COVID-19 and Beyond: Six Topline Measures for Automotive Retailers
Six ways to effectively navigate this crisis now and tomorrow
The COVID-19 crisis has had a profound impact on the global automotive industry, as evidenced by April 2020 being the worst month for U.S. auto sales since at least the mid-1970’s[1]. Extended stay-at-home orders and uncertainty as to when life will return to relative normalcy have particularly affected retailers across the automotive value chain. Even industry mainstays such as Hertz began preparing for bankruptcy last week after failing to make lease payments on its fleet in an effort to preserve cash. As a result of the pandemic, people are driving less, meaning their cars require less frequent service. Furthermore, dealerships and independent part retailers alike have had to temporarily shift much of their business online, leading to a variety of challenges for what is typically a very “high-touch” consumer engagement process.
While many companies are responding to this crisis by simply cutting fixed costs to preserve cash flow, addressing both price and sales effectiveness is equally important to maintaining solvency, and may lead to industry leading growth in the future. At Simon-Kucher & Partners, we are uniquely positioned as industry experts to advise you on how to maximize your top line in both good times and in bad. Given our experience and our observation of how companies have creatively addressed their revenue streams, channel mix, and product offerings during the early stages of COVID-19, we would like to present you with six “quick-win” measures that you can implement to strengthen your business for the remainder of the crisis and beyond.
1. Offer promotions that capitalize on reduced need for daily driving and other effects of the crisis
Now is the perfect time for car-owners to fix that nagging issue or perform preventative maintenance that they have been putting off. Before the crisis, many drivers were hesitant to leave their cars in shops for days at a time. Now, with many drivers traveling less or not at all, not having a car temporarily is no longer such an inconvenience. Unsurprisingly, U.S. miles driven in April 2020 were down approximately 50% YOY. Dealerships and service providers alike should capitalize on this secular change by offering maintenance specials and reminding their customers that now is the time to ensure that their car will run smoothly when they need it again.
- Parts retailers can also use this as an opportunity to convince consumers to learn to do some of their own maintenance as a way to pass the time or save money. By offering specials on basic service materials such as oil change kits, retailers can position this crisis as an opportunity for everyday consumers to learn an important new skill.
- Rather than convincing your customers to make a purchase despite the crisis, show them why they should make a purchase because of the crisis.
2. Take advantage of online resources available to you
Just because you may not be able to meet face-to-face with customers does not mean that your sales performance should deteriorate. Try utilizing technology to your advantage in order to fortify relationships both during and after the crisis. For example:
- Configuration. Dealerships can leverage online car configurator tools (available on OEM websites) and screenshare to walk a customer through building their ideal vehicle. This way, you can learn exactly what your customer prioritizes and can better match them with a vehicle in your inventory.
- Customer Engagement. Service providers can use video chatting and video messages to show customers the work that needs to be done on their vehicles. Given that many shops do not allow customers in their service bays, technology can actually provide customers with greater access than usual, enhancing your credibility.
- Value Proof. Additionally, consider comparison shopping with your customers using screenshare to transparently show them that you offer competitive prices. Again, this will only serve to enhance your credibility in the future.
3. Reduce financial uncertainty for your customers
This crisis has not just impacted the automotive industry. As businesses cut costs and close, many workers are experiencing financial hardships and are looking for ways to cut back. Implementing short-term measures to alleviate financial uncertainty will help strengthen long-term sales relationships. Manufacturers from Hyundai to Maserati are already employing such measures, such as introducing favorable financing terms and delayed payment options. [2] These strategic moves, along with potentially offering extended warranties or service contracts should be paired with messaging that focuses on now being the “time to buy”, as the slight air of “emergency sale” can incite customer drive. More importantly, these generous offerings help establish your business as a friend to the community, leading to a robust sales pipeline.
4. Adjust prices to the next pricing threshold.
Research consistently shows that willingness-to-pay of customers is very inelastic (or not very price sensitive) in front of important pricing-thresholds, e.g. $10, $100, $1,000 etc. By finding out which thresholds are important to your customers and adjusting prices accordingly (either up or down), you can enhance revenue with minimal volume degradation. In our experience, we have seen changes as simple as price rounding lead to as much of 0.5% ROS, meaning an incremental $5m of profit on a business with $1b of revenue.
