Opinions vary widely on the effects of deeply discounted pricing and the long term effects of this practice known as “lowballing,” or more crudely referred to as “whoring” prices. • There are those who say they are doing it because their competitors are doing it. Still, others say they will never engage in it because they value the level of service they provide and feel that despite the economy, the value of their service is still the same. • Yet another view is to offer multiple levels of service to meet the demands of consumers seeking the lowest price. In other words, offer Town Cars and Crown Victorias but command the luxury price for the Town Car and lowball the price on the Crown Victoria so you can capture the market of discriminating, demanding clients while appeasing the tire-kicking budget shoppers as well.
Why slash prices?
One could say, “Because everyone else is” and that would be a sufficient answer. We also could look at other business models such as hotels and airlines. Southwest Airlines continues to post profits in 2009 as other airlines have folded, charged for baggage, eliminated meals, and struggled to stay afloat.
Maybe Southwest has figured out that the cheaper the price, the more people fly with them. With nearly every seat full on every flight, the airline is actually making more profit than every other airline collecting a tiny profit from many customers. Even the uber-luxury Peninsula Hotels has dropped its basic rooms from $800 a night to $400 in hopes of filling more rooms using the same concept.
Many operators believe that if they lower their prices, people still can afford to use their services. And some money coming in the door is better than no money when vehicles sit idle in garages while car payments and insurance premiums must be paid.
San Diego-based operator Geoff Levine of Limo Kings views it as “creative pricing.”
“If someone wants to go to a concert on a weekday and it’s going to take eight hours, I’m going to give them such a good hourly quote, so that they jump on it,” Levine says. “In my mind, it’s really two transfers. So instead of giving them a transfer rate of $250 (all inclusive) for my SUV limo, I’d rather give them an hourly rate of $90 an hour. $720 is better than $500. I’d much rather have my limo making a little money than none,” he says.
Even Levine walks from ridiculous rates such as an all-inclusive competitor price of $420 for a three-and-a-half-hour wedding charter in a stretched Hummer. He told the prospective client to take the deal with the other company.
In Temecula, Calif. one operator is advertising hourly charters on a Chrysler 120 for $44 per hour all-inclusive, which epitomizes lowball rates.
Why hold your price?
Other operators such as Rich Rottier of Cedar Limousines in Crown Point, Ind. suggests shrinking your fleet and employee base before ever considering price cuts, fearing a difficult curve bringing pricing back up as the economy stabilizes.
“Not only are you not able to keep up with the cost of living but when inflation hits, what are you going to do, triple your rates?” Rottier asks. “Keep your rates and sell your good service.”
Kathy Harvey of City Heat Limousines in Modesto, Calif., adds: “There is not much point in the vehicles running for less than their bottom line.” Longtime Baton Rouge operator Wade Randolph of Riverside Limousines sums it up like this: “People that want simply the lowest price and do not care about the car or service you are not going to get anyway.”
Tim Weigman of Boulevard Limousine in Kansas City, Mo., shared some interesting thoughts on the effects of lowballing when you suddenly find yourself needing to farm an order out. If you drop your price on sedans to $35 per hour and need to farm an order out and your affiliate commands the going rate of $55 per hour, one of three things will happen.
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1) The other operator is forced to drop his own rates to meet yours and likely will result in neither company making a profit.
2) The other operator will refuse to take the order at less than the going rate and you will have to pay the difference out of your pocket to maintain your client.
3) Or the other company may laugh hysterically and tell you they are not interested in which case you have a bigger problem as you can’t provide service for your client and this will force him to go elsewhere, perhaps forever.
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“Even though I can be profitable at $40 an hour for a sedan, I won’t send it out for that,” Weigman says. “I quote my rates at the industry standard for (my) area. But at no time have I been considered a cutthroat and I intend to keep it that way.”
Negotiating the price
Maybe William Shatner has caused people to believe that just because a hotel rate can be negotiated that all services and goods can be negotiated in the favor of the consumer.
The economy has perpetuated this as business owners struggle to pay basic overhead and people have become more conscientious in their spending no matter what their wealth level may be and know that businesses are eager for sales. We all want to meet somewhere in the middle. Sometimes this can be advantageous to both parties. For instance, Weigman recently negotiated a deal and dropped to his lowest level ever on a stretch limo. However, he had jobs lined up before and after this particular job so it allowed him to fill a gap in the schedule and since the car was already out and he was already suited up, he made a little extra money by accepting the client’s offer.
Jim Leehan of Magic Mist Limousines in Niagara Falls, N.Y., probably summarized the best method for fighting back.
“MARKETING, MARKETING, MARKETING...and more marketing. The more you can get your phones to ring, the better chances you have to turn over the call into a booking,” Leehan says. Leehan vows he is not going to try and compete with “ridiculous lowballing.” Other operators have suggested creative coupons such as offering a free hour with a four-hour charter enabling you to hold your price while allowing the consumer to feel he has received some type of deal. Others target corporate accounts for personal usage by offering weeknight dinner specials at a lower rate earning the premium amount in the day and icing on the cake in the evening.
The lowball customer
There will be some customers that don’t care about the car or the service. They only care about getting from Point A to Point B. Operators need to decide the level of service they want to offer and match it to the type of client desired. There are people who love Domino’s Pizza and will gladly order it and eat it. Domino’s has made a niche out of cheap pizza and fast delivery service.
Other customers demand a gourmet pizza and Domino’s will never cut it. These same people probably won’t stay at a Motel 6 while others think a clean room with the light left on by Tom Bodet is perfectly acceptable. Someone has got to meet the needs of the lowball price seeker and some operators are perfectly fine and suited for doing so while others offer top of the line service with a professionally trained chauffeur in immaculately clean cars. Operators who offer this service would seldom meet the goal of the lowballer, which is simply a glorified taxi ride at the lowest price rather than luxury chauffeured service delivered by a trained professional.
SIDEBAR: How Low Is Too Low?
In a recent survey of operators, the following hourly rates were averages of the lowest industry rates acceptable by type of vehicle:
Sedan. . .$45
SUV (Non-Stretch). . .$55
SUV (Stretch). . .$110
SUV (Hummer). . .$125
Stretch Limo (6 pax). . .$55
Stretch Limo (8 pax). . .$60
Stretch Limo (10 pax). . .$65
Van (15 pax). . .$45
Limo-Bus. . .$150