PRICING STRATEGIES AND CARS
Fred was very excited when he decided to go into the car business; he had a passion for quality automobiles and wanted to share it with the world. However, he found raising capital to start his new venture to be a challenge, so he wound up opening his Acura dealership on a shoestring. He could only afford a location in a run down neighborhood with unsavory characters hanging around on the street corners. His budget only allowed for beat up second hand furniture inside the showroom, but Fred was certain that his enthusiasm and great service would carry his dealership to profitability.
Unfortunately, he found that sales were very slow and that those who did buy seemed to focus only on getting the lowest price possible. In fact, most of his prospective buyers seemed to have a budget more suitable for a Yugo than an Acura. After a few months Fred became desperate and began to discount his vehicles steeply just to move them, sometimes actually losing money on the sale. It wasn’t long before he was forced into bankruptcy. On the last day his dealership was open, Fred sat at his desk disappointed, sad, and confused. What had gone wrong?
This is too easy, right? Yet how many organizations do you know whose salespeople meet any form of price resistance by automatically lowering their prices, essentially assuming that every prospect is in the market for a Yugo (Remember the Yugo? Ouch!).
As you take your products and services to the market, what is your pricing strategy? Asked another way, what kind of car are you? If you are a Yugo, then your best strategy would be “low cost leader” You’d want to keep your manufacturing costs and overhead as low as possible so you could sell at the lowest price possible. Furthermore, you would be striving to sell a lot of cars so you could achieve an economy of scale that would allow you to be profitable.
However, if you are an Acura, wouldn’t you want your marketing and pricing strategy to be considerably different? You would want to locate your dealership in a reasonably affluent area; you’d want to have a nicely appointed dealership with great salespeople. Maybe you would have a free coffee bar that serves premium coffee in the customer waiting area. Since your overhead would be higher than that of a Yugo dealership, you likely would want to make more profit per car. In exchange, you would provide your customers with a higher quality sales and service experience. For example, perhaps you would provide free maintenance on newly sold vehicles for the first year of ownership.
What would you do if you were a Bentley? I suppose you’d want to find some way to have your customers writhing in ecstasy…
Bill Cosby once said, “I don’t know the key to success, but the key to failure is trying to please everybody.” If you are a Yugo, then you’re not likely to be profitable charging Acura prices. By the same token, if you are providing an Acura level of quality, then you’re not likely to be profitable charging Yugo prices. It follows that someone shopping for a Yugo is not a good prospect for an Acura salesperson, and vice versa. Prospective Bentley buyers wouldn’t even deign to talk to either of these other folks. What kind of car are you?
Technique #1: Have a clear pricing strategy when you go to the market.
Technique #2: Charge for the value you provide; legitimate buyers will pay for real value.
Technique #3: Avoid the temptation to try to be all things to all people. Practice saying, “Gosh, I don’t think I have the car you’re looking for, but there’s a great little Yugo dealership right across town…”
Copyright Terry "Doc" Dockery, Ph.D. All rights reserved.