Is the value of value losing its value?
Is the value of value losing its value? Of course, the value of value varies from customer to customer. Everyone is different, and most everyone values things differently.
One thing that really struck me as a younger man working in retail stores was this comment, “It’s just for my wife’s car.” Often I would receive a phone call or a walk-in, and I was asked by a husband for a price quote on a set of tires. In the qualifying process, the husband would often say, “It’s just for my wife’s car.” That says a lot: Maybe he doesn’t think much of her car; or maybe he doesn’t think she drives very many miles, you know, just around town; or maybe he doesn’t value safety; or maybe he just doesn’t value his wife. In this scenario, there are a wide variety of areas that are subject to interpretation.
For starters, where the customer places value is where we should place the value. So often in our business, customers don’t understand the value of a tire and how it impacts the overall performance of a vehicle. This is where we add value. When confronted with the “It’s just my wife’s car” comment, I knew immediately we were moving toward the bottom of the price range.
The company I worked for expected the sales staff to sell up. We had a good training, marketing and merchandising program, and we were expected to execute the sell-up program.
Starting at the bottom, at the lowest price levels, is the hardest way to generate acceptable gross profit at the end of the day and at the end of the month. The independent tire dealer in North America is currently in a knife fight; there is a race to the bottom like never before, and there is no shortage of low-priced, low-margin tires.
I say “a knife fight” because it’s bloody and painful; it’s like hand-to-hand combat every day. There is seemingly no bottom to the pricing, and a new line of lower-priced tires hits the market every week.
To make acceptable gross profit you must buy right and sell right. The overall problem is there is little or no value placed on a majority of low-priced imported tires. Many overseas factories seemingly just pump out tires and flood the North American market. The importer/distributors then redistribute these low-value products into the retailer network, which reluctantly buys and sells these low-value products at a low margin, complaining all the while about cheap tires.
Sooner or later we’ll all have to find a way to collect an acceptable margin on these products. This is only going to happen if we place more value on these products. We must reassess the actual value and profit potential of each line we select to sell to our customers. Not all low-priced, imported tires are created equal; some deserve to be sold for more because they are actually worth more.
I’d like to offer a simple suggestion from my past retail experience: You have to sell up; you have to sell out of the entry level position; you have to offer a better value, a real value that works for both you and the customer. You have little control regarding overseas factories and their methods to market, and you probably don’t have much control at your local distributor level, either. Therefore, you must focus where you have some level of control, your own retail operation(s), your own store(s). You must rethink your marketing. You are going to have to place some increased value in a lower-priced tire that returns you a better margin. It starts with something like this, “Mr. Customer, would you be interested in a better, low-priced tire?”
If you are going to collect more margin from a lower-end tire, it is necessary, no, it’s mandatory, that you give the customer a better tire for their money; it’s good old-fashioned value. Many imported tires coming into North America today are what I call “GEN 3.” These tires look better, and from all appearances, they are better. The question then becomes, is it possible to program or position an imported tire in your overall tire line-up where you make a reasonable margin? I hear retailers and distributors constantly complaining about margin, complaining about things for which they have no control. I’m suggesting that we may have to add value soon to products that we have heretofore viewed as less valuable.
Adding value is critical; adding value is often a matter of understanding what customers want. Though it differs from customer to customer, we all know that customers understand basic numbers. They believe or understand that a 55,000-mile warrantied tire will (should) last longer than a 45,000-mile tire. If a customer can get 10,000 more miles for, say, $10 more per tire, that might represent more value to many customers. Of course, if you make this offer, you must back it up with a convincing factual presentation, a mileage certificate, a notation on the customer’s invoice, something that validates the actual value. You may decide to offer a free replacement for the first 25% of tread life for workmanship or material defects.
It’s been my experience that on the West Coast, many dealers consider all inexpensive, imported brands a necessary evil. Well, things, they are a-changing, and we must all change with the times. A serious reassessment is required; some real thought must go into your product matrix to re-establish an improved line-up that returns a sustainable margin to your operation.
In so many retail environments, customers are lured into stores by fake promotions. I was loitering in a large, regional tire retailer last week where they are currently running a Buy 2 / Get 2 Free campaign. I watched as a retail counter salesman earnestly struggled to explain why that customer was not eligible to take advantage of the offer.
The consumer was seriously upset and vocal, though the salesman did a decent job of explaining the actual promotion.
Was that the intent, to spend money to bring a customer in, only to upset them on their showroom floor? I couldn’t help but think how that consumer will feel about the store every time he drives by for the rest of his life. My point is, real value is real, and fake value is not value at all.
Back to my opening comment, “Is the value of value losing its value?” This is debatable, but one thing I’m sure of — customers place high value on getting more for their money; they always have, and, I suppose they always will.
In conclusion, you must create value for yourself and your customers, real value, lasting value, and that value may be found in an imported tire that perhaps you have undervalued until now.
See you at the SEMA Show. ■
Wayne Williams is president of ExSell Marketing Inc., a “counter intelligence” firm based in La Habra, Calif. He can be reached at firstname.lastname@example.org.