seemed like a pretty good deal. Half the public wanted something that only 3{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} of the providers offered. If I knew nothing else about flat rate, that would have persuaded me. And the preference for flat rate has grown since then.

Over the past six years, I’ve had numerous opportunities to explore consumer sentiment about flat rate in focus groups. Regardless of the industry, consumers strongly prefer flat rate. It is a strong, emotional preference.

Consumers think flat raters are more honest. They feel relieved to know definitively what a repair costs before they agree to go ahead. They no longer feel the need to scrutinize and compare hourly rates. They don’t feel the urge to watch the technician so that he’s not padding minutes. It may not be rational, but that’s how people see it.

Furthermore, consumers think they’re going to get a better price from a flat rater. That may or may not be true. Yet, it is a side effect of efforts by Congressional tax cutters to promote a flat tax. Consumers associate a flat tax with lower taxes and by transfer associate flat rate pricing with lower prices.

Now, it should be noted that not all consumers prefer flat rate. Some like time and materials pricing. And some also like rotary phones, typewriters, and DOS, but that’s not the direction of the market.

Whenever consumers indicate a strong preference, follow it. Don’t fight it. Leave that for your less enlightened competitors.

Let your competitors stand by the shore insisting the tide stop because they don’t like it.

Reprinted by permission. Free subscriptions are available at: www.serviceroundtable.com. Copyright © 2002 Matt Michel

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