- When it comes to value propositions, there are three independent dealer archetypes. What archetype do you fall into, and why should you make a conscious effort to define and align your value proposition with one of these types?
- Independent dealerships that attempt to be a “jack of all trades” by combining more than one archetype into their operational model may find that they are a “master of none” when it comes to efficiency.
- There are three metrics that apply universally to all independent dealers regardless of archetype: 1) aged inventory, 2) CRM effectiveness, and 3) sales process efficiency
Today, the car business is data-rich and analysis poor. Inundated with dashboards, reports and printouts from your website, CRM, DMS and vendors, where do you begin your analysis? Which metrics are most vital to defining your performance and success?
First, let’s start by defining what should be driving your metrics: your value proposition. In other words, why should a customer buy a car from you? When it comes to your value proposition, there are really three independent dealer archetypes: experience-driven, price-driven and finance-driven. Let’s look at what each one means and why you should consider making a conscious effort to define and align your value proposition with one of these types.
The Experience-Driven Dealership
The experience-driven dealership’s value proposition is exactly what it sounds like. The dealership sales and service model centers around a philosophy that, while perhaps not the lowest priced, the dealership experience creates unparalleled value and/or convenience that customers are willing to pay for. Some good examples of an experience-driven dealership are “no-haggle”(think CarMax), ultimate convenience (think Carvana) or “high-touch” (think luxury and high-end amenities). An experience-driven dealership may also include value-driven benefits like guarantees, warranties and buy-backs.
The Price-Driven Dealership
The price-driven dealership’s value proposition is about affordability and communicating that low-price value message to car shoppers. While nobody can beat your prices, this dealership type is less likely to offer a high-touch or luxury experience. Operationally speaking, the price-driven dealership is focused on volume, 30-day inventory turns and minimal negotiation on price. The end game is to be known as the nice guys with the best buys.
The Finance-Driven Dealership
Finally, the finance-driven dealership’s value proposition is getting customers financed when other dealers can’t or won’t. That’s a huge value to somebody who doesn’t have good credit. Unlike the other types of dealerships where the message may be about the experience or price, the finance-driven dealership’s message to car shoppers focuses on monthly payments and credit approval, which dictates the choice of vehicles they can make available to credit-challenged consumers. Operationally speaking, finance-driven dealership inventory might be older, have higher mileage, or have other characteristics that may allow you to acquire it under book value.
Note that the finance-driven value proposition is not a Buy Here Pay Here model. It’s for dealers who work with customers who have lower-than-average credit, and therefore have to use financing companies that specialize in the establishment and re-establishment of credit, such as American Auto Financing Inc.®, CAC Financial Corp or other alternative consumer lenders.
Metrics by Dealer Type
Aligning your value proposition with one of the three independent dealer archetypes is key to operational efficiency because it allows you to hone in on which metrics are the best measure of your dealership’s performance. The chart below illustrates relative levels of importance that the different types of dealerships place on a variety of common metrics; it may help you identify which archetype most closely aligns with your operational model.
Quick Reference Chart: Metrics by Dealer Type
|Model year||Important||More Important||Less Important|
|Priced to market (aligns with desirability)||Important||More Important||Less Important|
|Book value to ACV||Less Important||Important||More Important|
|Quality of inventory (e.g., good vehicle history report, # of body panels painted)||More Important||Important||Less Important|
|Level of recon||More Important||Important||Less Important|
|Price of recon||More Important||Important||Less Important|
|Speed of recon||Important||More Important||Less Important|
|Embraces digital retailing||More Important||More Important||More Important|
|Strong F&I||Important||Important||More Important|
|Niche market (e.g., hybrids, luxury, finance/payments)||More Important||Less Important||More Important|
In addition to helping identify whether your dealership is primarily experience-driven, price-driven or finance-driven, this chart also helps illustrate that aligning with a single archetype – rather than trying to combine operating models – can increase efficiency, optimize ROI and help you focus on your most profitable demographic.
For example, an experience-driven dealer may reap the biggest benefit from stocking the highest-quality luxury and niche inventory, investing heavily in reconditioning and providing digital retailing options for tech-savvy consumers who may be willing to pay more for the extra-value provided by a “high-touch” dealer experience. However, a price-driven dealership may reap the biggest benefit from reconditioning and selling popular, competitively priced makes/models as quickly as possible by focusing on volume over margin. Conversely, finance-driven dealers will most likely reap the biggest benefit from higher margins on their inventory by investing less in reconditioning, retailing vehicles that may be older or have had some damage, and focusing on providing robust financing options and affordable monthly payments for credit-challenged consumers.
Independent dealerships that attempt to be a “jack of all trades” by combining more than one archetype into their operational model may find that they are a “master of none” when it comes to efficiency: Choosing a single archetype to support your dealership’s value proposition allows you to most wisely allocate your funds, choose your inventory and craft your marketing.
There are three metrics that apply universally to all independent dealers regardless of archetype: 1) aged inventory, 2) CRM effectiveness, and 3) sales process efficiency:
- Manage aged inventory by striving for a maximum 60-day turn on all vehicles and by looking at what percent of your vehicles were retailed in the first 30 days. You should also measure your wholesale performance by dividing it into two parts. First, look at aged wholesale vehicles that you attempted to retail but ended up wholesaling. Top-performing dealers keep that number under 10%. Next, look at immediate wholesale – vehicles that were never destined to be retailed. You should keep that number relatively low.
- Maximize your CRM by ensuring that your staff is fully trained and committed to using it properly and hold them accountable for doing so. A quick way for you to verify that salespeople are correctly entering data into the CRM system is to take the number of vehicles that you sold and multiply it by 3. That number should approximate the number of “be-backs” and fresh customers that come onto your lot. Take the number of sales and multiply it by 7 and that should approximate the total number of entries into your CRM, including phone calls, emails, chats and texts. Your CRM may have the capability of scanning driver’s licenses and VINs with a cell phone. If a customer has entered any data prior to coming in, the sales staff can likely use the CRM to collect this information to smooth the sales process. Verify that your staff is taking it to the next level by looking at your CRM’s utilization reports. After the customer is placed into the CRM, the utilization report automatically generates next steps. Make sure your staff is following those next steps and use the report’s suggested guidelines of what those numbers should look like.
- Increase sales process efficiency and customer satisfaction through digital retailing. Dealers are more likely to have higher overall satisfaction if they offer a fast, simple, pressure-free shopping experience, and the ability for a customer to start, engage and transact a deal from anywhere at any time in any order is quickly becoming an expectation. According to the 2017 Autotrader and Kelley Blue Book Car Buyer Journey study, used car buyers are least satisfied with a long purchase process when it comes to their dealership experience. Digital retailing can help shorten the length of time it takes to complete a transaction, and shorter transaction times equal happier customers who may very well return to you for their next car and refer you to their family and friends. Implementing digital retailing can be a challenging dealership culture change, so if you’re not ready to go all in right away, you can start slowly by allowing customers to get trade-in values or learn about aftermarket products on your website, for example. You’ll find that using digital retailing tools can also provide you with more detailed metrics – such as customer website engagement or gross margin per sales representative – that will allow you to incrementally improve your operational performance.