Mastering the fine art of pricing
Price, price, price, price, price, price, price... everybody is talking about tire prices. Independent tire dealers have a lot to say about this subject, and rightly so. Tire dealers are talking about all phases of tire pricing, what they pay for tires and what they charge (or can charge) for tires.
Several days ago I was talking with a successful independent dealer about pricing. He and I agreed that what we used to call “cheap customers” have now been divided into three new categories: “cheap, cheaper and more cheaper.”
He also made an observation that some customers aren’t cheap, they are just broke. He reiterated something I keep hearing from dealers, “You have to read the customers.” I think what this “counter intelligent tire expert” is saying is, to close each sale it’s more important than ever to read the customer. If each customer is “custom,” then who needs an overall “pricing strategy.” The answer is, everyone.
Pricing is so much more then selling price minus cost of good sold. Let’s look at pricing from a different dynamic, let’s look at “dollars” and “sense,” let’s look at the “math” and the “psychology” and how a sound strategy, pricing perceptions and individual consumer needs work together.
Keep it balanced
During difficult economic times, it’s more important than ever to have a strategy that balances tire units and profit margins. This is an age-old debate, and I’ve seen many store locations get out-of-balance one way or another.
Too much focus on gross profit dollars or percentages, and the units diminish; too much focus on moving units and margins diminish. My history tells me that margin follows the units. If your location is a tire and service outlet, then every tire unit is important. When the mind set becomes it’s OK to let tire unit sales drop in order to save gross profit, it is a slippery slope.
So let’s begin with this: Every tire deal is different, every tire customer deserves your full attention, and almost every tire deal is financially important. Current economic conditions, the Internet and competition are putting real pressure on each potential tire sale.
In my recent conversations with tire dealers, I’ve not heard anyone tell me they have a lock on a solution for pricing tires either from a procurement strategy or a pricing strategy. Dealers are commenting they are spending more time buying tires than ever before. Having the right price point tire in stock or having access is more critical than ever.
Over the next several months, I’m going to share some research I’ve done, solutions from other dealers, and some of my personal experience.
My perspective in this series of pricing articles is that tire pricing is a multi-dimensional discipline and is considerably more complex than simply the difference between what you pay versus what you charge (gross profit).
I hope to reduce pain points in the tire pricing channel. Topics to be covered include:
• Bundling products and services.
• Differentiation/limiting choices.
• More is more, and less is more.
• If you don’t know, don’t wing it.
• Don’t let anchor pricing be an anchor.
• Pricing variables affect price perception.
• Avoiding unintended consequences.
• We’re pricing customers as well as tires.
Pricing is more than a gross profit exercise, it’s a strategic exercise, a psychological exercise, a competitive exercise, and it can be a painful exercise. Pricing is everything, but pricing alone is nothing. We spend entirely too much time talking about pricing and complaining about pricing, and not enough time developing a real pricing strategy, a strategy that matches the overall business strategy and current market dynamics. All pricing must be measured against a variety of variables in the marketplace.
Pain points must be considered and reduced. Physiological studies over the late 1990s and early 2000s in neuro-economics indicate, among other things, that consumers will shop ‘til it hurts. Brain chemicals send signals back and forth in the brain that have a definite impact on a customer’s buying decisions.
In one case, customers don’t like add-ons. Literally, it can be painful for customers to listen to sales staff rattle off a bunch of add-ons to a tire sale versus a simple bundled offering. This is about the process and how it affects price.
Studies indicate that the ultimate price may be less important than the process to get there. A semi-inclusive or all-inclusive pricing structure is easier on your customer’s brain. In other words, a $100 tire +$5 +$5 + $5 + $5 + $5 totaling $125 is more painful than a $100 tire + $30, totaling $130. In this case, more money is actually perceived as less painful. Reducing pain increases sales.
I’m looking forward to our painstaking journey into the tire pricing process in the months ahead. ■
Wayne Williams is president of ExSell Marketing Inc., a “counter intelligence” firm based in La Habra, Calif. He can be reached at email@example.com.
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