By Leader Contributor Glenn Gould, CEO of MKJ Marketing
One of the toughest decisions facing owners of heritage funeral homes is whether to respond to a lower-priced competitor — and how to do so.
When heritage funeral businesses attempt to define the nature and magnitude of the threat presented by a discount competitor, whether it’s a discount funeral home or a minimum cremation provider, they often underestimate the challenge. Sometimes owners are so focused on their traditional competitors, they don’t even recognize the threat developing from a lower-priced rival.
Complacency and arrogance produce blind spots that delay a response and leave incumbents vulnerable. What were Ohio’s leading funeral homes thinking when Newcomer began advertising low-price funerals throughout the Buckeye State? What about Church & Chapel in Milwaukee and the Walker Funeral Home in Cincinnati?
Low-cost competitors build momentum in slow-moving and subtle ways, factors that established players might do well to pay closer attention to. Lower-priced challengers build their presence quietly by competing in the undeveloped segments of a market. How many owners regret thinking the discounter did them a favor by taking the “undesirable” business?
In other cases, competition between low-cost entrants can produce unintended second-level effects that escape the notice of incumbents until it’s too late to prevent severe market share erosion.
After all, it isn’t very difficult for a lower-priced competitor to reproduce funeral services. Nearly all discount operations offer the same caskets, vaults, jewelry, and other merchandise just like their full-priced competitors. All discounters have chapels and arrangement rooms; some even have on-site crematories and reception rooms.
Taking Time to Gain Momentum
Low-cost challengers start out by taking the business the primary firms consider to be undesirable or are on the fringe of the incumbents’ markets. As a result, the initial lost volume is disguised.
Many funeral businesses continue to grow even with a lower-priced competitor in the market. This dynamic is a particular issue for funeral businesses operating in growing communities or in rural areas where market share data is often less transparent. As a result, the incumbents’ share of the overall market is falling, but they continue to grow in volume, lulling them into a false sense of security.
Another indicator operators overlook is a suspicious increase in their average sales. Because the discount funeral home attracts families who are most likely to arrange lower-priced funerals, an incumbent’s average sale will increase as they lose volume. This is often misinterpreted as a positive indicator — when it is actually just the opposite. Unless something happens to change the trend, the average sale will continue to increase as the incumbent firm loses more and more volume from the bottom up.
Competing with a cremation society is partially a matter of price, but it is also a matter of convenience — and even changing priorities. As a result of the dramatically lower prices offered by minimum cremation services, families create new traditions. Instead of discussing costs with the funeral firm their family has used for generations, affluent families may make their arrangements on cremation society websites instead and pay with credit cards.
One of the most difficult realities for funeral directors to accept is that they can completely satisfy a family and lose the family at the same time. There’s a big difference between being satisfied and deriving value. A funeral home can provide the perfect service, and yet, the family may conclude that the service failed to deliver something of value.
Filling Capability Gaps
Some low-cost competitors grow more quickly than premium players anticipate by offering highly desirable services and finding clever ways to overcome capability gaps. For example, lower-priced competitors typically offer more liberal credit terms, including financing without credit checks and extended payment terms.
Many discounters start out in minimal facilities, often leased, which are typically inferior in terms of decor and maintenance. However, when low-cost newcomers get underway, they will begin making quality changes that narrow the gap between themselves and their higher-priced, better-established competitors.
Lower-priced competitors sometimes gain market share through the support of local families who believe their community deserves to have more options in funeral service. Hospice, certain churches, and even local politicians are often quite keen to have more funeral home choices within their communities.
Casket suppliers also can be instrumental in the startup of lower-priced firms, particularly when their company does not have a good customer in a particular town or section of a larger city. Often, the support can include information garnered from the suppliers’ other customers, so there is a transfer of knowledge and experience that may otherwise take a decade to accumulate.
The initial impact of lower-priced players on incumbent funeral homes may not be the most important consideration. If a market is particularly easy to enter (for example, state laws in many Northeastern states preclude the sale of preneed, which makes it much easier for discounters to get a foothold), a number of lower-priced competitors may enter the market.