5. Use excess capacity to introduce or enhance your “COVID-19 Safe” delivery strategy
If possible, re-position some of your employees to focus on delivering products directly to your customers, if such a service is not already offered. For example, dealerships and service providers can offer to pick up and return vehicles for service, so that your customers do not need to physically visit your store. Pickup and delivery service, which we have already seen implemented in some dealerships, is both sanitary and shows your customers that you are willing to go “above and beyond” to meet their needs.
If you do not have the capacity or resources to implement a pickup or delivery model then consider other tried and true methods for continuing business while limiting person-to-person contact. For example, many businesses have created makeshift “drive-thrus” where sales associates bring products directly to customers in their cars. This model works both for retailers who can pull parts from their shelves to bring directly to customers as well as service providers such as Take 5 Oil Change, which now offers “drive-thru oil changes” where customers never leave their vehicles![3]
6. Adjust your prices on inelastic products and customers:
Price changes affect different customers and products in different ways. Observe your business to understand what drives price elasticity and identify outlier products and customers that are very elastic or very inelastic. Based on these findings, you can implement worry-free changes to your pricing, such as limiting discounts on inelastic products sold to inelastic customers. These moves should allow you to increase specific prices while having no impact on volume.
Additional thoughts
These quick-win measures are just some of the many steps that your business can take to navigate this crisis and emerge stronger than your competition. Make use of these “quick wins” and others now, and remember that the crisis will be over someday soon.
Additionally, COVID-19 has tested everyone’s ability to adapt to a new business model that relies far more on video-conferencing and remote selling than ever before. As your team (and your clients) become increasingly comfortable working in this virtual environment, take note of where these channels can be best utilized in the future. Often times, a video call can be just as (if not more) effective as an in-person meeting. Transitioning some of your business to a more virtual format represents a significant reduction in travel costs and increase in efficiency that should not be ignored once life returns to normal!
Bringing it all together
Automotive retailers are particularly at risk during this economic crisis due to the high-touch nature of their business models. Your chances of effectively navigating these difficult times significantly increase if you are able to successfully optimize your pricing and sales, in addition to better managing costs. There are many low-investment, top-line “quick wins” that will impact your bottom-line instantly that we recommend considering.
In addition to allowing you to navigate the crisis, many of these “quick wins” will reinforce your relationships with customers and unlock new sales capabilities, leading to a faster recovery once the crisis ends.
If you are interested in learning more about how pricing and sales initiatives can help you to survive this crisis, visit our Simon-Kucher & Partners website. Click here for more information: https://www.simon-kucher.com/en
Or just contact us via [email protected] or [email protected]. We are happy to help you and your team through today's environment and the “new normal.”
ABOUT THE AUTHORS
Peter Harms
Peter Harms is a Partner with Simon-Kucher & Partners in Boston. His consulting focus is on pricing and sales management in the automotive industry.
Peter helps his clients to better understand, quantify and communicate their customer benefits. He improves his clients’ capabilities to better develop and monetize their customers’ willingness-to-pay.
He has conducted consulting projects for companies in Europe, North America and Asia.
Among his customers are automotive manufacturers, retailers, and suppliers, as well as machinery and heavy equipment manufacturers such as:
Audi, BMW, Kia, Maserati, Mercedes-Benz, Toyota, Volkswagen, Bosch, Bose, Bridgestone, Continental, Federal Mogul, Mann & Hummel, Penske
In addition to his consulting work, Peter is speaker, coach, and trainer in the areas of “Power Pricing”, “Sales Excellence”, and “Negotiation Excellence”.
Peter studied business engineering at the University of Karlsruhe (TH), Germany, and has been with Simon-Kucher since 2001
Dylan Grien
Dylan Grien is a Consultant with the automotive team at Simon-Kucher & Partners in Boston.
His consulting focus is on pricing and sales strategy across the automotive value chain, including cars, trucks, retailers, service providers, suppliers, and the aftermarket space.
Dylan helps automotive clients maximize their top line through optimizing their strategies in dynamic competitive environments, using both quantitative and qualitative analysis tools.
He has worked with management teams to analyze and implement initiatives ranging from “quick wins” to comprehensive overhauls of fundamental pricing systems, consistently leading to significant savings.
Prior to joining Simon-Kucher, Dylan was an investment professional with Roark Capital Group, a consumer-focused private equity fund with approximately $12 Billion of equity capital raised since inception.
Dylan received a Bachelor of Science in Mechanical Engineering from Duke University.
[1]Source: Wall Street Journal
[2] Source: Edmunds.com