Keith Crain proclaims in this week’s Automotive News that the “no dicker sticker” (or fixed pricing) has made a comeback. “No dicker sticker” usually refers to a sales practice whereby dealerships establish a firm selling price and will typically not negotiate from that price. Carmax is an excellent example of a company that sells its vehicles by a “no dicker” process (as was GM’s Saturn brand). In the past, dealerships adopted fixed pricing to differentiate themselves in the market and cater to consumers who do not wish to negotiate the price of their car. The movement peaked in the late eighties and early nineties and never found widespread acceptance. Fixed pricing today has made its resurgence for other reasons. According to Mr. Crain, savvy shoppers and pressures on margins created by reductions by manufacturers in suggested retail prices have established a de facto no dicker sticker policy at many dealerships. There is simply not enough margin between cost and the manufacturer’s suggest retail price for the dealership to profitably discount the price further. I think Mr. Crain is on the right path regarding margin compression and what that has done to sales processes at dealerships. However, I am hesitant to declare that we are about to enter a “golden age” (depending on your feeling about fixed pricing models at dealerships) of the no dicker sticker. I think something else, which is more subtle, is going on.
It is easy to blur the distinction between what I will call “market pricing” and fixed pricing. Market pricing, espoused by Dale Pollak of vAuto and others, uses data driven processes to establish prices that are close to market pricing for a particular vehicle. For example, if the MSRP on a Mitsubishi Lancer is $20,000 and Lancers in a particular market are selling for $18,500, a market pricing model would establish a price for the Lancer around $18,500, with differences in price determined based on equipment, color, miles, condition, etc. Normally, the market price will still have some flexibility in terms of additional discounting, depending on the cost of the vehicle. So, if a customer wishes to buy this Lancer at $18,400, the dealership may opt to sell it for that price because the deal is still profitable. Also, by benchmarking the price against the market, the price of the vehicle should adjust as market conditions change. Say gasoline prices go to $5/gallon and that drives demand for our Lancer up. The market price may now increase to $19,800, so the dealership would then change the price accordingly.
Fixed pricing processes establish a bright line price that cannot be crossed in any circumstance. This fixed price may or may not be determined based on the market for the particular vehicle. So in the example above, if the dealer uses a fixed pricing model and offered Lancer for sale at $18,500, the dealership would forgo the sale if the customer was unwilling to pay $18,500 for the vehicle. Like market pricing models, dealerships that use fixed pricing will usually adjust the price up or down to accommodate changes in demand, the age of the vehicle, etc. What will not change is the price a particular customer will pay at a particular point in time.
I think that progressive dealers are adopting market pricing on new and pre-owned vehicles and how savvy they are with market pricing directly drives their sales. Fortunately many tools exist to aid dealers with pricing their inventory to market and monitoring pricing realtime. These advances are crucial to keep pace with demands of customers, who are turning more and more to the internet to research and price their vehicles of choice. While margin compression probably has facilitated the growth of market pricing, I think that we would see this trend regardless because of the vast amount of information available online and consumers’ willingness to research vehicle purchases in order to find the best deal.
I don’t believe many dealerships would wish to adopt a fixed price model based on my own experience. I instituted a market priced model at my former dealership and priced my inventory close to or below market averages. I found that such pricing drove traffic, and reduced the amount of haggling over the price that customers wanted to do. When I asked customers why they were willing to pay the posted price, or very close to the posted price, they said that the saw the value in what I offered for sale, and could easily verify by a quick search online that my pricing was very competitive. On a margins, fixed pricing would lead to lost sales in cases where my price was slightly at odds with the customers’ expectations. Based on the competitiveness of the auto industry, that inflexibility is something I would not want.
Have you adopted a market pricing model or a fixed pricing model at your dealership?
Image Source Courtesy of AOL Autos