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It’s no secret that dealerships have been in a crazy race to the bottom in terms of profit per vehicle. Consumers are always looking for the best deal and automotive Internet resources are providing them with more ammo to negotiate with. Dealers have been complaining for years about decreasing profit margins on vehicles, blaming manufacturers for lowering margins and third-party sites for information sharing. Yet many still offer discounts in a never-ending effort to move more metal.
According to an article by Internet site, Bitmatica, businesses should avoid offering discounts, as they can be more harmful to the business than many of us may think. I understand that loss-leaders, manufacturer rebates and trunk money are very tempting tools to use when closing a car deal. I also understand the typical thought-process of “If I don’t give it to the customer, my competitor will.” Dealerships do have to be competitive, especially in dense markets where consumers have the ability to shop multiple franchises, all within a reasonable driving distance. When you’re facing the consumer attempting to close the deal, the path of least resistance is to reduce the price – even if that reduction is minimal. You may close the deal and win the sale, but what else have you accomplished?
According to the Bitmatica article, this is what that discount accomplished:
So, what’s the solution? Perhaps a strategy is to offer value to your customer in place of revenue. Customers who accept value over price are telling you that they are going to stick around. These are the customers who bring high lifetime values and are the foundations of your business. If a customer is willing to walk away from a deal over $100, he may not be the customer you want. There are many ways to offer value in place of giving up gross profit. Some dealers offer lifetime oil changes, free car washes, customer loyalty programs, or the same value discount but in dealer currency, for future products and services, etc. The next time you find yourself in a position whereby you need to dig a little deeper to make a deal, consider negotiating with value or services. If you succeed, you retain the immediate revenue and give your customer a reason to return. And those are the customers that you want to keep.