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2016-03-17 15:28:43
Frank V. CespedesJared Hamilton
March 16, 2016
Alfred P. Sloan, GM s CEO from the 1920s to the 1940s, and the architect of the
U.S. auto distribution system, summed up the car buyer s challenge well: The
automobile is a highly complex mechanical product. It represents a large
investment for the average purchaser. He expects to operate it, perhaps daily,
yet the chances are he possesses little or no mechanical knowledge. He depends
on his dealer.
Sloan s statement remains relevant today, even in the era of internet shopping.
Although consumers do a lot of online research the average U.S. car shopper
now spends 11 hours online and only 3.5 hours offline, including trips to
dealers the vast majority still end up purchasing their cars in person.
According to a 2015 DrivingSales study of more than 1,300 active car shoppers
(where most of the statistics from this article derive from), the changing
behavior of buyers has placed even more emphasis on selling at the dealer. And
yet because buyers can access prices, reviews, and other information via online
searches, their attitudes toward negotiations, pricing, online engagement, and
sales reps are changing.
Sales tasks are continually evolving in all industries, and companies must keep
their sales forces up to speed to meet the demands of their customers. Auto
dealers again provide an illustrative example. The required changes may
surprise you and raise questions about effective selling in your market.
Not everyone likes negotiating price, but a lot of people do. The common
sentiment about price negotiations is, I just wish they would set one price
and stay there. But the reality is this: Only 13% of car shoppers say, I don
t like to negotiate and I would like to buy a vehicle that is market priced and
everyone pays the same, while 45% said, I like to negotiate until I get the
vehicle to a price I feel is fair to pay, and almost one in five people said,
I like to negotiate and will grind hard until I m confident I m getting the
lowest price possible. As in most industries, buyers preferences vary.
Neither a one price model nor a negotiation model appeals to all shoppers.
And it s the seller s responsibility to adapt to the buyer s preference, not
the other way around.
Shoppers should be able to get the asking price without having to talk to
anyone. Compared to their tolerance for negotiations, buyers are inflexible
about knowing the asking price up front. More than 50% of car shoppers will
leave the dealership if a test drive is required to get the asking price of the
vehicle. Nearly 40% will not patronize a dealer whose website doesn t list
vehicle prices; a slighter higher percentage will leave a dealer if prices aren
t posted on the vehicles.
In the auto industry and others, third-party sources have changed customers
shopping behavior and expectations about list price. Among other things, many
consumers want to browse without engaging with the sales staff. In the car
study, nearly 75% of buyers had not contacted the dealership before visiting,
and 25% left without talking to anyone. This points to a disconnect between
sellers and buyers: Even when done with good intentions ( I m here to help you
), some traditional sales practices now unwittingly increase dissatisfaction.
Most of your online advertising and social media spending is probably being
wasted. For car shoppers, online tools are a complement to, not a substitute
for, in-person dealer visits. They use independent websites for model
comparisons and reviews, and OEM sites for detailed model information and
videos. When they do visit dealer sites, they re typically looking for specific
vehicle photos and information about local inventory.
According to the National Automobile Dealers Association (NADA), dealers now
spend about $600/unit sold on advertising, and the internet takes up the single
biggest chunk of that spending. But few shoppers buy or even contact dealers
online: Only 5% engage in online chats, and fewer than 10% will fill out an
online contact form or communicate via email. Yet nearly 90% rank the dealer
visit as the most important source of information during the buying process.
Any strategy is about priorities and trade-offs. Car sellers should certainly
be investing more in improving their point-of-sale processes and less in their
social media budgets.
At the same time, sellers must manage their existing digital media budgets a
lot better. According to Sprout Social Index, dealers respond to only 16% of
the online messages they receive. And this is actually better than a
15-industry average of 12.3%! Having a presence on social media or a web site
is not a sales strategy. Sellers must figure out when online does and does not
make a difference in their customers buying processes.
To close sales with more-informed customers, you need to retain
more-knowledgable sales staff. Pricing information, including dealership
wholesale costs, is now widely available on independent websites, along with
information about vehicle options, trade-in policies, and performance. But this
flood of often conflicting information has created a new challenge in the minds
of consumers: Which sources should they trust? As a result, consumers prefer
dealing with one responsive, knowledgeable, and trusted representative to help
them evaluate what they found in their own research, manage the test-drive
experience, and efficiently complete the sale.
Many dealers fall short. The traditional sales process, with hand-offs ( Let me
check with my manager and get back to you ), delays, and high variance among
sales reps product knowledge, is a big source of residual dissatisfaction.
Turnover compounds the issue. According to NADA s 2015 Workplace Study, the
average annual turnover among dealer sales reps is 72%, with 50% of new hires
leaving after three months. Female sales turnover is 90% annually.
To improve retention rates, dealers must create welcoming sales cultures,
institute flexible hours, and invest in the development of their sales reps. It
s good for business. Dealers with the highest rates of retention report gross
margins 3% 4% higher than the lowest performers an enormous difference in an
industry with an average net profit margin of 2%.
A knowledgeable sales staff is especially important as technology continues to
advance. High-end cars have over 100 million lines of software code, and
mass-market cars aren t far behind. HIS automotive group estimates there are
now about 27 million web-enabled vehicles on the road, a number that could rise
to over 82 million by 2022. And since cars and smartphones are seamlessly
connected, there are a lot of software-as-subscription possibilities that will
increase exponentially in the coming years.
Yet how many auto dealers have equipped their salespeople with the knowledge
and skills to sell subscription services for the app store that the car is
fast becoming?
The good news is over 60% of buyers leave a dealership satisfied and view
dealers as trustworthy. Contrary to conventional wisdom, the research indicates
that this is more true with younger auto shoppers than with older ones. But
dealers still have work to do.
The message to the auto industry: You can worry all you want about disruption,
but you need to nurture and adapt a sales effort aligned with buying behavior
to do something about it.
The message to other industries: Profitable growth is determined by how the
buyer buys today and tomorrow, not yesterday, so don t chase abstract
generalizations about the internet while ignoring the point of sale.
This won t be an easy process, of course. As Alfred Sloan said, Changing the
viewpoint of [an] organization with respect to any particular way of doing any
particular thing is the hardest problem in management. We all know how
great is the inertia of the human mind.
Frank Cespedes is a Senior Lecturer at Harvard Business School and author of
Aligning Strategy and Sales (Harvard Business Review Press).
Jared Hamilton is the founder and CEO of DrivingSales, which provides vendor
ratings, industry best practices, marketing and other services to auto dealers.