A
Primer On Marketing
Part 2 - Price
by A. Michael Baker - Printed in Specialty Automotive Magazine
It seems like only yesterday since we met in my last column. Ready for a quiz? You didn't think I was going to let you off easy did you? So take out your pen and let's see how much you remember from our first session of Performance AfterMarketing 101.
1. What are the four basic components of marketing? __Salesmanship __Product __Advertising __Price __Catalogs __Place __Research __Promotion
2. What is the most important aspect of marketing? __Product __Advertising __Price __Research __Salesmanship __Place __Catalogs __Promotion
3. What is the most talked about aspect of marketing? (Okay, so I didn't cover this in the last class. You ought to know this one without even thinking!) __Salesmanship __Product __Advertising __Price __Catalogs __Place __Research __Promotion
4. "Mail Order" marketers make large profit margins. __True __False
5. "Mail Order" marketers are a pain in your neck? [Does juglar ring a bell?] __True __False __Heck no; I am one!
Class
Review
Okay, let's repeat it just once before we go on. The four basic components
of marketing are (in order of importance) defined as: Product -- you can't
do marketing if you don't have a product that someone wants to buy; Price
-- ultimately price is the second most important decision in consumer
buying behavior; Place -- your store, mail order ads, web retailing, the
consumer has to have a place to get the product; Promotion -- yup, advertising,
personal selling, PR, all this stuff is in last place though you must
not think it unimportant. How did you do on those first two questions?
Repeat after me - The 4 P's, Product, Price, Place, Promotion. The 4 P's,
Product, Price, Place, Promotion. One day you too will cringe when you
see "marketing" included in the name of a manufacturer's rep agency and
you'll applaud those wise ones who plug "sales" into their name. That's
enough review; let's go on to those last three questions.
Pricing
People Of Ill Repute
I'm not going to use the "word" here in polite company; but you all know
what and who I'm talking about. Those rotten son-of-a-guns who sell all
the "A" items down around your cost and then have the gall to publicize
it to all your customers in mulit-page, full-color ads! Kinda' makes it
tough when your customer sees the intake manifold he wants advertised
for $5 less than you pay for it! We'll cover some strategies on competing
through price; but, before we bust the chops of those Pricing People Of
Ill Repute (PPOIRs), it will be helpfull to cover a little pricing theory.
We won't go into demand elasticity* and other esoteric economic theories
of pricing, because there is little real world application for retailers,
distributors, and manufacturers of performance automotive goods. In more
practical marketing theory, however, you should know the three basic pricing
strategies: penetration, competitive, and market plus/skimming.
Those PPOIRs are the masters of penetration - setting prices below general
market price levels to gain market share. You probably practice a competitive
pricing strategy - setting your prices at about the same level as your
compeition. Once in a great while you may be lucky enough to rack up the
profits with a market plus move, though it's usually a manufacturer playing
this game. In a market plus or skimming strategy the product is priced
well above competing products or product categories. This could be part
of a high-end positioning strategy like that once used by Daimler-Benz
or simply the skimming of high profit levels while a product is new and
before there is any real compeition.
Real
World Pricing Strategies
How are you going to compete or will you not compete until you are out
of business? You
can't stay in business by cutting profit margins to the bone; but there
are several proven tactics to compete while maintaining a reasonable overall
gross margin.
1. Stock
the Right Product Mix
The first thing you need to do is spend some time considering the products
you carry (the first "P" again.) Low ball marketers generally buy and
sell a limited selection of "A" movers and brands at extreme discounts.
You may have to accept low margins on many "A" movers just to keep them
going through your store. Pick up much higher margins on the "B" stuff.
For example, you can get really good margins on jets, gaskets, and other
add-ons even if you had to practically give away the carburetor or nitrous
kit. You will probably make very little on the MSD 6A's going out your
door; but you can get a decent margin on the slower moving 7's and 8's.
If mail order ads are discounting one product line, you pick another.
Often you can sell your customer a better, more powerful, more reliable
product than the one in a mail order ad - and at a higher price, too.
