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Even with business slowly but steadily increasing, motorcoach operators still must walk the pricing tightrope. Although many tout their strong safety records, positive customer comments on sites such as Yelp, and high-quality equipment to land jobs, they admit price is the leading driver of customer decisions.
“We always explain to customers what sets us apart from the competition, but many times people don’t really care; they are just looking for the cheapest price,” says Maurice Vargas, owner of Space Tours LLC in Orlando, Fla.
With that in mind, many operators charge more during peak seasons and less during off-seasons to smooth out the flow of annual business. While many operators are willing to match competitor prices within reason, they prefer to explain why their prices are higher, stressing the age-old adage “you get what you pay for.”
Lowballing Trending Down
While still an industry concern, lowballers, or operators who slash prices to land work, are on the decline.
“Lowballing is all relative and it’s typically relative to the environment the operator works in,” says United Motorcoach Association President/CEO Vic Parra. “There are still lowballers out there, but it appears as if the practice isn’t as prevalent as it used to be. What we are hearing is that business is improving, which would suggest prices are rising because there’s greater demand for services. That is a factor that never goes away — supply and demand — and right now demand is good.”
In fact, operators in competitive markets are still struggling with lowballers, Space Tours’ Vargas says. “Lowball operators are really driving the industry to its knees here. In the beginning, I always tried to keep my prices the same, but now I have to go lower and lower if I want the business.”
Although Vargas will lower his prices to win contracts, he never goes so low that he sacrifices a profit.
Outside of highly competitive areas, operators are seeing fewer lowball operators, particularly the type that would both work for cheap and run older vehicles that may be unsafe.
“With the FMCSA’s safety crackdowns, more unscrupulous carriers are being taken out of the market, and we are seeing fewer lowball prices,” says Matt Eyre, president of Eyre Bus, Tour & Travel in Glenelg, Md.
“In our particular market, lowballing has decreased because demand has gone through the roof in the last couple of years,” adds Ryan Benjamin, director of charter sales and services for Golden, Colo.’s Premier Charters. “There just isn’t much of an opportunity to cut prices, and even if somebody does get undercut for a particular job, nobody is losing sleep over it because they will most likely fill those buses anyways.”
Even with price slashing trending downward, the practice still hurts the industry because it confuses, and sometimes strands, potential customers.
“One of the results of lowballing is that we have come across operators who will cut prices to get a job, but immediately let the client go when something bigger and better comes along,” Benjamin says. “Meanwhile, the original client who booked at that low rate will end up with no service, and then when they go back on the market to shop, they find out they have to pay $200 to $300 more because that is what the trip actually costs.”
One practice that helps operators remedy the need to battle lowballers is demand/yield pricing. It enables operators to charge customers more during busy periods and less during slow ones.
Premier Charters uses a “sliding scale” for pricing trips, charging more during the busy skiing and wedding months as well as on weekends versus weekdays, Benjamin says.
“We’re not talking about gouging or cranking up the rates ridiculously, but obviously, weekends, for example, are busier than weekdays,” he says, adding that the company will discount its rates or even adjust its minimums during off-peak times.
“We know during our off-peak times, we are not going to get the rates we would get in the summertime, and we want to do everything we can to fill those spots when we aren’t as busy,” he says.
The ability to charge on a sliding scale enables operators to stay busy and track the big picture, Parra says.
“The residual of an operator’s pricing practices should be on margin and not just moving the bus,” he says. “If an operator determines they are going to charge a low price in the winter when things are slow, but know they will make it up in the spring when it’s busy, that is fine. It’s the bottom line that matters, and the pricing has to help the operator get to the bottom line. That’s the key.”
Most importantly, operators should always price a trip to hit desired profit targets, typically the industry standard of at least 10%, Parra recommends.
Charging the appropriate prices throughout the year also enables operators to lower prices and remain competitive when the work isn’t there, stay flexible to work with a return client on a price that meets mutual needs, or match a competitor’s price for a desirable job.
Staying Firm, Selling Reputation
In sum, operators should weigh all the costs associated with moving an operation’s vehicle — insurance, labor, maintenance, etc. — and price the trip accordingly without adjusting to beat another operator’s rates, Premier’s Benjamin says.
“We have a policy to match anybody’s bid if there is a written estimate and the safety record and equipment is comparable to ours,” he says. “If all things are equal and it is a job we want, we may consider re-bidding, but it is pretty rare.”
Benjamin stresses that operators should sell the service and all it offers, and then let the customer decide if price matters most to them.
“We try to explain that we offer a higher-quality product that we will stand behind,” Eyre adds. “If customers do their homework before booking with a carrier and check out things such as their FMCSA safety scores and Yelp reviews, they are able to see a carrier’s true colors and can make their decision based on reputation more than price.”
Benjamin’s team will speak to customers to identify their priorities and then sell them on all the attributes that make Premier’s operation worth the price, such as late model vehicles, superior customer service, a solid safety record, and 24/7 access to him and his sales assistant.
Operators must strive to sell their companies and services versus just taking jobs at lower prices because they need the work, Benjamin says.
“You don’t need to give away free samples to get somebody to come back. You can’t take a loss on a job because the client is going to expect the same rate in the future, and then wonder why you did it for so cheap three months ago but are charging them more now. You have to believe in yourself and what you offer.”
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