Pricing Value in the Internet Age

Change is never easy. Unfortunately for dealers, the automotive industry has seen more changes in the last five years than in its entire history. Among them is the explosion of the online marketplace and the impact it has had on used-car sales, as its forced dealers to rethink their strategies for pricing those vehicles. Fortunately, software makers are racing to help dealers meet this change head-on.

In prior decades, dealers could capitalize on the shortage of consumer information regarding the price and availability of used vehicles. Thanks to the Internet, that’s no longer the case. In response, many dealers have wrongfully assumed they had to become the “low price leader” to attract buyers. What they fail to realize is that while the Internet has made vehicle pricing more available to consumers, it hasn’t changed the fact that every used vehicle is unique. Factors such as mileage, condition, equipment and history still determine each vehicle’s true value.

The good news is that there are ways to maintain respectable gross profits on used-vehicle sales. Doing so requires the execution of two equally important tasks:

Task 1: Survey the Market

In this environment, dealers must be able to view the entire competitive landscape with complete detail and transparency. That means the amount and quality of the information available to the dealer is absolutely essential. 

Setting the right price means properly differentiating one’s vehicles from those that might seem identical at first glance, but are, in fact, significantly different. From there, shoot for the lowest “defendable” price based on attributes relative to vehicles offered at a competing dealership for a lower price.

Task 2: Convey Vehicle Differences

The ability to research vehicles and prices online has allowed shoppers to become experts on the car they intend to buy. The response from many dealers has been to lower their prices across the board. A better strategy is to convey to shoppers the differences between your vehicle and those they find at a lower price.

Luckily, there are a host of sophisticated tools that allow dealers to get an accurate view of their market and price vehicles with amazing precision. Additionally, the information these tools provide can be used by dealers to defend a vehicle’s price, which is especially useful when the price is higher than a competitor’s.

The presentation of this information is extremely convincing for two reasons:

• The technology is branded with the name of the third-party company. The customer can therefore be assured that he or she is being presented with accurate, comprehensive and nonbiased price comparisons.

• These software solutions present live information. Every time the shopper views the presentation — whether in the showroom or from home or work — the price and value position in the market is updated. Additionally, these solutions ensure the dealership’s price is presented consistently and accurately each and every time. 

Some dealerships are using this new selling system to brand their entire used-vehicle operations. For dealers who continue to employ the traditional negotiating style, these software solutions can be used as a last resort to justify the final price.

The Internet has made for a more informed consumer, but that’s not necessarily a bad thing. The online marketplace has also paved the way for tools that sophisticated dealers can use to ensure more sales at a fair gross profit, not to mention greater customer satisfaction.

Dale Pollak is the founder and chairman of vAuto, named by Inc. magazine as the second fastest-growing privately held software company in America in 2009. He can be reached at [email protected].