Bus and Motor Coach Library

An Analysis of the Low-Price Quote

Author – Brian Niddery  (2001)

Every year a certain local businessman has hosted a golf day for his business associates and customers at a golf and country club located some 75 miles away.  Thoughtfully he decided this year it might be a good idea to engage the services of a motorcoach to transport him and his friends to the club.  That way everyone could enjoy a few drinks during the day and not have to worry about driving back to the city in their cars. 

Having never before chartered a motorcoach, he called on three companies to offer him some ideas and to quote a price.  He was somewhat miffed when he received price quotes that lacked any kind of detail or information regarding the quality or type of services that could be provided.  Nobody even bothered to ask him anything about his needs or offer any suggestions - just simple price quotes to charter a coach for the day.

However what surprised him most was the range of prices quoted.  A larger motorcoach company quoted $1075 for the day, while two smaller companies quoted $675 and $800 respectively.  Lacking any other information or details he predictably went for the lowest quote. 

Fortunately this time around he was provided with an almost new high-deck 56-passenger coach, and an experienced well-mannered driver.  The quality of service in fact turned out to be quite satisfactory.
However, let's study the effects that this transaction may have on a customer, a motorcoach company, and how it can affect the industry at large.

The businessman is not particularly price sensitive; therefore any reasonable quote up to $1075 would have probably been quite acceptable.

-Although the small fleet operator who quoted $675 was successful in garnering the sale, an analysis of his operating costs would reveal that his break-even point is actually $875.  Since this operator really doesn't understand his true costs, he unknowingly just lost $200 that day.

-This wide price differential, of $400 in this scenario, was a value also lost to the entire industry, that could have contributed to the purchase of new equipment, additional skills training, or in investing in expansion or new market opportunities. 

-As a new customer to the motorcoach industry, he unfortunately now firmly believes that $675 a day is a fair and reasonable price to rent a new $550,000 motorcoach, including the cost of a driver, fuel and insurance.

-Due to the widely differing prices quoted, this new customer believes that the two other companies probably tried to scam him.

-Perhaps then, it enters his mind that price scams are a common practice in the industry, and therefore one should be somewhat mindful of this fact when dealing with motorcoach companies in the future.

- He tells all his friends that a fair price is $675.

- His friends now also believe that a fair price is $675, and that's what they would expect to pay if they ever chartered a motorcoach.

-Next year this customer will likely be very disappointed when he is not able to contract a coach for the same price, and will be understandably upset if he has to pay a significantly higher price.

-And if he ends up with an older coach next year or a less than experienced driver for his $675, his needs and expectations will not be met.

-Either way he'll probably be disappointed, because by the time next year rolls around, that motorcoach operator may not still be in business!

-And his friends will be bitterly disappointed in the future when they too cannot find an operator willing to accept a $675 charter rate for a modern motorcoach, and they in turn will tell their friends of their displeasure.

-And if he is disappointed in either the price or the quality of service the following year he might just go back to having his friends drive to the golf club themselves.

Unfortunately this is a scenario that is being repeated hundreds of times over, every day of the year!  It is the result of fleet operators who do not understand their true operational costs, or who put minimal effort into selling their services, or who believe that price is the only selling factor.