If price really matters, why do customers spend $4 or more on a cup of coffee at Starbucks when you can brew one at home for 50 cents?
If price really matters, how does Apple sell iPhones for more than $1,000 when capable alternatives are available for less than $100?
If price really matters, why do some people spend thousands of dollars for either a Louis Vuitton or a Versace bag, when a bag from Target can be picked up for less than $10?
In my 20 Groups comprised of larger volume dealers, I’ll often ask these questions to the owners and GMs:
- What percentage of the leads you receive on new and used units start out as internet leads?
The number moves up each year, but as of 2018, it averages right at 55%.
- How many of your customers are price-shoppers, looking for the cheapest deal on the planet?
On average, the owners and GMs will say it’s around 65% to 75%, with one dealer emphatically wanting me to believe that it was 100%.
Now the fun begins. I’ll choose a dealer or two and ask them to log into their lead management system so they can read me the details of the last 10 leads they received. Of those leads, usually one per dealer (sometimes two) will outright state that the customer is looking for the best price. Most of the others want to know about availability, financing, demos, accessories, etc. It’s at this point where you see grown men blush and the backpedaling begins.
Where did the rumor of the price shopper epidemic begin? The owner says the sales manager told them that everyone is looking for the best price. Then ask the sales manager and they say it was the salesperson who said the customer wanted the best price. We then ask the salesperson if the customer asked about getting the cheapest price, but this is where our sales staff gets forgetful. We can’t always go to the customer on the showroom to find out what they said, but we can go and look at the incoming leads, and they just don’t back up the story that most customers are price shoppers.
Circling back to the original question: Where do all the price shoppers come from? The answer is that we create them. How do we do this?
- By short-cutting the sales process. I don’t care if you have an 8-, 9-, 10-, or 32-step sales process. If we start at step 5, then the opportunity to build a relationship with the customer has been missed.
- Not using a traffic log. Yep, they are a pain, but they are well worth the aggravation. If you can narrow down to a specific step in the sales process where a salesperson is stalling out, then you can provide targeted coaching to help get your staff and customers to the finish line.
- Lack of training – sales staff. If your sales process involves sending a new hire out on the sales floor on day one, then shame on you. A small percentage of the population possesses natural sales talents, the rest of us must work hard at it. An untrained salesperson will always revert to price.
- Lack of training – sales manager. Coaching, training, and managing people isn’t easy. How many of our managers were the best employees in their department and therefore got promoted when the last manager got burned out and left? Just because an employee was a great salesperson in no way means that the same person will be a great manager. Who trains the manager? When salespeople aren’t receiving the coaching they need, they end up back at the desk talking about the price.
- Working the sales manager. This one is my favorite. Put a salesperson between a customer and their manager, and the employee will figure out who is the easiest person to negotiate with (and in most cases it is the manager). I’ve listened in on thousands of customer interactions over the years. What the customer says to the salesperson is rarely what the salesperson tells the manager the customer said.
At Spader Business Management, we have identified that most sales fall into one of these three categories.
- These items are treated like commodities and in most purchases of these products, price is the deciding factor. As an example, think of a gallon of milk. Most grocery stores sell milk at near-cost because it’s a staple (and they hope to sell other higher-margin items while you are walking the aisles). However, if you pick up a gallon at the gas station on the way home, you might pay twice the grocery store price because convenience has a cost.
Relational / Consultative Sales
- This category is comprised of items where the consumer might have a choice, but not on every corner. Relational transactions often require the assistance of an “expert” to get the customer through the purchasing process. If you sell motorcycles, boats, or RVs, then in most cases this is your category. Nobody “needs” a boat, an RV, or a motorcycle, but many people “want” one. It’s the “expert’s” job to move the customer through the buying stages.
- In many cases, Items in this bucket have limited suppliers and the products are often complex and can involve many parties/departments. The people who sell items in this category usually have a thorough understanding of the products (not only their own, but the competition’s), and they have access to tools to aid the customer in identifying the most effective solution. Strategic purchases include products like software, partnering with building contractors, etc.
When we shortcut the sales process and go right to price, we take relational sales and convert them to transactional sales. A lack of training or a broken sales process is where we often fail to hold margin.
If we can personally connect with and be a resource to those individuals who choose to do business with us, then what we sell the unit for becomes less important to the customer than the relationship with the dealership and/or the attachment to the product. When we skip the first steps of the sales process, we create price shoppers.
When I ask dealers why they are worth more, the list of responses is relatively standard:
- We take better care of the customer than the competition
- Our facility is shiny and new
- We have the best selection
- Our techs are factory trained
- A customer can talk to the owner if they have a problem
The problem with these responses is that every dealership uses the exact same list. When your salesperson is telling the customer that your service department is the best in the area, the customer has heard it before (and probably from the dealership right down the street). If you don’t do something to connect with the customer, then there is a good chance that they will hear it again during a visit to the next dealership down the road.
Before you fire off an angry email telling me that I don’t know what I’m talking about, let me pop your balloon. Yes, there are some price shoppers out there. There are some customers who have more time than money. There are some customers who will drive across the country to save $300. Yes, they exist, but the price shoppers are the exception, and we don’t make rules based on the exceptions.
How do we deal with the price shopper? The best way is to avoid creating that person in the first place. What are you, your dealership, and your staff doing to differentiate yourselves from the competition? What are you doing to create a better buying experience for your customers? What value do you add to the process? Are your customers willing to spend more money with you than with the competition? Do you just sell products, or is buying something from your dealership a memorable event?
Now it’s at this point where I could veer off to talk about walk-in customers separately from internet customers, but the truth is that the sales processes for the two don’t vary that much. There are some nuances about each type of sale, but when you look at the big picture, the steps to the sale are very similar.
What are the steps? Tune in for part 2 and I’ll share them with you.