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Jeremy Anwyl

What Drives Great Success?

surefire-pathway-to-increased-profitsI have been doing lots of flying recently. The travelling is rarely fun, but the meetings I have been having with dealers usually are. You’d think that dealers would be pretty happy these days, and that generally is the case. Sales are looking good and the dealer count is down — seems a surefire pathway to increased profits.

Despite this, there are some conversations that take a different turn. Sometimes, a dealer is focused on increased regulation, competitive discounting, bullying from manufacturers, (think stair-steps and facility mandates), employee turnover — the list can be lengthy. Meeting with these dealers can leave me drained. But then I run across a dealer who is completely different. These meetings can run all day, but feel like they lasted an hour. The dealers tend to be optimistic and thoughtful. Most interestingly, these dealers have what I call an “itch.”

They acknowledge the competitive pressures all dealers face. Despite all these, they are successful, but still not satisfied. Their “itch” drives them to try new things, push different boundaries; not in the simple pursuit of profit, but to find a way of doing business that is dramatically better.

I have been thinking along these lines for the better part of my career as well—so we have lots to talk about. What anchors these talks is the opportunity articulated in my last post where I noted there are a few dealers around the country whose performance is head and shoulders above what we would normally consider successful. These stores draw from very larger geographic areas. They are stable. And perhaps the biggest twist is that their gross profits are higher than average. (Proving that really high volume doesn’t have to mean low—or no—profit.)

Very simply, the opportunity is for more “typical” stores to achieve this heightened level of success. And with the opportunity being so huge, the wonder is that every dealer is not working to achieve it — especially when we realize that what these stores are doing is actually not that hard to figure out.

It is really only three things:

First, the dealers have identified the things that a large number of consumers really, really value when buying a vehicle. We covered some of these in my first post; things like efficiency and respect for their time. A feeling of confidence that the dealership’s pricing is fair. A dealership point of contact who has the customer’s “back.” (Someone the customer feels they can trust.)

Second, the dealers have developed processes that consistently deliver on these features. Consistency is the key; meaning that these experiences are delivered every day, to every customer.

Thirdly, the dealership efficiently communicates to the marketplace to build demand and expectations around the aforementioned experience.

A big part of what I am describing is really the building of a brand — at least in the way I think about brands. Valuable brands are built from a set of expectations, or promises about a product. They are also trusted or credible, meaning there is little doubt the expectation will be met. While brands can be influenced through advertising, by far the best way to build a brand is through word of mouth.

These three steps to success are easy enough for me to write about, but I have to also acknowledge they are devilishly tricky to implement. They start out easily enough — understanding what consumers value is no mystery. (Dealers can simply ask their customers, or look at the decades of research in this area.) And it is not that hard to design an experience that responds to these needs. It is the consistency part where things start to get tricky. Sticking to a process is not something most dealerships are good at. Salespeople like to do business in their own way. Turnover also undermines consistency. Perhaps the biggest obstacle is the pressure to hit a number that encourages managers to stretch for a deal that really should have been passed on.

Think about that one for a minute — passing on a deal is really, really hard. But sometimes it is the right thing to do; first, because of the need to deliver the same experience to every customer, with no exceptions. Second, if the dealership did its homework when designing their consumer experience, it will be highly valued by many consumers, but probably not work for some others. You’ve heard the expression “You can’t be all things to all people.” As it relates to branding, you shouldn’t even try. For example, let’s say you have designed a sales experience around fair prices and an expedited sales process. This might be valued by 80% of the market, but the 15%-20% of the market who obsess only about the “deal” will not be impressed. Instead of undermining your credibility with the 80%, why not leave the deal-obsessed to your competition?

Today’s super-successful stores developed their versions of this road map long ago and have followed them for years. When the market was tough, it was not viewed as cause to change. The big payoff for this commitment would have been an ever increasing rate of referral business. Prospects became customers, who shared the experience with their friends, who in turn became prospects then customers and the cycle continued. Referrals are the underpinning of a profitable store and the only real way to build a business, but they build out over decades.

Who has that kind of patience?

This is probably the single biggest barrier that blocks dealers who want to see dramatic performance gains: The cycle time. The stores I have been referring to that are already at this level have been at it for decades and they have achieved referral levels that can exceed 80%. (Think about that for a moment. It is a huge number.)

But before you dismiss super levels of success as practically unobtainable, let me offer up a ray of hope…

I just covered an example of how referrals used to play out; one customer sharing with one or two friends where perhaps one of those friends would remember and visit the store at some point in the future. Until just recently, this was the norm. We all had fairly well defined peer groups. Today the Internet — especially social media — has blown those traditional boundaries apart. Communications are no longer one-to-one, but one-to-many. This raises the possibility that the cycle time that dealers had to endure in the past can today be radically shorter.

This could be a big deal — and we will look into it more in my next post.

GMEP_CTA

Permanent link to this article: http://blog.ncm20.com/2013/07/what-drives-great-success/

Jeremy Anwyl

Is Your Auto Dealership’s Sales Process Customer-Approved?

Today, we’re introducing a new Guest Expert to the Up To Speed blog. Jeremy Anwyl, Vice Chairman of Edmunds.com will be contributing a series of articles on consumer-centric and cost-efficient marketing strategies for automotive dealerships.

customer-approvedEvery few months or so we have groups of dealers visit the Edmunds office in Santa Monica. The idea is to get “street level” market feedback and stay current on any issues dealers might be wrestling with.Along these lines, we also get together with consumers regularly to develop insights and understanding on their views on the vehicle buying process.

Some time ago we had a group of dealers in and decided to try to bridge the two exercises; basically, to get dealers thinking like consumers.To make this work, we asked to dealers to participate in the following exercise:“Imagine you have been asked to deliver the keynote at a fictional prestigious automotive conference. (Think TED for autos.)

