The power of an addendum lies in its ability to clarify the customers value in the vehicle, as well as reminding them of the unavoidable perils of owning a vehicle in today’s world. - IMAGE: Getty Images

The power of an addendum lies in its ability to clarify the customers value in the vehicle, as well as reminding them of the unavoidable perils of owning a vehicle in today’s world.

IMAGE: Getty Images

The current supply issues are creating a unique sellers environment for dealers of all types these days, and it is unlike any market I have experienced in my 27 years in the retail industry. Whether you are currently selling cars, RVs, or powersports, you are seeing customer demand potentially higher than you’ve ever seen and are rightfully enjoying the fruits of scarcity. We all know this is a cycle, and at some point, we will again see rebates, negotiating, and discounts. The fruits dealers are currently harvesting are well deserved after surviving nearly a decade of margin erosion and a continuous sprint to the bottom of the price chain. 

I recently attended a couple of industry events and heard story after story about customers agreeing to purchase, and pay top dollar, for their third or even fourth choice of vehicle. On the surface this seems like an ideal, highly successful model for dealers to live in. While it has been bountiful, I feel there are some adverse effects, as well as some missed opportunities worthy of addressing. 

There is an adage: When perceived value exceeds price, you have a sale. Right now, the perceived value is the raw availability to conduct a transaction instead of the traditional checklist of wants and needs. Simply having something to sell is all the value a customer needs to see in a retailer. The dealers I know and work with, want more. They want a customer to see value in the transaction, not just being able to conduct a transaction. Of course, dealers want to maximize on the current opportunity, but they also want to perform the balancing act of earning the well-deserved profit, as well as providing long-term value in doing business with their dealership but for years to come. 

Assuming dealers are exceeding their customers’ experience expectations, then we’ll move on to the value of the vehicle. By value, I am not referring to the features and benefits the customer has spent hours online pouring over, but the additional value a dealer can provide by protecting some of the customers risk exposure. Customers often get caught up in the euphoria of the purchase and forget the reality of owning a vehicle. They forget cars get dirty. They forget that RVs get lived in and accidents occur. They forget their powersport toy could catch the eye of a thief. The risks of these forgotten realities can be mitigated by dealers including protection products on an addendum. 

An addendum allows a dealer to enhance the value of a transaction by pre-selecting one or more value-based consumer products and adding them to a “Why Buy Here” of the dealership. These addendums create a unique presentation opportunity for the sales consultant and most likely leads the customer away from a decision based solely on availability or, worse, price. Instead of talking about discounts to meet a competitor’s price, the sales consultant can direct the conversation to the benefit of having a vehicle location device with years of monitoring included, as well as the cash benefit to assist in the event of an unrecovered stolen vehicle. Customers will value peace of mind over price if they are educated on the benefits before being sold the item or being asked to pay a higher price with no explanation of benefits. 

There are a few addendums I have seen backfire on dealers. Pinstripes, although spectacular to some, generally don’t command a $1,495 increase to the cost of the vehicle. And believe it or not, there are some that don’t see $999 of value in a set of plastic mudflaps for their Honda Accord. Whereas customers do see value in knowing their vehicle is protected from everyday spills and stains, as well as having some coverage against the environmental effects to today’s modern painted exteriors. Who out there doesn’t relate to a soda or some ketchup spilling on their seats or floorboards at some point in their driving history? 

The great part about an addendum is it helps clarify the customers value in the vehicle as well as reminding them of the unavoidable perils of owning a vehicle in today’s world. If the customer doesn’t see value, then the addendum can be removed, and you have a sold vehicle at or near MSRP. If the sales consultant properly conveys the value of each item on the addendum, then it is likely the customer will at least purchase one, if not everything the dealer includes on the addendum. Either way, the dealer and customer are in winning situation where value exceeds cost. 

A Few Suggestions to Enhance the Value of a Transaction

  • Make the addendum something of true value to your customers and leave out frivolous outdated items. Today’s buyer is too sophisticated and will see through the gimmicks. 
  • The success of an addendum is directly correlated in the confidence of the presentation by the sales consultant. If the dealership staff doesn’t believe in what is being offered, it will fail and most likely backfire on the dealer.
  • Disclose anything and everything. Don’t sneak anything in. Proudly display the addendum and additional cost on the vehicle. Give your team the tools to demonstrate the value of each product being offered. Value-based protection products sell themselves when explained properly. 
  • Like most rewarding actions in life, you cannot be passive. You must be active with your value-added items every day. Here are a couple ways to keep everyone focused on the value in the addendum:
    • Walkaround competitions for some additional Saturday spiff money. 
    • Product knowledge quizzes focused on what makes this product so valuable. 
  • Retain the customer. The addendum should have some form of tie-back to the selling dealer. Don’t just sell a vehicle, win a lifelong customer. The real gains come from the harnessed lifetime value of a family in the dealership’s community. Believe it or not, people still like doing business with people they know and trust. 

Ryan Nelson has more than 25 years of experience in the retail industry and is a partner at Advanced Dealer Solutions, a leading independent agency specializing in dealership development in the auto, RV, and powersports industry. 

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