How do you deal with discounters in your market?
Every powersports dealer that I know has to deal with a competing dealership that is commonly known as a discounter. These discounters are your competition that sells below invoice and basically lives off of dealer incentives and dealer holdback.
I have been in dealer meetings of many kinds and most of you complain all day long about these types of dealers. The basic thread of these meetings is that you want the OEMs to do something about them. Guess what guys? They are not going anywhere any time soon and it looks like they are here to stay.
So what is a dealer to do about discounters? Well, it all begins and ends with your dealership’s business strategy to combat or compete with these so called discounters.
First, you have to understand why successful discounters who survived the great recession are still around. These discounters have a thoroughly thought out and well managed cost structure in their businesses to begin with. Discounting is in their business DNA and this strategy is well woven into their daily business operations.
It appears that most discounters are all about the sale of the unit and that’s it. And this, in my opinion, is where non-discounter dealerships have the opportunity to win!
Most dealerships today are what I call retail dealerships. Your cost structure does not support a business strategy of deep discounts on every single unit that goes out your door. A lot of you have state-of-the-art facilities, sell multiple lines of franchises, you are servicing debt and employ true professionals to work in our modern powersports dealerships. If we sold every unit at below invoice and just retained profit from holdback and dealer incentives, we would go out of business in no time!
I know of one dealership that tried to change their business model from retail to being a big old discounter and it totally blew up in their face. The dealership who was doing fine and posting profits before the strategy change, started hemorrhaging cash within 90 days because they thought they could ignore their dealership’s cost structure and sell every unit at invoice.
In order to compete with discounters today you have to sell the sizzle of the steak where the steak is your entire dealership. You have to be professionals at building long-term friendships with your customers so they want to buy from you. Study after study has shown that people in general would rather buy from people that they like. By building strong relationships with your customers you are in fact adding value to everything that you are doing in your retail dealership.
By becoming experts at making friends and building relationships with your customers you are in a better position to explain to your customers/friends why your prices are more than the dealership across town. And this in turn continues to add value to what you are doing as a retail business. Then, if you are not successful in closing the deal on the unit at your store, you are then in a way better position for earning repeat business for your dealerships parts and service profit centers. Either way, you made a friend and hopefully this customer will spend future dollars in your dealership.
Losing a sale to a discounter is discouraging. Work on your sales processes to encourage not just a sale but more importantly building a relationship with your customer. This is where the magic is to combat discount dealerships. If you employ “order takers” on your showroom floor, then get rid of them! If a sales person cannot make a friend with every customer that comes into your dealership they are not adding value to what you are trying to do as a dealership.
Selling the entire dealership is the name of the game.
If some part of your dealership is broken it will be hard for the sales department to do this. If your service department is four weeks out on basic services, then this completely undermines how you are going to compete with the discounter down the road. On a similar note, if your dealership has a bad reputation for quality service work then again, it makes it easier for your customer to just go pay the lower price and be done with their buying decision.
The underlying logic here is to be the best at what you do in every aspect of your dealership’s operations. When you have this as your strategic business goal then it makes it easier for you compete against the discounter down the road.
All of this seems like pie in the sky right? Not really. It takes time and effort. And believe it or not there are dealerships that are making money and keeping the discounters at bay. It just takes a lot of hard work.
Your business strategy to compete against discounters is to be the best dealership that you can be to justify your prices. If something isn’t working in your dealership to support this strategy, then fix it! If you do not know how to fix it then I know plenty of organizations that are pros in helping you to achieve your goals.
Last year is over and 2016 it was hard on a lot of dealers. I have very high hopes and expectations for our industry in 2017. But the very definition of insanity is to do the same thing over and over and expect a different result.
Forward thinking and profitable dealerships need to be laser focused on what makes their dealerships great and changing everything that they can to support that goal.
Good luck in 2017 and let’s have a great time doing it!
Forrest Flinn, MBA, PHR, SMS has been in the motorcycle industry for more than 20 years and has been a true student and leader serving in various capacities. He previously worked as an implementation consultant for Lightspeed and as a general manager with P&L responsibility for a large metro multi-line dealership. Currently Forrest is the managing partner and chief visionary for a consulting firm that specializes in outsourced accounting, human resources, social media strategy, dealership operations consulting and Lightspeed/EVO training.
Contact: forrest@powersportsmc.com
