Your Prices May Scare 'Em Off

Does your dealership have a retail-pricing policy, or do you just hope the pre-owned department uses good judgment to not scare off an owner base you spent years and dollars developing?

I may be biased toward retail-pricing policies, but it is a real concern. You see, the Internet has changed the advertising landscape and is in the process of changing the long-held concepts of location.

While location, location, location, is critical in real estate, and while it used to be critical in retail automotive, the latter is changing.

The Internet user has the ability to bypass all locations that may offer a vehicle on his or her shopping list if those locations don't offer competitive pricing on those vehicles.

What this means is the age-old concept of pricing vehicles extra high so that you can come down when negotiating is becoming obsolete.

Believe me, I had a hard time overcoming my age-old bias in favor of this practice; a bias I held at least until I witnessed first-hand what an outdated pricing policy does to a used-car department's floor traffic, incoming phone calls and Internet hits.

For years, one of the most prestigious marketing consulting companies has always seemed to determine that location was among the top three most important drivers of floor traffic, possibly the most important driver.

This has held true in the new-vehicle department as well as the pre-owned department for as long as I can remember.

By the way, these studies were and are expensive, yet dealers continue to pay what may seem to be outrageous amounts of money to be told that location is a top draw of prospective customers to shop them.

No doubt, in years past this was true. But it is changing and may be changed forever by the Internet.

Don't misunderstand me. I am not suggesting that location isn't important. In fact, it is still the source of most traffic in the pre-owned department and likely will continue to be for many years.

It's just that it isn't as important as it once was.

Many Internet users will still shop for a good price and continue to give you an opportunity to adjust your pricing to meet their expectations if they visit your store. But why should you, or would you, take the chance that they might not give you the benefit of the doubt and not visit your store.

If you have reason to question the importance of a dealership controlled pricing policy, just ask yourself: “Am I having more difficulty in generating floor traffic or am I having more difficulty in negotiating an agreeable price after the prospect comes to my dealership?”

If you are having more difficulty in generating sufficient floor traffic, check your pricing model to see if it is a reason for the poor traffic.

To check that, all you do is take a recent month's retail deals and compare the original asking price vs. the final negotiated selling price. This should include an over-allowance or an under-allowance, if there is a trade.

If the spread is more than $1,000, then you may be costing yourself some floor traffic and volume. If you find that, you may be simply adjust your retail pricing to a more market-based pricing model.

Forget what any books or references say the price should be. Using any of the Internet based tools available, verify that all of your inventory is priced competitively in your market.

Cars.com and AutoTrader.com are two examples. Local newspapers can also be used as a good reference for retail pricing comparisons; that is, if your print ad prices are consistent with your Internet prices.

If your print pricing is not consistent with your Internet pricing, you should then check your on-lot pricing. If you find that all three of the prices are not consistent, it's time for a managers' meeting.

Ed Curry is director of pre-owned operations for NCM in-house training and consulting. He can be reached at [email protected].

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