It’s every dealer’s nightmare: another dealer in your market area begins slashing prices and cuts under invoice on every unit. You need a strategy for beating the low-ballers. So what’s the best way to proceed? On the one hand, all you need to do is drop your prices below the competition, and buyers will beat a path to your door. On the other hand, this approach will land you in a price war, and there are no winners in a price war — only survivors. Even if you manage to run your competitor out of business, chances are you may not have much of a business left when the battle is over. Luckily, it is possible to beat a lower-priced competitor without crippling your profits. That’s the good news. The bad news is that you’ll need to make major operational changes, and you’ll need to rethink how you communicate with customers. The changes required may not be for the faint of heart, but they’re better than the alternatives. So gird your loins, corporate warriors; you’re about to embark on one of the biggest strategy challenges you’ll ever face.
Select a Value Strategy.
Goal: Lay the groundwork for repositioning your STORE.
When customers prefer the lower priced of two items, it's usually because they believe the cheaper item is a better value. To compete, you need to get the customer to value your vehicle more than the competitors — regardless of the price. In my opinion there are four market strategies that accomplish this:
Lower your prices. Yes, this is an option. The challenge is to do it without destroying your own profit margins. (I'll explain how to do that in the next step.) The big danger here is that you'll end up with a price war, so you must ensure that you have what it takes to be the last firm standing.
Build value surrounding the vehicle. Customers will pay more if they're convinced your dealership or complete offering is demonstrably better than the competition. This superiority can be "rational" (like a package of services nobody else has), "emotional" (like a reputation for being "cool"), or a combination of both. Example: Car buyers pay more for Volvos because they're seen as safer than other cars.
Create a hassle-free experience. Customers will pay extra if your store is easier to buy from and visit than the competitor's. Example: Many shoppers happily pay more for the convenience of bagged lettuce, even though it is significantly more expensive than head lettuce.
Take ownership of the customer's results. Customers will pay extra if, in addition to providing the right car, you take responsibility for ensuring the customers complete and total satisfaction. Not just managing survey results here complete satisfaction of every customer sold.
Reposition, Readjust, and Reallocate
Goal: Make the internal changes necessary to support your strategy.
Lowering your prices = Changing your workflow to reduce costs. To beat low-price competitors at their own game while also remaining profitable, you need to squeeze every last drop of inefficiency and cost from your selling and service departments. Look at your commission plans, fixed salaries, wasteful advertising and just clean house. The lower your cost basis the better position you are in to play the price game if needed.
Building a uniquely better offering = Change the focus to total value. Determine through market research what in your marketplace will prompt customers to see your package as being unequivocally superior to the competition. This isn’t as hard as it sounds, think about what vehicles really need in your area: car wash coupons, snow tire changes and of course gas discounts are always good places to start.
Creating a hassle-free experience = Changing sales and marketing. Figure out why it’s difficult to buy at your competitor's store, and then make it easy to buy and service at your dealership. I can’t say this enough: SHOP YOUR COMPETITION AND EXPLOIT THEIR WEAKNESSES.
Taking ownership of the customer’s results = Changing customer support. Build a deep bench of brand and model experts who really understand the cars and trucks you are selling and be there for your customers. Since when did salespeople stop having to be experts? Customer support begins when they walk on the showroom floor and ends when they are no longer competent to buy another car. Get my drift? In a car dealership EVERYONE must be a product expert.
Promote the New You
Goal: Communicate your new value strategy to potential customers.
Once you’ve implemented all the operational changes required to reposition your dealership in the marketplace, it’s time to tell the world why your store offers superior value. That means adopting a communications strategy that matches your market strategy, as follows:
If you offer lower prices, mimic the competition's go-to-market strategy. Ensure that whenever a customer sees a competitor's ad’s, your store’s name is right next to it — at a lower price. Example: Kinko's searches out local print/copy shops and locates a franchise across the street, offering prices that the local shop can't match and eventually driving them out of business.
If you build a uniquely better offering, target your advertising. Reach customers in areas your competition neglects. I know this sounds the opposite of #1 but there are many, many places people don’t think of selling cars. Go back to the past and think Chamber of Commerce, local sports and groups. Example: Sony's VAIO PC business advertises in lifestyle magazines to reach female buyers, who are more likely to appreciate the VAIO's sleek design.
If you create a hassle-free experience, generate positive word of mouth. Make it easy for your customers to sell for you. Consider “tell a friend” coupons or offer referral fees. Example: “Network Marketing” products (like Amway) are typically priced higher than store-bought items, but they are sold by neighbors to neighbors (that’s the word of mouth) and drop-shipped to the buyers (that’s the hassle-free part).
If you take ownership of the customer’s results, create a presence as an industry insider. Get your sales consultants out to conferences, working groups, and industry-association meetings where they can work closely with others in the industry and create a reputation of a “can’t beat” team. You’d be surprised that when you create professional career salespeople at your store turnover will go down and sales will skyrocket.
Prepare a Plan B
Goal: Secure long-term competitive advantage with a secondary market strategy.
You’ve got a new pricing strategy and a new way to market it to customers. That’s great, but do you really have what it takes to pulverize the competition? After all, strategy doesn’t occur in a vacuum. Just as you are responding to your competitor’s pricing moves, they will do the same in response to you. If you’re only better than your competition in one dimension, you run the risk that your competition will focus on that dimension to leapfrog over you. If you’ve got the best package, the competition may figure out how to make a better one. If you make things easy for customers, your rival could make things even easier. To prevent this, it’s important to simultaneously execute a secondary market strategy that supports the first.
The challenge in executing a secondary strategy is that the four basic market strategies are, to a certain extent, mutually exclusive. Better car packages typically cost more. An “ownership of results” strategy often entails throwing resources at each customer’s problems until they are fixed.
Nevertheless, having a secondary strategy in place — even if you can’t make it fully effective — is a great way to keep competitors at bay because it makes it far more difficult for your rivals to beat you at your own game.
Most of all remember that no matter how far you get in remaking your dealership and trying to improve your strategy you are that much farther than everyone else. Most dealers simply never change and that’s why you can win using my 4 steps: after all it’s very easy to hit a steady target.
Good Selling.
Keith
