DrivingSales News explores a Cox consumer study with Director of Valuation Product Alec Gutierrez – meritoriously building margin back into the deal.
Global investment market and auto retail commentators alike speculate that the end is near for the record-breaking post-recession run. Despite the historically high seasonally adjusted annual rate (SAAR) for new cars, analysis of the last five years of both new and used sales tell a story of significant margin compression. Since just 2011, NADA data reveals the margin on new cars has decreased by 30 percent and used cars by 20 percent.
“We’ve been somewhat isolated from the effects of margin compression thanks in large part to the volume and scale at which we operate,” said Alec Gutierrez, Director of Valuation Product at Kelley Blue Book, which is part of Cox Automotive’s media division. Gutierrez says Cox speculates that 2016 will be the year that dealers start to feel the pressure and will have to work harder to avoid a substantial dip in net profit.
The unknowns of the pending downturn are countless, including: when and what will tip the scale, how far will it drop, and how do businesses best prepare themselves. Cox Automotive recently explored the challenges. They began with the question, “How do dealers build margin into the deal outside of the piece of inventory when the ‘informational’ advantage has been removed by the transparency of the Internet?”
With that question in mind, Cox completed a consumer study on the consumer perception and influence of (relentlessly executed) unique selling propositions (USPs) in dealership operations. The goal of the study was to assist dealers in defining and prioritizing programs, services, and policies that best differentiate their stores within their markets. The findings were insightful, and somewhat surprising!
Cox Automotive’s Dealer Differentiation Study Background
Methodology
- Online survey among nationally representative panel of 3600 total respondents, age 18-65
- Differentiators were based on 4 previously conducted focus groups with dealers/consumers
Respondent qualifications
- Purchased new or used car in past six months from dealership or actively shopping and plan to buy in next six months
- Primary or shared user of the car
- Highly involved in decision making for purchase
- Purchase must be from dealer of some type, not second hand or buyer direct
Key Findings
Gutierrez sat down with DrivingSales News for an in-depth explanation of the findings.
- Lowest price has the same perceived value to the consumer as transparent or fair pricing. “This was a revelation for us,” Gutierrez said. “Because it means dealers can focus on more than just price.” He explained that he views car shopping as a “considered purchase” not a commoditized one, meaning dealers have the opportunity to add value in the experience they provide customers. Since lowest-price and fair-price value propositions are operationalized so differently, this at least gives dealers the confidence that either – executed consistently – are acceptable approaches in the eyes of shoppers.
- Peace of mind is a differentiator. Beyond pricing, “extras” such as extended warranties, maintenance contracts, and reassurance in the vehicle purchase are top performing differentiators at the point of transaction. “Brands are built by making and keeping promises,” Gutierrez said. He emphasized that delivering on the promise is hard work that requires comprehensive operational design.
- The service department can play a major role in dealership selection. Free maintenance services included with the purchase and an honest/transparent service department were of high importance to consumers in the study. “Ultimately, if you can build shared context and confidence in the consumer, you don’t have to sacrifice gross,” Gutierrez said. In other words, coaching salespeople to discuss the relationship with the dealership throughout the lifetime of ownership and aligning sales and service to deliver a consistent experience could justify a higher price tag. “A dealer really has the opportunity to craft their own unique value proposition that can truly resonate with the customer if executed efficiently and transparently,” Gutierrez concluded.
The three findings were relatively consistent across markets. But beyond these, Cox identified that certain demographic and shopping persona subgroups show strong propensities for a variety of differentiators beyond the most common ones. In other words, markets are still unique. Focus groups and other tools for market analysis could serve dealers in identifying the right USP for their customer base.
The message from Alec Gutierrez and the Cox findings are clear: There is opportunity in exploring the dealership’s brand promise and operationalizing processes and people to deliver it authentically and consistently.
