“We don’t make any money on our open water classes. We hope that the open water students will buy equipment from us once they are certified.” I first heard this type of statement was during my PADI IDC when we were discussing course pricing. As a business person, this didn’t make much sense to me, but I could understand the rationale that a business uses a product or service to drive sales of other products or services. That was six years ago. I’ve had plenty of time to think about this and the more I ponder it, the more I have realized that this mentality is slowly killing the scuba diving industry.

What is a Loss-Leader

Simply put, a loss-leader is a product or service that is given away at or below cost in order to drive sales of another product or service. Normally with a higher profit margin. The concept of a loss-leader has been around in business for quite a while. In the scuba diving industry, the open water course is a product that is used to get people into a dive store to buy equipment.

How are Loss-Leaders Killing the Industry?

I’m not against the concept of the loss-leader. Certainly, it has it’s place. However, the open water class should not be used in this manner. In my opinion, the open water class is the most important course in scuba diving. It is where students learn the fundamental skills to scuba dive safely. Since this class is so important, when it is used as a loss-leader, the value of the course has now decreased in the eyes of the student.

People will form their opinion of scuba diving by their first impressions of the sport. This is what drives people to continue to dive or give it up altogether. Part of their first impression also includes the finances of scuba diving. When they sign up for a cheap open water class, their initial impression is that scuba diving is relatively cheap (of course we know this is not true). Then they see how expensive it really is. Seeing the discrepancy of pricing between classes and equipment, people will not put a high value on training. This first impression will carry over to other courses they may decide to take and thus give the customer a feeling that training isn’t that important, because it’s cheap.

When Should Loss-Leaders Be Used?

There’s nothing wrong with using loss-leaders to generate sales. But loss-leaders should be products or services that have some value, but are not critical products or services. For example, dive stores can give away bottles of mask defog. You can get them with your company name and logo on them. They do have value and have some demand, while at the same time, are not too important in they eyes of the customer. I know instructors that go through a shampoo bottle size of it each year.

Dive stores and instructors should base their course prices on the value (or perceived value) that they want their customers to have for those courses. When a price is set according to the perceived value of the product or service, sales are brisk, and profits are maximized.

Pricing Classes According to the Market

The marketplace is often cited as the “wisdom of the crowds,” the collective judgment of the value of a product. But by resorting to “marketplace pricing”, dive stores accept the commoditization of their product or service. Marketplace pricing is a resting place for companies that have given up, where profits end up being low. Instead of giving up, dive store owners and instructors need to think up new ways to differentiate their services and/or products to create additional value for their customer segment. The best-known case of reverse commoditization is Starbucks in its early days. By rethinking the entire experience consumers engage when they consume a cup, the company has produced prodigious growth and outsized profits. A Starbucks cup of coffee delivers a unique value proposition that engages millions of consumers daily, and they happily pay $3.00 to $4.95 for what used to be a ninety-nine cent cup of coffee. More recently, Starbucks has surrendered its vision of innovation supporting premium prices. It has allowed other companies to encroach on its claim of superior taste and a better experience. It has begun to count on price cutting as its primary mechanism for creating customer value. This is why Starbucks has had a large decline in sales.

Summary

We want potential and current divers to hold dive training in high value. We can’t do this when the industry is purposely devaluing the course in hopes to sell other products. If dive training is critical to the diving industry (i.e. one of the Three E’s), then why should it be given away? Price your courses according to the value you give your customers.

Dive Safe,
Duane
Precision Diving