Choosing the Right Price

What kinds of strategies are at work when it comes to pricing online inventory? In short, all kinds. Some dealer price a vehicle the same whether it’s online or on the lot, others don’t. Some use pricing tools offered by their online management provider to determine price, while others still simply price based on a standard markup.

Shane Terrell at Phil Bachman Toyota, who is using AutoRevo to manage the dealership’s online inventory, said that while the provider does have a pricing tool, he prefers to manually “do a search on cars.com and see what’s out there.” He also stated that he didn’t see the need to pay for the additional functionality since he does not perform a search for every vehicle. “If I’ve got a Mercedes, I’m going to want to make sure mine’s not two grand more than the next dealer’s.” He acknowledged, “It does take me more time to do it what way, but I know what’s on the car, I can see if it has a bad CARFAX … It gives me the view of what the customer’s going to see when they’re looking.”

Neil Gale at West County Nissan does not use any kind of pricing tool. “[The market] has no reflection on what we want to make out of a vehicle,” he said, adding that the store is moving toward a one-price, no-haggle system for used vehicles. The key, he said, is “buying right; it’s knowing what you have when you go buy at the auction or you take a car in [on trade].” He said for the most part, “We figure out what we want out of that vehicle and that’s what we list for, and many times it’s a lot lower than comparable vehicles within our 500-mile radius.”

Juggling different prices on the same vehicle can lead to complications as Don Bannister at Hoyte Dodge learned. The dealership tried to price differently on various Web sites, a concept he said he has seen competitors attempt quite often. “We were trying to be more competitive on an AutoTrader [type] scene … but we didn’t want to give up all the money [by using the same prices on] our main site. So we would price separately with cars.com and AutoTrader to stimulate phone calls.”

However, he said, “It never has worked out accordingly.” The problem arose, in part, because of the refresh rates on those two sites. “It took 24 hours to refresh or to clean out the [sold] inventory,” he said. There were several instances where a customer would buy and leave with a vehicle, then go home and look it up online only to find the exact vehicle offered by the dealership from which they just purchased but at a lower price.

Everything is now handled using the pricing matrix provided by Liquid Motors. “We went back to the full control through Liquid Motors,” he said. “If we we’re going to compete on the Internet, we were going to compete all the way across the board with one price, where nobody was left hanging.” He is able to set the tool to look at a specific geographic radius and it will provide the average prices listed in the regional marketplace for the same cars that are in his inventory. “We use a median. We don’t want to be the lowest, don’t want to be the highest, so we use the pricing matrix comparisons to price our inventory accordingly.”

Another benefit he mentioned with using this system is the flexibility it provides. “We aggressively pursue our pricing on a weekly basis, sometimes on a daily basis,” he said. At certain times during the month when they want to stimulate traffic, he can adjust prices as needed and know that those changes will be reflected across all Web sites where his inventory is listed (except, he said, on sites like AutoTrader.com and cars.com where the refresh rate tends to be less frequent than other sites). “That tool gives us the flexibility and agility to change at a moment’s notice.”

Matt Smith of Laurel Auto Group said the group’s Toyota Scion store is currently experimenting with the pricing of its online inventory. “Historically, we had not used any ultra-scientific methodology in our pricing,” he stated. “We had tried to utilize more conventional theories of taking book values of wholesale pricing on cars, adding what reconditioning and/or service or warranty packages needed to be in terms of cost figures and then trying to work off of maybe a 10 percent trade margin … based on what we felt the market would bear, but it was more in line with what we thought just based on some very non-scientific equation.”

For a little over two months, the store has been trying out vAuto to help price its used vehicle inventory. This is a pilot program to help Smith determine if they will utilize the program in all of Laurel’s stores. “It’s a departure from the norm for these guys, not something they’re used to, but they’ve trusted it and it’s allowed us to see a different side of that part of our business.” Results so far have been very encouraging. Smith reported that Internet lead activity has increased significantly. “It’s really amazing the results that we’re seeing in such a short period of time … We have definitely sold more cars,” he said. While no final decision has yet been made as to whether the entire group will begin using vAuto to price used inventory, Smith said, “I truly believe that this tool has a lot of power.”

Vol. 7, Issue 8