Training …Loss Leader or Revenue Stream

I was having brunch with a friend and a business associate of his a couple of Sunday’s back and the conversation turned to dive travel and dive training. My buddy’s friend found out I work at a certifying agency and asked if I worked for a non-profit organization. He said: “…like the agency I took my open water and advanced courses with a couple of years ago.” He named a large competitor of SDI’s in the sport diving market.

After I’d apologized for making a mess, mopped up the coffee I’d sprayed over the table, and passed off the tears of laughter from my eyes as allergies, I explained to him that the only “not-for-profit” training agencies still active – and there are a handful – absolutely do not include the one he named, nor any of the majors including SDI / TDI. He was surprised.

“I paid so little for my courses, I assumed it was all part of some national 501(c),” he said. For readers outside the US, a 501 (c 3) is a tax designation and is analogous to a charity! He wrapped up by explaining that he pays more for a single golf lesson (a round with his club’s pro) than he paid for the whole class-room, pool and open water session for his original diving certification.

Wow. What have we done to the value of scuba diver education in the consumer’s mind?

Now there is no argument against the stark reality that the business model of some of SDI’s competitors promotes “mass transit” at entry-level open water training. The name of their game is volume. And certainly there is nothing wrong with turning as many folks as we possibly can to the adventure of diving. But there are a couple of potential marketing pitfalls we have to be wary of.

Competing on price is number one; Cutting corners is number two.

Marketing 101 teaches us that in the services retail market, price is a function of cost + value. Cost is a simple calculation of what it costs to deliver the service – which in our case is a diver education program.  Cost is further broken down into fixed costs, infrastructure, insurance, gear depreciation etc., etc. And variable costs which depend of class sizes, teaching materials, certification costs, gas fills and so on.

(Forgive a little flag waving here, but SDI is a pretty good partner with regards to cost of materials. Last competitive analysis we conducted, our members enjoy the most competitive cost of materials in the industry with some of the highest margins, and that’s a good start on the road to keeping cost of sales in line.)

In effect, as long as we have good bookkeeping habits or a detailed business plan that includes realistic figures for these costs – and our projections for the number of customers who are going to contribute to covering those costs is reasonably accurate – the process of calculating the cost component of a scuba course’s price is straightforward; the work of an hour perhaps.

Value is a whole different situation. Each of us has to put a value on what we bring into the classroom, pool and open-water. Essentially, we have to condense our experience, personality, professionalism, philosophy, and all the little extras that make you and I different from the “guy down the street” into a per hour fee. And this is the work of more than an hour and is without any doubt the toughest number to conjure up.

However, all that said, having that number – and sticking by it – is an essential part of doing business and staying in business. Time is one of the many things we sell in the dive industry, and judging by the customer perception out there in the marketplace, the value of a dive instructor’s time is about one third of what a minimum wage worker is paid.

I’ve heard the argument made that any deficit incurred by selling training at a loss can be made up by sales of mask, fins, snorkel and any other gear that a new customer may be motivated to buy. I go back once again to Marketing 101. According to every business course and marketing program I’ve attended the concept of selling a lost leader in one revenue stream in the hope of making the books balance by sales in another revenue stream is considered a poor practice, fraught with too many possible hiccups to make it a full-time business practice. The real threat of your customers shopping for “Bargains” via onLine equipment sales should be warning enough.

I’m reminded of the Gibson guitar story. Poor sales because of an influx of cheaper Japanese knock-offs where made disastrously worse when the v-p of marketing decided the best policy was to try to compete on price alone. He ordered the off the rack prices of Gibson electric guitars slashed.

But sales fell even more precipitously. What Gibson had done was send a message to the consumer that their brand – previously known as a quality instrument played by some musical greats – had become a discount brand. Something had to be done. In comes a new v-p marketing with a whole different way of thinking. He INCREASED the price of a Gibson guitar making it about double the price of the mass produced competition. This immediately re-focused the brand in the consumer’s mind.

Like it or not, we associate price with quality… especially if the VALUE component is explained to us. The increased price of a Gibson guitar gave the sales people in music stores across North America and Europe an opportunity to explain to inquisitive customers shopping for a new “axe” that a Gibson is a hand-crafted, quality instrument using select wood, high-end electronics and machine heads, and with a very strict QA system in place. The result is a cleaner, more distinctive, easier to play guitar that stays in tune when it is played at a rock and roll tempo! Sales increased and today, Gibson once again basks in its deserved reputation as a quality US-made tool for serious musicians. (I prefer Fenders, but you get the point!)

I am not necessarily suggesting that the right way to market your scuba classes is to follow the “Gibson Policy” to a T. But the folly of competing on price is that it devalues one of the major revenue streams open to a dive retailer.

As tough as it is in any market to resist jumping onto the discount freight train, we have a strong community of SDI and TDI instructors and facilities who have decided that cut-price training makes no sense and refuse to follow our competitor’s path because they know where it leads.

We cannot win the hearts and loyalty of the customer looking for Wal-Mart diver education. In fact, you may not even want to sell your services and products to a consumer who is totally fixated on price. But you can qualify YOUR potential customers when they ask why your SDI course costs twice what WXYZ course costs down the block. That question gives you the best chance you are going to get to detail to them the VALUE of SDI training (the Gibson edge). You’ll lose the bargain hunters, but you will win the consumer looking for a brand they can trust and that they associate with value.

During a facility visit, while waiting for an appointment I overheard a customer ask the Instructor for a discount on a class. What I heard had a deep impact on me and I feel compelled to share it with you. The instructed responded in a quiet mellow tone with a warm smile on his face, “I’m sorry but I cannot discount my classes.” When the buyer pressed back with why? The Instructor responded, “because when you experience how much I put in to each and every session you will see firsthand what a great value they already are”

 WOW…where do I sign up? Good thing he wasn’t selling jets cause I have no place to park one!

Develop your story and express what you do in such a manner that the consumer WANTS to experience the course with no one but YOU!

Good luck, and overall remember, neither our business nor yours is a charity so let’s not sell ourselves short.

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