Mobility can also be a contributing factor to this phenomenon. Many families no longer live close together, so having a funeral makes less sense to them. After all, it makes more sense to travel to see a loved one before their death occurs versus traveling for their funeral.
How to Fight Back
Legacy funeral businesses have many options for responding to the lower-priced competition. Some are relatively easy, while others require fundamental changes in the business owners’ philosophies and operating policies.
The first step for many owners is to realize that families set a budget for funerals just as they do for automobiles, homes, and weddings. Regardless of whether the family selects a traditional funeral home or a firm that advertises lower prices, the sale will very likely to be about the same.
The point is: Just because a funeral home advertises low prices does not necessarily mean every arrangement is made at the advertised price; in fact, it is safer to assume just the opposite. Once their budget is set, the family may spend more, but they are unlikely to spend less.
For many firms, the first step is to overcome the rumor initiated and perpetuated by their lower-priced competitors that the traditional firm’s prices are very high and that the discounter will save families thousands of dollars. In reality, the difference in price is relatively small.
Therefore, priority number one is to dispel the rumor, which is relatively easily accomplished with advertising that posts a starting price for funeral services. The price for a one-hour visitation preceding the funeral, a 20-gauge casket, and a grave liner represents an entry-level traditional funeral and is typically priced lower than most families anticipate.
The next step is to accept that most — if not all — of the savings delivered by lower-priced funeral homes come from the selection room and not the arrangement room. Every funeral home should offer some high-eye-appeal, lower-priced caskets in addition to the higher-end caskets in their merchandise selection rooms.
These caskets typically come from suppliers other than the big three simply because high-eye-appeal, lower-priced caskets do not fit well in their pricing structure. If a 20- or 18-gauge casket is too attractive, it will necessarily undermine the sale of heavier-gauge caskets, which is why the lower-priced caskets from the major suppliers tend to be less attractive. Have some lower-priced but attractive units available when necessary to match the prices being offered by a lower-priced competitor.
Is Your Website Working for You?
Some websites serve as little more than interactive brochures. Many websites are based on standard templates, which fail to highlight an individual firm’s competitive advantages, such as their community rooms or cemeteries that offer mausoleums, niches, and graves.
Customized websites offer you a way to compete with lower-priced firms by offering an online price estimator (so that families can see what your services actually cost), as well as e-commerce cremation arrangements.
Shoppers Will Pay More — But Only if the Firm Offers Something They Want
Competition among funeral businesses has taught us that consumers often have special needs that are important to them when selecting a funeral home. Some families reject a funeral home because their chapel or parking lot is not large enough to meet their anticipated demand. Some families want a reception room for a social event following services. We know families return to a funeral home that has a grief dog, their own crematory, or another special feature.
The pandemic has introduced new factors, including:
- Online cremation arrangements so they don’t have to visit the funeral home
- Virtual arrangements that allow distant family members to participate in the arrangements
- A disinfectant regimen, including hand-sanitizing stations, masks, and social distancing
Why Training Matters
Every funeral arranger needs training and sales aids to improve their performance. Few funeral directors receive constructive training on their communication skills, which is why their firms lose so many price shoppers — and why so many cremations are direct disposition.
One of the benefits of training is that the firm develops a culture or generally accepted practice about how things are accomplished, including:
- Presenting the value of your services
- Explaining all of the options that are available to families
- Showcasing reception services
- Making cremation arrangements
- Generating preneed appointments from at-need families
Developing Creative Ways to Compete on Price
Every business with a high cost of entry — including restaurants, hotels, and airlines — has a means of liquidating excess capacity. Restaurants offer early-bird specials to fill tables during early evening hours. Hotels liquidate vacant rooms through Hotels.com and Expedia. Airlines offer lower fares to casual travelers who book in advance than to business travelers who purchase tickets as the need arises.
Part of winning the price-shopper battle involves finding ways to bring down costs while maintaining profitability. One way to accomplish this is to offer a non-advertised special price package that offers significant savings but places restrictions on the family, such as a weekday, early morning, or late afternoon service and the use of smaller, less desirable chapels.