Certainty is the Antidote for an Overdose of Variety

The automotive market offers a phenomenal number of choices to vehicle buyers.  This choice includes the number of makes and models, as well as the number of dealerships to buy from, the financing options and choice of financiers.  Additionally, there are more secondary sellers (brokers) and vast amounts of Internet (mis)information and Internet advertising.

With so many varied choices, most customers simply don’t have time to properly investigate every choice.  They don’t even have time to thoroughly consider every choice that’s relevant to them. Such an excess of choice causes confusion for most customers.  The easiest way out of this confusing information overload is to make a ‘safe’ choice.  In these circumstances, most people tend to go with what gives them a sense of certainty.

Furthermore, as vehicles become so technologically complex as to be beyond the understanding of many customers (and salespeople), the unknown becomes a risk and customers look to reduce their risk.  Manufacturers and dealers could help reduce the risk in many ways, including better trained salespeople, but most defer to the easy short-term focus of reducing price.

An intriguing aspect of the challenge in this for the motor industry is that the definition of certainty is not the same for all customers.

How is the Motor Industry Trying to Deliver Certainty?

Most manufacturers and dealers try the easiest approach to give their customers a greater ‘certainty of value’ by dropping their price.  Ever since supply started exceeding demand, manufacturers have been creating ways to ‘bribe’ customers to buy their cars – discounts, rebates, subsidised finance offers, value-adds, cash-back incentives and others.  Almost every manufacturer engages in this lazy form of marketing.

The problem with this strategy is that now almost every brand is engaging in it, the customers are faced with even more information, causing even greater confusion.  Escalating price wars create more uncertainty, not more certainty, for most customers.  Many customers sensibly delay their buying decision to see how high the discounts and incentives will go.  When so many manufacturers are employing this strategy on such a large scale, it becomes counter-productive to it’s goal of getting customers to make an easy choice of one product.

The luxury vehicle market has not been exempt from this practice, which was historically a strategy in the higher volume, lower quality market segments.

When and How Can a Vehicle Distributor Deliver Certainty?

In terms of a customer’s buying cycle, a manufacturer/distributor can deliver or try to deliver certainty before the sale, during the sale and after the sale.  Some examples of these include:

i)    Before the sale:

• Maintaining or promoting the Company/Brand/Model image
• Advertising & Marketing ( including price, as above ) / PR
• Providing consistently high quality product

ii)    During the Sale:

• Availability of accurate consistent information, e.g., brochures, websites, stock availability
• Establish & Maintain dealer requirements for level of service to customers
• Providing consistently high quality product

iii)    After the Sale

• Providing consistently high quality product
• Timely and accurate provision of parts and service / information
• Established dealer requirements for level of service to customers

In the last few years,  I have several times been invited, as a prelude to training programmes, to address teams of Sales Managers on how to grow their business without simply sacrificing profitability.  This article is a blend of the content of those addresses.

Your Market Pie

For the sake of this discussion, the pie represents the sales market you compete in, i.e., the available new sales every month.

You get your share of the market, and in a well-developed, highly-saturated market it probably doesn’t vary too wildly.  If you averaged 10% of your market last year, you may go up or down a little this year, but it’s highly unlikely that you’ll get 20% or 5% this year.

The natural tendency, (admittedly often driven by manufacturers’ short term focus on sales targets)  is to try and cut a bigger slice.

Let’s say you normally average 10% of the market and you decide to go for 12%.  The fastest way to try and do this is to sell cheaper.  So you start discounting harder but this doesn’t just affect you – it affects the other dealers of your brand as well, who may have to match or beat you on price.   It’s not uncommon for every dealer to have ‘loyal’ customers who will buy from their regular dealer, but will get a comparative price from another dealer, just to check.  As more dealers blindly pursue volume on price, our research shows that they don’t create many more customers, but they give even more money to the customers who were going to buy their product anyway. Commercial lunacy!

Imagine that your market is a ‘money pie’ and, having made the first cut into the money pie each month, you are moving the knife into position to make the second cut that will define your slice of pie.   The further you move your knife, the thinner the pie becomes.  So by trying to simply cut yourself a bigger slice, you get less and less pie ‘filling’ and end up with empty pie crust.

The wider you cut, the flatter the pie gets – but not just for you – for all your brand’s dealers in your market.   This is a compounding problem as you then educate your customers to expect bigger and bigger discounts.  You may even lose your astute customers who are suspicious of this sales desperation and are aware of what this activity does to their resale value.

What to Do?

As a Sales Manager, there are broadly two approaches you can take to get a bigger slice of pie:

1.    Try to Cut Yourself a Bigger Slice as fast as possible

2.    Make the Pie Bigger

Let’s look at these two choices in more detail…..

1. Cutting Yourself a Bigger Slice

This is what you do when you get desperate for numbers or market share.  You just try to grab any deals you can.

Some activities associated with this choice include:

•    Taking a broad ‘shotgun’ approach to marketing.  Examples: Advertising in the major daily Capital City newspapers, advertising on mass-marketing websites, deliberately marketing outside your Prime Market Area.

•    Giving prices other than RRP over the phone or publishing discounted prices on the internet.

•    Letting salespeople sell management instead of the customers.  Example: A customer walks into the showroom and asks for a price and within a minute or two the salesperson is standing in your office with a credit card and a ludicrous price offer, trying to sell you on why you should sell a car at a significant loss.

•    Little or no sales training

1a.Effects of Cutting Yourself a Bigger Slice

•    Detrimental effect on customer service, customer satisfaction.

•    Rewards the customer for shopping around, so encourages them to keep shopping around, not buying.

•    Significantly reduces the profit for yourself and other dealers.

•    Sets new discount benchmark for customers, making future profit even more challenging.

•    Reduced available sales opportunities because there is less profit to invest in creating new business.

