What’s the true cost of focussing on price?

There is huge focus in the industry about saving money and finding new and exploiting existing profit centres. Margins are under pressure like never before and stocking costs associated with ageing inventories are adding to the burden. The actual profit from the car itself is under server pressure and in some cases dealers will mark cars down at virtually cost in an attempt to gain footfall and upsell on the finance and insurance products.

We spoke with one dealer who puts virtually all his emphasis on selling add-on products because the perceived value is so great and the mark up high leaving healthy profits to be had. Indeed he employs two business managers and they are tasked with ensuring that all customers are sold at least one product when buying a car and, as a result, he now makes far more from these add-on’s than he does from the cars.

This, of course, is a risky strategy because if customers are not interested in any products and there is little margin in the actual car then it could all end in tears. He pointed out that the issues are not selling people cars and products but seeing enough customers in the first place. By doing everything to generate traffic and enquiries he is giving his sales team and business manager’s opportunities to sell over the competition who may not advertise similar cars as cheaply.

The counter argument would be that if buyers are interested only in price are they likely to come back and remain loyal to that dealer? Although price must play a part in any purchasing decision, with customer service at the forefront of retailing is it worth focusing too strongly on price at the expense of the gold star experience? I’m not so sure.

The one guarantee in any downturn is that there will always be those who react and panic; they see the phones stop ringing and cars remaining in stock longer and believe that the only way to change this is by slashing prices. Whereas the dealers who have the right people and a passion for the business tend to lean more towards coaching their staff and spending more time with customers and making sure that all their cars are prepared and presented to the highest possible standards along with being competitively priced.

Ironically whilst looking at some insurance quotes recently for an elderly relative I found myself deciding on a middle of the road quote which was £20 more expensive than the cheapest at the top of the list. I don’t know why it just felt wrong to go with the absolute cheapest like there may have been a catch and I just felt more comfortable with a competitive quote which still saved my relative a chunk of money on her existing policy.

This may not be typical behaviour when buying a big ticket item like a car but if you saw two cars of the same age and similar mileage advertised which were of interest to you, one at a car supermarket or independent dealer at £500 less than at a franchised dealer would that be enough of a saving to tempt you or would you consider that you were safer paying the extra and having the perceived benefits of buying from the brand?

There is not right or wrong answer it’s up to the individual but what it does come down to again is whether the price and overall package can be equalled by the service received both at the point of sale and the aftersales process.