Murray Voth: What is a fair price?

by | Mar 1, 2021 | 6 comments

“I believe him when he tells me he is giving me the best deal he possibly can.”

This sentence was part of a positive review I saw on Facebook of a shop I follow. I am glad the shop received a positive review, and I am glad the customer was happy. But that statement got me wound up.

Of all the invoices that service advisor created in that month, were all of them the best deal he could possibly offer? Did all the customers at the shop get the same deal? Or did some get a deal, and not others? Since when is automotive service and repair something that is negotiable?

Those are a lot of questions I am asking, and I am going to ask some more. What is a fair price? What determines if a price is fair or not? When is something a deal? Does charging full price for something not count for anything anymore?

I remember giving a client an estimate for a repair on their car back in the day. They would say, “Go ahead, that sounds fair.” I quickly came to understand that they meant that they could afford it. It seemed fair because they had the cash to pay their bill that day.

When I go to the grocery store, I pay the price on the package or on the shelf. When I buy something online, I pay the posted price. If I go to a fast-food restaurant, I pay the posted price, and if I try to negotiate the price at a higher-end restaurant I will probably be asked to leave.

A few years ago, I was consulting on a project that had a couple of engineers involved. At lunch one day they asked me what I did, and I explained that I did coaching and training for aftermarket automotive shops. When the topic of discounting and dealing with price shoppers came up, both engineers were stunned. They said, “You can negotiate your repair invoices? We just pay whatever the shop we go to tells us.” I asked them where they took their vehicles for service and they both said the dealership. I then asked if anyone tried to negotiate their engineering fees, and they both laughed.

So how has our industry got itself into this pickle?  Here are several opinions.

1) Historically we were the blacksmiths of our communities, and we were used to bartering: how many chickens to shoe a horse, how many loaves of bread to repair a wagon wheel. So maybe we are just stuck in the past. We’re okay with just eking out a living, not getting any return on our investment of time and money.

2) When you first opened, chances are your first customers were friends, family, and neighbours. And guess what? Friends, family, and neighbours expect a deal. So, after a few years shop owners think it is normal to give a deal, and then offer them to anyone, even if they don’t ask.

3) When the shop is slow, we are worried about our cash flow or sending the technicians home, so we tell the customer we will give them a deal if they leave it with us to do the work today.

All of the above has taught a segment of the driving public that they can negotiate their invoice with us. In fact, when it happens, you may have noticed that it is usually after the fact, once the car has been repaired and you have invested your time and parts into it and the invoice has been created.

What is the solution? Stop offering discounts and deals, stop allowing your customers to negotiate, and stop allowing yourself the desperation of negotiating. You are worth much more than that. The solutions is in realizing how much you are worth and standing by the value you offer.

But back to that question about what is a fair price. The legal definition of a fair price is a good price that is acceptable to both the buyer and the seller, often one that reflects the current market value.

Who determines the current market value? That is not very useful at all. Let’s use steak as an example. My grocery store sells ribeye steak for $15.99 a pound, and the steakhouse in my town charges $35 a pound. Which of those is the fair price? What is the current market value for a steak? The first steak is a raw chunk of beef that I need to cook and serve and clean up afterwards. The second steak is cooked to perfection for me, it is served to me along with some sides, and someone else does the dishes. Now that makes sense; in fact, I think that would make sense to most people.  But why don’t they use the same logic when it comes to car repairs?

Low-Cost Front Brake Job $250Best Quality Front Brake Job $450
Pads and rotors are replaced- low qualityPads and rotors are replaced- best quality
Hubs and calipers are not cleaned and servicedHubs and calipers are cleaned and serviced
Comes with a 90-day parts and labour warrantyComes with a 2-year, 40,000-kilometer parts and labour warranty.
Customer has to get their own ride or wait for the vehicleShop offers either shuttle, courtesy car, pick up and delivery, afterhours drop-off and pick up
Wheels have handprints, steering wheel has greasy fingerprints on it, and floor mat has dirt on it from mechanics bootsCar is washed and vacuumed, wheels are polished, and tires are dressed. Car is way cleaner after the work than when it arrived.
Brake pads last 25,000 kmBrake pads last 80,000 km

I think a fair price is one where the shop makes an industry-standard profit, and the client receives the real and perceived value of the transaction. The real value is in the quality of the parts and the extra care taken in the replacement. The perceived value is the clean car, the shuttle ride, and the fact that they were treated as a guest, and the service advisor remembered their name and the name of their dog. (A full discussion of perceived value is worthy of another article.)

There is nothing to negotiate here: it is low cost or best quality – take your pick. And the service has to deliver on the expectations and the experience, not on the price. The price is the price. The deal comes in the value offered.

6 Comments

  1. Stephen

    Nice article Murray, as an apprentice I was taught to give everyone the same deal! As I gained experience, I understood his methods of raising the shop rate to enable a 10 percent discount on his labour rates. He did much the same for his parts. When I opened up my shop, I found that discounts only cheapens my efforts and ended up discontinuing discounts in a matter of weeks.

    Reply
  2. Terry

    You are so right ! Deals only come for fleet accounts … more than three vehicles . That includes a family house hold .

    Reply
    • Murray Voth

      Thanks for following my articles!

      Reply
  3. Joe

    Great insights Murray. A sale occurs when the value of the product or service offered meets or exceeds the cost as perceived by the purchaser. If they’re not buying at the price offered, too often the person (salesperson) resorts to price to try to make the sale. Your article is good instruction to first reset and to focus on getting the value proposition right.

    Reply

Submit a Comment

Your email address will not be published.