To borrow a line from the hit movie Fast & Furious 7, this month’s cover story about how to price products “takes crazy to a whole ‘nother level.” In that movie, a collection of ice-cool drivers employ automotive technology (and some parachutes) to perform jaw-dropping stunts. In our world, fast-developing technologies give us the power to maximize charges and minimize losses at a pace and level of sophistication that was impossible to achieve just a few years ago.
Until recently, a dealer’s prices too often were based on crude metrics, such as the average cost of all deliveries for all customers over the course of a year. Dealers also commonly employed the crudest metric of all: You need XX% to cover your costs, so that was the markup. Such an approach kept the business running but wasted opportunities to generate more dollars and avoid bad deals.
Most dealers rightfully can protest that they don’t subscribe to a one-size-fits-all philosophy: They mark up A, B, and C items differently, and “good” customers get better rates. But to borrow from the movies again, our industry remains close to the level of Steve McQueen’s motorcycle jumps over barbed wire in 1963’s The Great Escape while other industries perform more like Vin Diesel in today’s Fast & Furious.
You could say there’s too much emotion in our relationship business today. Consider the classic way a company loses money: When the sales rep sees a competitor’s bid, panics, and cuts his own price. Our credit guru, Thea Dudley, can cite dozens of cases in which sales reps wanted to extend credit or give special deals for personal reasons that ultimately don’t make for sound business. Being a church deacon shouldn’t qualify a client for a discount, nor should having an attractive wife. Dudley has heard sales reps use both as arguments. Where’s the logic there?
Likewise, groups such as Do it Best have begun relying less on their buyers and more on data searches when they suggest prices; it turns out buyers are so close to price shifts that they routinely propose lower margins than the goods they procure actually could get.
You could say the variable pricing concepts we feature here enable dealers to finally run the relationship-based business that they’ve always said they’ve operated. Rather than lump customers into a few broad groups because that’s all the calculating our heads could handle, we can use technology to truly deal with each customer as an individual and each day as a new opportunity to recalibrate a price. We can treat each customer as he or she deserves to be treated, based on what they want and how they operate. We can take our crazy pricing process to a whole ‘nother level—one where we drive away as heroes.