•    Less profit to invest in facilities, staff, training, goodwill, stock.

•    Loss of profitable repeat and referral business.

•    Educates and rewards salespeople to be lazy, undisciplined and unprofessional.

•    Detrimental effect on resale values (deterioration of another sales advantage v. your competitors’ products)

•    Reduced ability to attract quality sales staff due to reduced remuneration.

•    The size of the pie (and your sales) are at the mercy of the market / economy.

•    If everyone’s trying to cut the pie thinner, but no one’s growing the pie or baking bigger pies, this has a shrinking effect on your potential market size.

2. Making the Pie Bigger

This is what you do when you stay committed to fulfilling the full array of customer needs, selling value over price, and aiming to retain a fair gross profit and build customer satisfaction.

Some activities associated with this choice include:

•    Targeted marketing:    to your existing client base and to your Prime Market Area.

•    Focus on providing personal service and maintaining enough gross profit to keep the business sustainable long-term.

•    Implementing systems and procedures to ensure customers receive professional, effective service and a better experience.

•    Regular training of your sales staff to develop a higher level of sales and customer service skills.

2a. Effects of Making the Pie Bigger

•    Improves customer satisfaction and customer loyalty levels.

•    Educates the customer that shopping around isn’t necessarily the best way to get true value for money.

•    Buoys the profit for yourself and other dealers.

•   Doesn’t create future unsustainable price expectations in the customer’s mind.

•   Increases available sales opportunities because there is more profit to invest in creating new business.

•    More profit to invest in facilities, staff, training, goodwill, stock, etc.

•    Increase in profitable repeat and referral business from satisfied customers.

•    Educates salespeople to be more service-oriented (instead of price-oriented) and more disciplined.

•    Enhanced resale values (increases sales advantage v. your competitors’ products)

•    Better ability to attract quality sales staff due to better available remuneration.

•    The size of the pie (and your sales) become more insulated against the economy / market.

Some Suggested Actions (for making the Pie Bigger)

Marketing to your existing clients and your Prime Market Area is an extensive topic, so in the limited time we have available today, I’ve chosen some sales enhancement suggestions.

Furthermore, marketing has the potential to be a huge waste of money unless you have the systems and procedures in place to accurately track and convert the resulting enquiry into sales.   Here are some suggestions, or reminders on effective ways to make the pie bigger:

1. Measure the size of your discounts and over-allowances, not your retained gross.

By simply measuring gross, we can congratulate ourselves on the $50,000 gross profit we made for the month, perhaps from delivering 100 units.  Instead of counting how much we kept, if we count how much we gave away and aim to minimise it, we are already taking a perspective that is conducive to better gross (having to then justify the price difference, encourages salespeople to professionally justify pricing, focused on the customers’ needs).

2. Test your salespeople’s knowledge of your USPs (Unique Selling Propositions)

Without warning, call your salespeople into your office one at a time. Ensure you won’t be interrupted.

Ask them what is their best seller in your range (it may vary for different salespeople).

Then ask them what is the most common competitor they are up against on that model.

Then ask them what are the top 5 benefits of their top seller v. its No. 1 competitor.  If they don’t know, or give you fluffy answers like ‘styling’, ‘finish’ or ‘design’ then they are losing you tens of thousands of dollars.

Note: A salesperson knowing the answers to this is not even the ideal situation, as an effective sales professional will be far more advanced from this, but them not knowing is very damaging to your business.

3. Test your salespeople on BEST PRICE demands

Separately from the previous exercise, call your salespeople into your office one at a time.  Ensure you won’t be interrupted.

Tell them you are going to role play a customer and you want them to respond as they would to a customer.

Tell them you’ve just walked into the showroom, and then ask them: “What’s your best price for a (Model X) in silver, on road with private registration and no accessories?”

You can be as blunt as you like in answering any questions they may ask you, but observe their responses.

They get this Best Price question in different versions every day.  This is one of the most basic challenges your salespeople get.  A salesperson not being able to effectively handle best price request in the first five seconds is a bit like a professional boxer not knowing how to avoid being punched.

If they stammer and stutter, or say “aaaaaaaaaah, ummmmmm”, they are leaving thousands of dollars on the table.  They should be able to handle this confidently in their sleep, it is so fundamental to our business.

Salespeople who do poorly in this exercise may say that this is not a “real-world” situation and tell you all the reasons why they would do better with a “real” customer, but when put on the spot, salespeople don’t become wildly creative and imaginative.  They default to habit.

Do not ask them how they would handle it – they can probably know and describe what to do without necessarily doing it with a customer.  Make sure it’s a role-play.

As a guideline on how Best Price can be handled more effectively, ask about our ‘best price’ training courses.

4. Customer Needs before Negotiation

Our company offers over 20 negotiation strategies in training, but if you don’t know anything about your customer other than that he/she wants a particular car for a ridiculous price, then effective negotiation strategies (as opposed to rubbish like “let’s meet half way” and “if I could, would you?”) are rendered useless.

To negotiate effectively, we must have accurate information about the client’s needs.

Without information, we are neglecting our customer service duty and most salespeople in our industry put their business into these neglectful situations with customers every day.

Train your salespeople to get more relevant information and better information to get you the right customer focus for completing a sale.

Don’t let your salespeople walk into your office unless they have a list of the customer’s needs (including, but not limited to price).

5. Track your enquiry

Measure every enquiry, even the ‘tyre-kickers’.

At one dealership I work with in the first month of tracking, the Sales Manager had just accepted that one salesperson was having a particularly quiet month.

He finally analysed his tracking and found that the salesperson had spoken to 71 customers to make one sale,  and had dismissed 70 ‘tyre-kickers’.

Focus on improving your closing ratios, not finding more people from other PMAs to talk to.