Automakers Celebrate Giving Away Profits – Again!

Posted by Richard Harrington on Oct 26, 2017 1:42:24 AM
Richard Harrington
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Automakers are very happy with their September results as sales hit their briskest monthly pace in a year.1 Along with higher fleet sales and replacements for vehicles damaged by recent hurricanes, Labor Day discounts are touted as a reason for celebration. According to the WSJ, average incentives in September are now $4,048, up 5% from March of this year.

So answer this question: Armed with these few facts, what are you going to do when buying your next car?

If your answer is anything close to, "Go into the dealership on Labor Day when I know they are looking to offload excess inventory and act like price is the driving factor of the purchase to get maximum discount." Congratulations, you are now a Poker Player.

We see this behavior in B2B sellers all the time. Sales teams that are desperate to meet their quota at the end of the quarter see discounting as the quickest way to make their number. Knowing this, customers wait patiently until they see the desperation in the salesperson’s eyes before placing their order at a huge discount – they can even frame it as a favor! This desperation discounting leads to hemorrhaging of profits.

Not sure if this is happening in your organization? Find the data to plot a graph of average selling price by date. Are there huge spikes and then valleys around when the sales team’s quota is measured? If so, the team has been incentivized to discount out of desperation and in turn, they've taught their customers to play the game. This is discounting at its worst – business is pulled from the future month, but at a lower price; there is no incremental business here.

This kind of discounting is bleeding your profits and needs to be stopped. Set clear discounting protocols and incentives so as not to put pressure on your sales force to engage in this behavior. If you’re looking for a place to begin your pricing journey, this is a great place to start; you’ll be surprised how much profits will improve if you can get this right!

Topics: Pricing with Confidence