The snow and ice management industry is a diverse and competitive marketplace with many different types of customers and contractors serving it. Still, there is ample opportunity to command premium prices. After all, focusing on the premium market segments is a strategic decision and a choice not all companies will make.
In a snow industry benchmarking study published by Hindsite Software in 2015, more than half of the companies surveyed reported profit margins of 25 percent or less. However, 16 percent of the companies surveyed reported profit margins of 40 percent or more. The high margin companies are most likely pursuing premium customer segments with less competition, while the lower margin companies are battling it out for the lower priced work. Each company decides which sandbox to play in.
In every industry and every market, there are many different types of customers (buyers). The snow and ice management industry is no different. Let’s begin by looking at income levels. There are the super-rich, the wealthy, the upper income wage earners, the middle income, the lower income and the impoverished. On the commercial side, there are the world-class owners/managers, “Class A” owners/managers, “Class B” owners/managers, slumlords, etc. Each segment has unique needs, and there is a snow contractor ready and willing to help them all.
There are also different buying habits, which don’t always correlate with income level. There are the innovators, early adopters, early majority, late majority and laggards. Google “innovation diffusion curve” to learn more. An early adopter has probably been buying liquids for more than 10 years now, whereas a laggard will not come around for another decade.
There are other variables that further segment customers, but if we simply look at the two variables mentioned above, we can see there are vast differences in customer needs and preferences within the snow and ice management industry. These differences create opportunities to command premium prices.
Specialized needs, less competition
Premium pricing exists in the niche market segments where there are specialized needs and less competition. These niches are sometimes hard to identify and even harder to access, which is why there is less competition. Commercial examples include: airports, nuclear energy plants, electric transmission facilities, oil companies, etc. On the residential side, there are specialized niche markets, as well: exclusive resort properties, estates, etc.
In niche markets, price is almost irrelevant. The primary purchase criteria are focused on qualifications and capacity. Premium buyers want to know you can get the work done, not how much it’s going to cost them. The value created by performing to meet their expectations far outweighs whatever your invoice amount is.
Stop for a moment and think about your purchasing habits. Perhaps you are a premium buyer for some things. If so, you will understand the psychology behind the premium buyer. When you pay extra for convenience, status or higher quality, you are a premium buyer. There is always a cheaper alternative, but you’re deciding to spend more because there is more value included. This is how premium buyers think and act.
This brief example illustrates my point. I drive a premium vehicle for a variety of reasons, and I have my oil changed at the dealership, even though I pay a premium for it. Why would I pay more for an oil change at a dealership instead of running through a quick oil change place or doing it myself? Great question.
My time is too valuable to change my own oil, mow my own lawn, etc. I learned this a long time ago, and it was one of the most valuable lessons I ever learned. Premium buyers understand this concept. They value their time and will pay more for convenience, comfort and peace of mind. I don’t change my own oil because it’s not a good use of my time. But, it’s more than that.
The dealership offers me value that the quick oil change place doesn’t, and I’m more than willing to pay for it. When I pull into the dealership, I’m greeted by name from a service adviser who knows me and my vehicle. I have peace of mind that my oil will be changed properly and 100 other checks will be made by a highly trained professional. I drive quite a bit and reliability is a huge concern for me. I also value the comfort of the dealership’s private workspaces, good coffee, healthy snacks and beautiful cars surrounding me.
Premium buyers of snow and ice services value reliability, convenience, comfort and peace of mind more than price. Of course, not every buyer is a premium buyer. Most buyers care very much about price. This is why Walmart, the largest retailer in the world, is all about low prices. Premium buyers are not as prevalent as the price-driven buyer, but they do exist…if you decide to look for them.
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