Many distributors mark-up goods to hopefully cover the cost of their “free services,” such as outside and inside reps, fulfillment, delivery, free returns, and trade credit, that that come with these products.
What happens when digital-buying millennials increasingly take over B2B buying, and they find lower prices for equal or better goods from online sellers (with zero outside and inside rep costs)?
How many of your reps can successfully sell their own added value in order to justify your higher prices?
BUNDLE-BUSTING CASE: CAR DEALER REPS
A recent study revealed that turnover of commissioned car dealer reps has climbed to an industry average of 67 percent per year. A big reason for this is that average commission income is dropping with the decreasing margin-dollars per new car sold. Why? How?
Customers are using free local-dealer services and then shopping prices widely online. Steps to this show-rooming-type process:
- Sell the used car to Carmax for more than the dealers’ offer;
- Shop for the new car category online;
- Settle on a category of car made by multiple manufacturers;
- Visit local dealers to test drive each car in the desired category;
- Choose the brand (along with options);
- Use sites that pit multiple dealers (across the country) in a reverse auction for your specific car; and
- The winning dealer’s margins (with shipping costs included) has small margin dollars and commissions for the rep who conversed with the (non-local) customer.
HOW TO STOP SHOW-ROOMING
One option is to unbundle services for fees with buying rebate possibilities. Dealers could pay salaries for competent “consultants” and then charge prospective customers an hourly fee for their time as well as a fee for test drives.
If a customer should then buy a car (or an HVAC product), the upfront fees could be rebated off the price or with discounts on subsequent service fees over time. (Precedents? Unbundling services for fees has become a science within distributor-to-retail channels since the 1980s.)
Most distributors (unknowingly) have big profit/loss cross-subsidies among their SKUs and customers. The most net-profitable SKUs will be increasingly and successfully shopped online for lower prices.
How fast might this price shopping, or show-rooming/web-rooming, start affecting your firm’s most net-profitable SKUs, reps’ commissions, and your overall service-cost bundle?
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Publication date: 12/06/18