Your selection was based on how you have reshaped the retail sales process, removed customer pain points and achieved a remarkable level of business success. In your speech, you share your secrets.”We split the dealers into two groups and give each 40 minutes to outline their speech. I found the result interesting.

Here’s the combined work from the two groups: First, the dealers identified the pain points; the things that consumers valued, but also found frustrating.

Pain point #1.  It just takes too long. The dealer nailed this one; it is a recurring theme from consumers as well. The interesting thing in talking with customers is that it is not the entire process that takes too long.  Some aspects of buying a new vehicle consumers actually enjoy. Things like checking out options or touring/viewing vehicles in inventory. Some dealers are trying out an extended delivery at the consumer’s home that consumers really like, as well. The parts of the process that take too long and the customers don’t enjoy, are getting in and out of F & I, and the back and forth of negotiations.To address these areas, the dealers talked about how they launched digital contracts, where most of the consumer and deal information could be entered online. They also proposed integrating the tools that consumers use across the Internet so the same information doesn’t have to be entered over and over again. The dealers didn’t focus on this, but it would also seem to emphasize that customers set appointments before coming into the store so the personnel can be ready and waiting.

Pain point #2.  The customer worries about paying too much. (Ripped off, using the dealers’ words.) The dealers proposed transparent pricing as the solution.

“Transparency” is a catch all term these days. Sometimes it means access to info on what other consumers paid for the same vehicle. In this context, the dealers were referring to pricing info that is freely available, with no or limited negotiation.

This worried the dealers a bit as they made the leap that if/when this kind of transparency arrives it is going to drive down margins. There is a tension they expressed as “new world pricing with old world expenses.” The dealers correctly see being more efficient as being essential to survival in the future. But also feel they are being pulled in the opposite direction by manufacturer demands for facility upgrades, etc.

The risk that margin pressure will increase is real, but there is also a chance we might be surprised in how this plays out. So far, transparency has been about a single price; specifically, a new vehicle price. But we all know that a deal involves many elements. The new vehicle price is just one.

Testing a theory, I asked our analysts to run some data. They ranked a set of new vehicle transactions, in order, based on the new vehicle gross. This ranked list was divided into four groups.

My suspicion was that for deals with a lower new vehicle margin, dealers work harder to make up for the “loss” by pushing for higher margins in other areas.   (Think of the old four square.) Charging a bit more for the loan, or offering a bit less for the trade. This might not work in all cases, but across a broad enough number of deals a pattern should emerge.

The group with the highest new vehicle margin was a bit of a surprise in that the interest rate paid was also higher and the appraised value lower than the other groups. Apparently there is a group of consumers—even today—that makes a mess of buying a vehicle. They pay way over the norms in all areas. (They averaged paying over $2,000 more overall!) Let’s forget this group for a moment.

There is also a small subset of the deal with the lowest margins. These buyers are very savvy shoppers who are willing to put enormous time into getting the absolutely lowest price, often have no trade and don’t use dealer financing.  Let’s ignore this group as well.

Looking at the remaining transactions—roughly 60% of the market— there is a pattern where the new vehicle gross and the margin on other deal elements are inversely correlated.

Seems to me that this accounts for much of the frustration that consumers associate with vehicle purchases. The greater the focus on the new vehicle price, the greater the level frustration with the overall negotiation.

The dealers see a future with more transparent pricing around all the elements of a deal. What is preventing dealers moving in this direction today is the fear that offering this level of transparency will just make it easier for consumers to take the new vehicle price and shop another dealership; a dealership where it is simple enough for a salesperson to offer a lower price and work to make it up on the trade, etc.

The irony is that consumer behavior is the impediment to consumers getting the simplicity and straightforwardness they crave. The dealers didn’t have a solution for this, but it is clearly a puzzle we need to figure out.

The final pain point: Confidence in making a purchase.  I put this pain point in my own words as the dealers were focused on the customer feedback that is scattered around the Internet. I rephrased this because what we see consumers looking for when they look at customer feedback is the assurance that the vehicle and/or dealership will perform as promised. One way to ease this concern is to look at the experience of other customers.

As the dealers pointed out, currently this feedback is a bit of a mess; some is useful, much is not. There also is no single source—either for the consumers to rely upon or the dealers to stay on top of.

As I think about this area, it is clear that if we focus on the pain point for the consumer, there are ways to deliver confidence that don’t involve customer reviews. Referrals, for example, are a source of business for dealerships where the store has great credibility. (A customer is hardly going to refer a store to a friend if they had a bad experience.)

I am not sure that customer feedback on the Internet is going to prove to be the best way for customers to feel confident about a decision. The source data is just so unreliable. But in identifying this pain point, the dealers again tied closely to what we have been hearing from consumers.

In fact, that is what struck me the most about this exercise with the dealers.  They get it. What consumers are looking for in the sales process is not a mystery. (We are hearing the same things from consumers as well.) What may be a mystery is figuring out how to remove these pain points in a way that supports a profitable business.

I have some thoughts on this that I will start to explore in the next article.

Jeremy_Anwyl

Jeremy Anwyl began his auto industry career in 1979 working with auto dealers who were looking for more consumer-centric and cost efficient ways of marketing. In 1991 he began working with manufacturers—again on projects that focused on retailing and marketing efficiency. Anwyl joined Edmunds in late 1999 where his years of experience working with dealers and the manufacturers on retail opportunities have been a key part of Edmunds’ success. To reach Jeremy, tweet @JeremyAnwyl, call 310.309.6393 or email janwyl@edmunds.com.

Permanent link to this article: http://blog.ncm20.com/2013/04/is-your-auto-dealerships-sales-process-customer-approved/