Dealership Value-Added Programs are BUNK!

[Alex Snyder]

That's right - BUNK.  As in crap.  Before you start chasing after me with pitch forks, at least read the rest of this article.

What is a value-added program for a dealership?  It is a business to consumer incentive plan that gives a quid quo pro "bonus" when someone purchases something from the dealership.  For example:  customers receive free oil changes for life when they buy a car from your store. This is one of the most common value-added programs.

My experience with these programs dates back to 1999 when I started selling Volkswagens.  Our competitor gave free oil changes and state inspections for life.  They were one of 3 dealers in town doing anything like this.  At the time, I estimate roughly 40% of all customers mentioned their program and that was mainly due to them buying so much newspaper real estate to push it.  As a salesperson, 40% of the customers saying something about it translated into 100% of my customers asking for it.  It really is amazing how selective our memory can be isn't it?  I was all about our store offering the same or better.  What we were given was a program that only tackled 5 oil changes and state inspections for life.  It forced me to continue to be a better sales person by finding ways to sell around the other guys oil changes for life.

Since 1999, I saw more and more dealers bringing value-added programs into their mix.  They ranged from free tires to free manicures every week.  It got to a point where the focus of advertisements were no longer cars; advertisements were all about who could whore out the most free stuff in 30 seconds.  This went on until the economy crashed in late 2008.

During that 9 year period I received a promotion that took me to the executive side of the dealership, giving me a 10,000 foot view of the place.  It wasn't the new view that changed my perspective on these programs, it was the economy.  We were forced to dump a lot of expenses and one of those we killed was our value-added proposition.  Only a few others killed theirs, but we were the only big group to kill ours.  Our biggest competitors still have their programs going to this day.

In hindsight the value-added program was bad for business.  Yes, it probably did sell a few more cars here and there - nothing drastic.  Yes, it gave us some extra advertising ammunition (always a good thing).

BUT it maintained the laziness status quo that most dealerships are so plagued by.  Let's face it, America has become a society of excuse makers.  Instead of sucking it up and taking responsibility we get extremely creative in finding things to blame our mistakes on.  A value-added program is an excuse.  "How did they beat us last month?" - "Boss, I've been telling you for months we're getting killed because they have free oil changes" ....have you heard anything like that before?  Where are the flaws in that statement?  What about training?  What about stocking?  What about a happy service department who treats customers well?  A value-added program is not a silver bullet.

When we were on our value-added program we invited customers to ask for more.  We loudly advertised that we are solely here to give you free stuff.  To the public, who hates car dealers, that meant "let's see how much more free stuff we can pull out of those devils."  Our value-added program created an air of negotiation you couldn't shake.  It filled our service department with customer who had the mind-set that they didn't have to spend money, so our service departments couldn't up-sell anyone.  And we had to heavily rely on F&I to make the front-end profit because our sales people were virtually just order takers (lazy).  What happens when you whack the hell out of people in F&I?......charge backs and court cases.

When we got off the value added-program our front-end gross immediately went up.  PVR's were higher despite the fact that it left less room for F&I to go nuts.  Within a few months the service departments were selling again.  This also meant they weren't so ready to gauge the used car department all the time.  And the really crazy part:  our sales volume stayed relative to the market.

You now know where I stand on value-added programs.  What do you think?

This article was inspired by a discussion on the DealerRefresh forums:  The WOW factor at your dealership

 

[Gerald]

A great point Alex, but not completely accurate. What is the one thing your dealership can offer the others can't? YOUR DEALERSHIP (and you, of course).

I agree, relying on free oil changes is not a value added proposition and is a crutch for those who need an excuse for poor performance.

At my first store, we sold the service department, parts, the cafe, wireless internet, loaners, shuttle, inventory, and the backing of a company for life of ownership.

Clearly, not within your realm, but it is value added sales nonetheless. I think a GOOD value based program concentrates on what the customer gets when they are buying from your store- not the "fluff" as it were, when it comes to the freebies.

 

[Alex Snyder (blog)]

Gerald - you're just getting a little too technical on your definition of "value-added". You're absolutely correct though.

