If you drive around many metropolitan areas, you may notice a large empty space where Toys “R” Us used to be. After struggling to keep up with modern shopping trends, the company filed for Chapter 11 bankruptcy protection in 2017 and eventually closed 735 of its stores in the United States.
Car dealerships can learn an important lesson from this: if you don’t adapt to new consumer behaviors, you’ll face the very real possibility of suffering a similar fate as Toys “R” Us, not to mention the countless other large retail chains and small businesses alike that have disappeared recently for similar reasons.
I’ve spent the past nine years in the automotive industry helping dealers improve their processes and increase profits. I’ve been able to do this thanks to the deep analytical skills I developed through my background in engineering and web development.
A lot of what I am seeing today in dealership sales and marketing tells me that far too many dealers are simply accepting the status quo. The bottom line is that dealerships need to abandon outdated tactics from bygone eras and strive to better understand—and adapt to—how customers are shopping today. Below, I offer five tips on how to do just that:
- Know your customer base:
Having so much information at hand has led to today’s savvy consumer being less brand loyal than they once were. Rather than simply returning to the same business over and over because that’s what they’ve always done, consumers have been empowered to find the products and services that are best suited to their individual circumstances at that point in their life.
It would be easy to assume that this erosion in brand loyalty has been driven solely by price considerations. However, this is not the case. Take for example, Walmart and Target. With most items they sell, the price differences between these two retail behemoths is a meager 2-3 percent or less. What does that tell us? Simply put, if the price of a comparable product is within a reasonable range, a consumer will opt for the best overall experience for them.
Dealers should remember this example to better understand their customer base. Certainly, price is an important consideration, but once you ensure that are staying within 2-3 percent of your competition, you can focus your energy on bigger picture and important items such as:
- Ensure that the customer experience through both the sales and financing process is stellar. Qualities like speed, convenience, transparency, professional customer service and the use of appropriate technology will win over today’s customer.
- Implement a web strategy that is right for your market and will attract purchase-ready consumers. Start by completing a full audit of your digital presence: Is your website design current? Have you optimized your digital ad spend based on leads and conversions? How’s your digital appearance on social media and the different review sites?
- Inventory, inventory, inventory: The best sales and marketing strategies in the world won’t make a difference if you’re not focused on having the right inventory at all times. Use any number of quality data tools available to ensure the optimal selection for your store.
When you free yourself from the temptation to focus solely on price, it will allow you to focus on items like the above. You’ll differentiate your dealership and deliver the type of unique and extraordinary shopping experience that leads to a pristine reputation and increased sales.
- Know how to make a profit in sales:
To get back on track and sell more cars, dealers need to learn how to price cars right for today’s marketplace. Sure, a standard markup of $3,000 to $5,000 may have been commonplace years ago. However, today’s consumer is armed with more research tools than ever before, allowing them to research prices for specific makes, models, and even down to trim lines with ease.
- Utilize market data tools to actively monitor prices in your local market. This will help them remain competitive and adjust prices, as necessary.
- Utilize technology to understand which units are hot and which units are likely to be slow movers. This will allow you to price in-demand vehicles higher to hold gross, and slower-moving units more aggressively to transition them to an exit strategy before it’s too late.
- Focus more on acquiring the right used vehicles for the right price using available market data and technology, rather than attempting to price the wrong car right after the fact. The majority of front-end profit is made in the acquisition.
- While most single-point stores may not be able to become volume-oriented dealers, the industry’s shrinking margins on vehicle sales—for better or worse—dictate the need to better optimize their inventory selection to increase their overall inventory turn and make profits similar to what they did years ago.
- Expand your geography:
According to recent surveys, the average customer will drive 90-plus miles to buy a car. Gone are the days of consumers simply visiting the handful of dealerships that happen to be just a short drive from home. Therefore, it shouldn’t be hard to understand why dealers need to think regionally. In fact, even values from NADA and KBB.com are organized and calculated by a region much larger than the 90 miles.
Even in a major metro, you still need to research competition up to 300 miles away at a minimum to factor in consumers who might drive in the opposite direction. I would even recommend expanding your market radius to 500 miles for a better sample size. By doing so, you’ll make the right inventory selections, price your vehicles more competitively without sacrificing profit, and effectively combat online-only stores like Carvana that aren’t limited to a physical market radius.
- Understand that customers are getting pickier:
I recently helped a friend find an SUV through third-party online listings. Like an increasing number of consumers, he had a very clear idea of what he wanted and what he should pay. For example, one of his requirements was a sunroof, and he was willing to pay more for it.
Through this experience, I was shocked that so many dealerships in his area were pricing sunroof-equipped SUVs as low as, if not lower than, base models of the same trim. Here you have a consumer who was absolutely willing to give extra money to a dealership, but the dealerships in this example were so shortsighted in their focus on price they were literally leaving hundreds of dollars on the table just to gain an extra lead.
Due to recent advancements in their technologies, third-party listing sites are far more focused on delivering relevant results to consumers than they are on the showcasing the lowest price. In fact, Cars.com now defaults to “Relevance: Best Match” while AutoTrader defaults to “Sort by: Relevance.” Both seem to ignore the price all together and focus more on the customer’s interests, so why are dealers shorting themselves?
Instead of focusing on price to gain that extra lead or two, dealers should keep in that 2-3 price percentile then consider the following with their third-party campaigns:
Promote specific options
- Include a variety of high-quality photos
- Play up your dealership’s reputation and customer satisfaction
- Ensure that all listings are accurate and complete
Educated consumers like my friend know what they want and are willing to pay a fair price to meet their preferences.
- Think of pricing from the customer’s perspective:
Another trend I notice is that dealerships aren’t necessarily seeing the shift in how customers pay for things. While the new iPhone XS may cost $999, it’s positioned as $41.66/mo. for 24 months. Clearly, this approach focused on monthly spend versus total cost is working well for Apple.
I’ve counseled many dealerships to adopt this approach. I’ve looked at thousands of dealer websites and I still see a great focus on promoting the total cost of the car. In this scenario, a $2,000 price difference between you and your competitor seems like a lot. However, by breaking it down into monthly installments, you tap into a mindset consumers are comfortable with…. “how can I fit this purchase into my budget?”
At that point, you’re back in the hunt for that customer.
Now is the time to change your thinking…
For many dealers, the tried-and-true methods of attracting customers just aren’t working anymore. Instead of falling back on old practices, recognize that today’s consumers are more empowered than ever through online research and comparison shopping.
Dealerships must adapt to this new reality by changing their thought processes from “this is how I can make a profit” to “this is how my customer is shopping for a vehicle.”
In other words, find new ways to better to engage and connect with the customer to create a unique experience that will drive more traffic and earn that evermore elusive sale. Savvy dealers who embrace today’s customers’ preferences should be excited about what lies ahead!