3 Reasons Why Every Dealer Needs Precision in Pricing

August 24, 2016

Today, savvy car shoppers do most of their research before they stop by your showroom. They narrow down a selection of cars they want, investigate trim levels and feature lists, and carefully consider option packages. Customers want to figure out the mental math behind a vehicle’s price tag before ever hopping in for a test drive.

Now more than ever, the importance of pricing awareness hits home not just with consumers but with dealerships.

As consumer behavior evolves, so too must that of salespeople. Executing precision in the pricing of a vehicle is becoming a critical step in closing the deal. There are three major reasons why car dealerships must be extra careful with the way they price their vehicles.

The Double Discount

What is double discounting?

Car dealers used to set their initial prices higher than what they expected the car to go for. That way there was room for haggling and negotiation. After all, a customer feels like they’re getting a great deal if the salesperson trims a little off the top.

But car dealerships today operate under market-based auto prices, and the overwhelming majority of car shoppers begin their quest for a set of wheels online. The typical search parameter? Sorted by price, lowest to highest.

So in an effort to show up early in those online search results, dealerships list their vehicle at a lower price, typically at the lowest figure they can reasonably sell the car for without dipping into profit margins. This is discount number-one.

Despite the obvious advantage of showing up earlier in search results, there is a major flaw in manipulating these car pricing tools: The buffer zone is gone. There is no longer room for negotiation — and negotiation is something consumers still expect during the car buying process.

When a customer is on the edge of making a purchase but just wants the dealer to come down in price a little, an agreeable salesperson might discount the price a second time. That’s discount number-two.

When that happens, your dealership’s bottom line takes a hit, and those hits add up to a major drop in profit.

If you want to stop the drop, your store needs a solution that will help you price each car right the first time. Give your sales team the confidence to stand their ground.

Customer Awareness

The use of smartphones and tablets for car shopping doubled from 2014 to 2015 according to a report from What’s even more startling is that of those shoppers who used a smartphone during the buying process, a whopping 65% did so while visiting the dealership.

The result is that consumers are more connected to vehicle prices than ever before. Thanks to the Internet, they are also more clued into how car pricing works and can even perform car pricing with VIN numbers alone.

So if customers at a dealership feels they are not getting a fair deal, they can simply whip out their smartphone and pull up a listing for the same make and model possibly at a lower price at the rival dealership across the street.

Car buyers can use this information as leverage while negotiating, or worse — walking out of your dealership and marching right across the street. Inaccurate pricing can be the difference in making a sale and losing a sale to your competition.

Customer Loyalty

Customer loyalty begins with trust. Trust that they’re getting a good deal and trust that you’re treating them fairly. And customer loyalty ends — or rather continues — with returning to the same dealership for your next purchase.

Consider that the average new car buyer gets a fresh ride every 6.5 years. With precise and transparent pricing, dealerships can improve the customer experience, cultivate trust, and build loyalty. That’s what will keep them coming back every six years or so.

Now consider that the average price of a new car has reached $33,560 (and even used car price averages have soared to nearly $19,000). That means customer retention can equate to over $5,000 per year, per customer. Not a bad ROI for simply taking the time to price your inventory correctly.

Online-Only Shoppers

Precision pricing is so important for dealerships that it merits a fourth, bonus reason for getting it right: The online-only shopper.

While nearly everyone uses the Internet at some point during the car-buying process, a study by Accenture revealed that three-quarters of people would execute the entire process online if given the opportunity (and in some European markets, they have).

In order to compete with the dozens of online auction sites and other digital showrooms, dealerships have begun catering to this crowd by implementing online-only sale prices and discounts.

While this strategy is great for reeling in some of those online-only shoppers, it makes it extra tough to build long-term customer relationships and upsell on things like warranties, accessories and maintenance. The potential loss of these additional revenue streams is what makes the precise pricing of these online-only deals all the more critical.

The Solution: Pricing Tools and Software from MAXDigital

For the last 15 years, MAXDigital has been helping car dealerships improve the way they acquire, merchandise, price, and sell vehicles through the use of cloud-based software and mobile applications. The car shopping experience is evolving and MAXDigital is helping dealerships evolve along with it.

If you’d like to learn more about how putting precise numbers on your price tags can lead to more favorable numbers on your bottom line, schedule a demonstration of the MAXDigital platform.