 

[Katie (blog)]

As a marketing person, I love these items that I can talk about, share, promote. But, they may just be drawing in those people who are looking to feel as if they got a deal. And those people are always looking for the next deal...basically they won't buy anything that is not "on sale". (This is why Kohl's business is booming).

I prefer to promote events, community involvement, and giveaways that speak to the dealership's personality as a whole. These events are important tools to make people feel more comfortable with us. No one walks into a dealership for the very first time and feels trusting and comfortable. This is a huge purchase, so the more they can KNOW us, the more they can relax a little bit when it is time to come in and buy a car.

And if we manage to get a few people to feel at ease, then it was all worth it.

 

[Jeff Kershner]

What happened to he age’ol saying – People Buy People?

Alex, love the graphic of the fries – now I hungry for some, dammit!

I hear you loud and clear. I see Value-Added programs across the board, from dealer to dealer. It’s always the “ABC Dealer For LIFE” and they slam the audience/consumer with the message until I’m (from the marketing side) sick of hearing it. Even more, I get sick of hearing how “my dealer” needs something like this. “We too need a value-add program”.

Focus on great customer service, hire the right people, establish process, leverage dealer rating sites to help drive the process, make it easy to buy a car from your dealer, be transparent in your operations and reward your employees on customer service. Now you have a TRUE value added program where ALL WIN! Oh wait – we need to hire the right people? Yes, and that might include dumping the old baggage that’s preventing your dealer / department from moving forward. For some, the light bulb never screws in.

“BUT it maintained the laziness status quo that most dealerships are so plagued by.”

Guilty, we are so guilty of this. It’s way easy to push and promote a “ADC Dealer For Life” program and in return it makes us lazy do doubt. Don’t get me wrong, from the sales person perspective..it’s another tool for the close, another weapon in my arsenal.

The age’ol saying – People Buy People. It’s funny to hear a GM or Principle say that during the same meeting they push for a Value-added program.

I’m guilt though – as much as I hate them, I eventually / do give in. From my seat; overseeing most of ALL marketing, it’s an easy message to promote and overplay. It’s what they want anyways right?

If you are going to have a Value-Added program – make it a sold service piece you can use to up-sell.

 

[Michael Thompson]

up-selling the value added program is definitely a huge bonus. the dealership i used to work at had an upsell maintenance program where you received what essentially amounted to the first three scheduled maintenances free along with a loaner car. the salesperson could upsell this for about $450 and it was wildly popular as it allowed the sales department to make a little more gross, the customers really loved the value of the program (they still have customers asking for it today) and it introduced the customer to the service dept. and after the free maintenances were up, it help form that initial contact with service that had the potential for upselling later on.

 

[Gary]

I would offer that there is almost nothing productive to learn about value added programs in the Automobile business. If one wants to see how to do things like this effectively, look at good retailers. The beauty of making statements like "bunk" in automotive is that practically nothing is effectively or properly measured by people who typically understand little about marketing, retention and effective analysis - yet love to offer their expert viewpoints...for some reason we think that automotive retail is a truely unique business that follows none of the principles of retail..now that's something that is really "Bunk."

 

[Richard (blog)]

Gary,

Well said.

 

[Alex Snyder (blog)]

Gary - you may be right about solely looking at the advertising practices in the automotive industry when it comes to value-added items. Do you have any suggestions or examples to look at outside of the industry? Things the industry could learn from?

 

[Katie (blog)]

Hey Gary.

You make a great point with the lack of analysis of whether marketing programs work in the auto industry. I have met car dealers who don't look at the few analytic tools that they do have in place.

And I do like that you are looking at regular retail for guidance when you say, "for some reason we think that automotive retail is a truely unique business that follows none of the principles of retail"

However, I would add that the auto industry is unique in that it can not follow ALL of the principles of [regular] retail. The two big differences are 1. It's a bigger purchase than 99% of normal retail so more thought goes into the purchase and 2.there is a general distrust by consumers towards car dealers and salespeople. So building that trust value is a great way to spend your time and energy.

I am interested to read your answer to Alex's question.