The Obsolescence of Sales Events
By: Dennis Galbraith
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For used vehicles, sales events are largely a function of a bygone era, when shoppers had little transparency into vehicle prices or values without entering the store. The purpose was to use a sampling of low-price/high-value demonstrations to generate urgency in shoppers who are thinking about buying a vehicle and store preference for those who are definitely in-market for a vehicle. Today, shoppers have access to market pricing on millions of vehicles and enough information about many of them to formulate initial value estimates.
New-vehicle sales at the dealer level are quickly losing their impact, and coming changes will further erode their effectiveness. Easy access to information regarding vehicles, prices, and interest rates is leading to the obsolescence of dealer specific sales events.
More and more dealers are turning their used-vehicle inventory in less than 45 day, and many in less than 30. Keeping new-vehicle inventories to less than 60-days supply has become a priority for many manufacturers as well. When every shopper has 24/7 access to information in a competitive market place, the job of blowing out inventory is constant, and the blowout sales event becomes obsolete.
Prior to television, newspaper advertising gave dealers an opportunity to show a sprinkling of their inventory with attractive pricing, value, or discount information. Because consumers lacked access to other pricing information without entering the store, their only method of comparing price was to compare one dealer's print ad to another. Because very little information was available about the vehicle, comparing value was difficult. This often drove a race to the bottom for pricing among the few vehicles posted. Dealers often advertised their most stripped-down vehicles as loss leaders in order to generate a favorable perception of value across the store's entire inventory during the sales event.
Newspaper advertising has always been an effective means of traffic-now advertising. Shoppers generally don't look at the ads unless they are thinking about buying a vehicle. When they are in market, they may purchase a paper for the sole purpose of obtaining the auto ads.
When consumers were serious about buying a vehicle, they knew to look in the local paper for available pricing. Many consumers who did not subscribe to the paper would buy one just for the car advertisements. This still happens today, although to a lesser extent. Combining interruption advertising (television ads) with a sales event became an alternative to newspaper.
Price discrimination, the act of offering the same thing to different people at different prices, had a great deal to do with the success of sales events. Shoppers had to either negotiate their way into a good deal or wait until what they wanted could be purchased at the sales price. Some shoppers like price discrimination. It allows them to feel as though they received a price that was better than what others received. Some people hate price discrimination. They worry whether they will pay too much for what they receive and some simply have a strong distaste for the negotiating process.
Price discrimination is natural. The only real antidote for it is perfect information. If both the buyer and the seller have complete and perfect market information, then the range of transaction prices for identical or very similar products becomes very small. The internet brought vast improvements in information transparency to all parties. Those improvements continue to get better and better each year. The impact has been nearly ubiquitous. Those shoppers who like the benefits of negotiating price, either real or perceived, seek information from the internet in order to better perform in those negotiations. Those who don't like negotiating can search for adequate pricing online. For the latter group, those vehicles not posted with competitive pricing online are simply not considered.
Some of the most successful sales in the 1970s were tied to membership programs, such as credit union sales. Today, a variety of membership programs offer pre-negotiated pricing from select dealers on an ongoing basis. A Costco, Sam's Club, or BJ's member can receive the pre-negotiated price any time of the year. Before shedding a tear for the good old days when membership sales brought a sense of urgency to reluctant buyers, we need to remember that everyday low pricing breeds confidence into shoppers who might otherwise fear that a subsequent sale will occur, causing remorse.
So what is a store to do if it needs to suddenly shed unwanted inventory? With used vehicles, dealers can discount individual units to the degree desired with absolute knowledge of how those sale prices stack up to the competition. There is no need to spend money on interruption advertising to announce the sale. Shoppers looking for the vehicle in online listings will immediately recognize that the vehicle is aggressively priced.
This article was edited for the AutoUSA newsletter. Readers can view the entire article at Dennis Galbraith's website, RevenueGuru.com. Dennis can also be reached at (910) 339-9700.
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