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Jared Hamilton
From: Jared Hamilton
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Ed Brooks

Ed Brooks Automotive Digital Marketer

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Dealers: Say Hello to the Bell Curve (and embrace its fat, juicy center)

Over the years I’ve had the pleasure of working with dealers who have embraced a dramatically different sales process – one that doesn’t start off by asking for all the money and then negotiating down. My friends who are traditionalists say, “you need the homeruns so you can afford to take the skinny deals” – not so fast, let me introduce you to the bell curve.

The Bell Curve

 

We always like to talk about extremes, the laydowns and the grinders. But in actuality the 80/20 rule applies; we spend 80% of our time talking about the 20% of deals at the ends of the spectrum. The dealers that I opened up talking about who start by advertising an initial lower price – by giving away profit up front – are giving up the potential homeruns.  They do this to increase their ‘at bats’.  Imagine if you were able to change the rules of baseball to give your team more ‘at bats’ than the competition. Let’s say four outs per inning instead of three. You wouldn’t have to hit homeruns to win the game.

So yes, these dealers are giving up on some potential profit, but I would argue that in the Internet age, the homeruns are coming farther and farther apart anyway. And yes, they probably walk away from a few more of the ‘grinder’ deals. But if they are able to increase their ‘at bats’ even 10%, they win – and win big. Because they are seeing more of their business coming from the ‘fat, juicy center’ of the bell curve.

These newer process dealers aren’t necessarily one-price stores, but when they negotiate, they do it within a fairly narrow range. They make “Asking Price Justification” the cornerstone of their process instead of negotiation. For old school managers and car guys that is a shock to the system. But the increased traffic is worth it. This process isn’t right for every dealership, but I do believe it is the future.

Tom Hawkins
Stirring the pot again, Ed? I tend to agree with you, but others can make it work in the traditional way still. So much has to do with store culture and how customers are handled. I just don't believe there is ONE right way. Eternity...yeah...only one way. :)
Ed Brooks
"This process isn’t right for every dealership, but I do believe it is the future." I did mean my last sentence Tom - it's is a definite culture shift.
Jason Lancaster
I love the point of the article, and I'd simplify it thusly: It's all about total revenue. There's a finite supply of buyers in market at any given moment. Of these buyers, a high percentage are price driven (wrongly so, but it is what it is). The people in this group will immediately dismiss options that they view as "overpriced," unless they have some other reason to consider the product. Therefore, dealers who price their products above the going rate either a) need something else to sell or b) sacrifice an opportunity to do business with members of this group.Are their buyers who are not price driven, and who therefore not going to automatically dismiss options? Sure. But what percentage are they of in-market buyers? What's more, can we prove that these people aren't actually influenced by some other factor (previous positive experience, relationship or affinity, etc.)? None of this is revolutionary stuff. Whether you're selling cars or sneakers, price drives a lot of buyers to take (or not take) action. If you're a retailer willing to sacrifice those opportunities, more power to you. But it's probably not sound business in markets that are particularly price driven...
David Ruggles
RE: "Say Hello to the Bell Curve"Hello to the false analogy. What is laughable is the thought that this "concept" is "new." Most green peas start in the business with the idea of treating everyone "fairly," which is to say that everyone should pay about the same margin. Most of us outgrow that, especially when we inherit P&L responsibility. That changes one from idealist to pragmatist in a hurry. You take gross profit where ever you can find it.I started in the auto business in 1970 in a store that did business exactly this way. We had an established margin for each make/model and eagerly quoted price to anyone who asked, and many who didn't. The label "traditionalist?" Now that's a hoax. There are many dealerships that operated based on the idea that everyone should pay about the same margin decades ago. To try to paint previous iterations of auto retail as "all the same" is the mark of someone who not only wasn't there, but who didn't do his homework. There is, however, a difference between the so called old days and today. Sales people stayed around in the old days and repeat business was a much more important element in auto retail. If you want to change today's auto retail for the better, why not start there instead of trying to get everyone to discount their new vehicle inventory up front? Work on sales person training and retention. Work on producing enough gross profit so they can thrive. Another thing, why not replace the IVR system answering telephones in dealerships with a real human being before trying to persuade to arbitrarily give up gross profit out of fear of the consumer?What isn't a hoax is the math. The idea that so called "traditionalist dealers," whomever they are, start everyone at MSRP is another hoax. Many post price leaders priced at extremely low prices, perhaps even loss leaders. Regardless, the idea of giving away available gross profit upfront as a matter of regular process and making it up in volume is as old as the hills. Trying to paint that "novel" concept as new is ludicrous. To dealers who want to adopt such a sales process, I say, "Go for it." Your competitors will love you. But then, there aren't a lot of dealers posting here.
Ed Brooks
@David - This isn't about treating people "fairly", it's about generating traffic, grabbing market share from your competition, and total revenue (as Jason Lancaster states). There are certainly different strategies at play and all work best in different environments and at different times. I used to supply conversion vans to a large dealership, back in the day. We'd set up one van as an "ad van" - as bait. It had a mismatched tape package, no TV and no rear sofa. We'd advertise it in the newspaper as a loss leader. When customers showed up and saw how ugly and poorly equipped the van was, they'd be switched to a more expensive, better equipped, better looking unit. A classic bait and switch. It wouldn't work nearly as well today for a couple of reasons; 1.) It's no longer the 'Newspaper Era', shoppers expect to see your entire inventory online today. 2.) The Internet has given customers a bigger voice to express displeasure - a way to amplify their thoughts - and a dealer who did the same thing today would see their reputation suffer. You suggest posting "price leaders priced at extremely low prices", Is that the only inventory you put online? Do you put the rest of your inventory up with "Call for Price"? Price is important, but so is selection. I fear this old newspaper tactic is past its "sell by" date. At the beginning of my original post I stated I've worked with dealers who have employed this strategy for years, but like all successful strategies continues to evolve as conditions change. You complain about giving away "available gross profit", but you don't acknowledge that this is only potential profit. In the age of the Internet, home runs are few and far between. I'm suggesting that Market-Based Pricing and minimizing (not necessarily eliminating) negotiation makes more sense in today's market - and generates higher volume and makes more profit to boot.

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