I monitor and post to the FuneralWatch newsgroup hosted by the folks who publish the Funeral Service Insider and the American Funeral Director. Someone recently asked a question about collections policies and motivating staff to talk with families about the financial aspects of the arrangement conference. However, the discussion devolved into a torrent of commentary about pricing and other issues. As usual, the question of what to do with casket increases worked its way into the mix, since the casket companies have recently rolled out new price lists for the coming year.
No doubt the debate will rage on for years to come about whether caskets have truly become a commodity (they are no where near a commodity yet, but all the talk will eventually turn into a self-fulfilling prophecy). From my point of view, we cannot afford in any manner shape or form to allow caskets to fall into that category. Caskets and/or the other “accoutrements” of funerals have always driven the consumer to the funeral home. I suspect that if we let the products slip away from us, that we will lose the opportunity to provide the services we assume we will build our businesses upon. We much too easily presume that families call us for our services and that the products are incidental. We make a HUGE mistake when we downplay the value of product sales and availability as a critical part of the funeral home/consumer relationship.
When we stop being the preferred provider of funeral related merchandise, we will stop being the preferred provider of funeral services period. Don’t lose track of that fact.
Also, and just as importantly, do not lose track of your preneed in your pricing decisions. With caskets rising 6% or 7% each year lately (and I see no reason why our suppliers will manage to lower those increases any time soon, the cost of doing business in America continues to skyrocket) but preneed funds rising at a much lower rate (roughly 3%, maybe less depending upon the type of investment), it does not take too many years before product margin disappears altogether.
For example, take a casket costing $2,000 and mark it up by $500 to make a $2,500 consumer cost. At 6% per year, that casket will cost you $3,188 in 10 years. But, at a 3% rate of return on a pre-arrangement, you will only have $3,167 sitting in the account to pay for the casket in 10 years. That means you are upside down on the wholesale COST. Does this make any sense whatsoever? I don’t think so.
Sure there are some forms of casket price protection built into some older pre-need insurance products but with all the other financial pressures at work within funeral service, can you count on those resources continuing, not necessarily. Business sense would suggest having plenty of margin for error, especially when setting up contracts you have to deliver a decade or more from today.
Keep in mind, it is easy to say that one thing or another doesn’t really matter to the health and purpose of a business. However, businesses of all kinds operate on hidden relationships and interactions with consumers. Think back to the whole “New Coke” debacle of years ago. The Coca Cola folks got tired of losing the Pepsi challenge and decided they needed a “sweeter” product to compete into the future. They spent millions of dollars and man-years of time to calculate the “perfect” revised formulation. Only one problem, they were completely wrong about their relationship with the consumer and the value of the product they already had. Same thing with caskets, do not discount the value of the relationship you already have or you could find yourself learning another, very expensive business lesson.
Great point, without caskets, the business will suffer. A great place for funeral caskets is http://starlegacynetwork.com.
Posted by: Mcarson6775 | July 15, 2010 at 10:47 AM