Just make sure your claim of superiority is backed up by facts. Do your
homework on alternative brands. Product lines that move should be stocked
in dept. For example, you should stock a relatively complete line of Loctite
so that customers can buy special thread lockers that aren't carried by
Pep Boys. Other product lines need supply lines with super-quick response.
Pick the Wds and manufacturers you work with based partly on how great
their customer service is. Create a situation where your customers know
that they can come to you and get everything they need when they want
it. Lower your cost and grind your suppliers unmercifully on price. Consider
buying direct or banding together in a buying group with other store owners
in your region. Your first line of offense is your product mix. Make the
right products available and do everything you can to lower your costs.
2. Add
On To Every Sale
Car dealers call it "packing." We call it "add-on sales." When you sacrifice
profit to get close to mail order prices on an intake manifold, sell the
customer Gascacinch, silicone seal, ARP bolts, and K&N air filter to go
along with it. Add higher margin items so that your overall profit is
reasonable for the whole transaction.
3. Support
Those Who Support
You Many manufacturers are concerned, as I am, that a growing mail order
industry will continue to push more retail stores out of business and
eliminate the specialized knowledge and product support that local retailers
provide. These manufacturers are precluded by law from telling anyone
how much to sell their products for. However, some of these companies
have put a "functional discount" structure into place which stops the
mail order companies from buying at the lowest possible price. Try to
buy product lines with "functional discount" pricing structures so you
can be on a more even cost basis with the mail order companies. The best
way to find them is through your local WD.
4. Get
Them Into Your Store and They Will Buy
If you don't have the store traffic, you won't have the sales. Get them
in the door and, eventually, they will buy - even if you are a little
higher priced that the mail order outfits. I'll repeat here, "Make your
shop a place where a consumer feels welcome to spend the afternoon even
though the only thing they bought was a soda out of your machine or a
virtual 'ride' in your arcade machine." If you have the room, put a car
in your store. Give them things to look at. Give them a place to bench
race away from the counter so they don't interrupt sales. Give them videos
to watch. Put in that old gas pump and all those racing posters you've
been collecting. Give people as many reasons as you can to come and spend
time in your store even when they aren't necessarily interested in buying.
Make it a great place to hang out. If you get the traffic, you'll get
the sales.
5. "There's
Nothing Older Than Yesterday's Newspaper."
My first mentor in our industry, Ralph D'Onofrio at Gumout, used this
line whenever some one complained about a competitor's advertised prices.
The ad yo see today is gone tomorrow along with the special sale price
it offered. Be patient; your sales may slow while a product is advertised,
but sales will come back when it's not. Heck, offer to sell for $5 to
$10 more that the advertised just so they can it today instead of waiting
a week for UPS delivery - then get the high margin add-on sales. I should
probably revise Ralphs's remark to say, "Not even Methuselah is older
that yesterday's magazine." Monthly magazines work on a three- to four-month
lead time. By the time the magazine comes out, pricing, product specs,
and availability may well have changed. Look for advantages in every competitor's
ad.
6. Do
A Little Penetration of Your Own
Every retailer should advertise "loss leaders"; i.e., deeply discounted
products advertised and sold just to get the customers in the door. Find
a product, product line, or product category which allows you compete
on an equal footing with the mail order sellers. Then do a little penetration
of your own. Don't let them sell that product, product line, or product
category in your area ever again.
7. Beat
Them at Their Own Game
Go for it! You're going to sell on the Internet, aren't you? Well, dip
your toes into a little mail order as well. Lots of small retailers are
making oodles of money (that's a lot) from those little tiny ads in the
back of the magazines. Make your store a mail order operation so you can
get your volume up and your costs down.
*The price elasticity of demand economic theory is a measure of the responsiveness of quantity demanded to a price change. For products with elastic demand, the quantity sold will go up when price goes down and the quantity sold will go down when the price goes up. Price and demand are in a kind of inverse relationship. Inelastic demand, on the other hand, is when price changes have no effect on demand. To a great extent the performance automotive aftermarket exhibits inelastic tendencies.
