LGT's Profit Sense

In recent years, some dealerships have adopted a “no-haggle” or one-price sales model. This has been in response to several factors, including the general disdain that the public has with the negotiating process, greater transparency of vehicle pricing afforded to customers by the internet, and competition from businesses that offer no-haggle pricing such as Carvana.

It used to be that customers would be forced to spend entire weekends traveling from dealership to dealership to be able to weigh their options, with little more than newspaper clippings to supplement their search. With the advent of the internet, in mere minutes a car buyer can easily locate a wealth of information about identical vehicles in different locations. Further, savvy buyers can locate dealer invoice costs shifting the pricing leverage that dealerships traditionally held.

Although a no-haggle model may initially appear to not be in the best interest of dealerships, this model has reaped solid benefits for some dealerships.

Improving customer satisfaction

The idea of a no-haggle sales model is based around an ever-increasing number of buyers asking for the car dealership experience to mirror any other shopping experience, such as buying a new TV at the local electronics store. These buyers don’t want to go through the traditional price negotiation process when buying a car, viewing it as stressful and opaque. By alleviating buyers of these issues, dealerships switching to a no-haggle sales model are subsequently seeing a substantial rise in customer satisfaction.

According to the Rikess Group, a retail automotive consultant, dealerships that adopt no-haggle selling tend to receive better online customer reviews. In this day and age, many car buyers comb online review sites like Yelp and Google before even considering visiting a dealership. Negative reviews by unhappy customers can drive away a potential new relationship before it has even had a chance to begin. One-price dealerships diminish the likelihood of this occurring since many of these dealerships often receive more positive customer reviews. Their customers tend to perceive the one-price model as a less stressful and unpleasant buying experience, which is reflected in their reviews.

Finally, the no-haggle model can help dealerships attract and retain a younger sales force. A growing number of young people show an active distaste for the traditional sales environment, shying away from jobs where they’re expected to haggle with customers over every sale. By adopting a one-price model, the sales force of these dealerships serve in more of a consultative role, rather than a negotiating role. This tends to leave the customer with a more positive view of their dealership experience and increasing the likelihood of turning a one-time customer into a life-long business relationship.

Boosting the bottom line

Some of the dealerships that have adopted this model have already seen a material improvement in financial performances. As stated previously, a more positively perceived customer experience leads to a larger potential customer base, meaning more sales opportunities. Further, this model has also seen higher gross sales.

According to reports, many car buyers seeking the no-haggle model are willing to trade that experience for a higher cost. In fact, 54% of car buyers in Autotrader’s Car Buyer of the Future study said, they’d buy from a dealership that offers a better car buying experience vs. one with a lower price. This parallels the story arc of Starbucks, which offers a product at a premium price in exchange for a certain experience. Although offering a similar product at a higher price point, Starbucks sees success over its competitors due to the experience it provides.

Further, the no-haggle model takes away the ever-increasing leverage that car buyers are entering into the negotiation process. Increased buyers are asking for the dealer invoice cost, and no-haggle pricing removes this from the equation. More so, many no-haggle model dealerships successfully charge more for a vehicle than would be charged through the traditional model.

More than just gross vehicles sales, the no-haggle model can boost finance and insurance (F&I) sales. Many customers are more open and receptive to the F&I menu presentation if it is not precluded by a grueling negotiation over vehicle price. Customers will be more willing to engage in a more extended business relationship through contracts if they enjoy transacting with a dealership.

Beyond sales prices, the no-haggle model also has a tendency to reduce selling costs. No-haggle dealerships often do not need to hire the seasoned veterans of sales managers with high-level negotiation skills, because the need of that highly-sought after skill has been eliminated. Negotiation is difficult for both the customer and the sales person, and highly-skilled negotiators are typically rewarded quite handsomely for their efforts. By eliminating this part of the transaction, some one-price dealerships the Rikess Group has worked with have reduced sales staff costs by up to one-third.

Transitioning to a no-haggle model

The transition from a traditional price negotiation model to a no-haggle model requires a top-down commitment to building a culture of transparency throughout your dealership. Many people are resistant to change by nature, meaning that it is unlikely that buy-in will be immediate throughout the sales force and sales management. A top-down approach will increase buy-in, but you may end up with the unfortunate task of letting go of those that will not transition in favor of hiring new employees with the right attitude and skill set for one-price selling.

For instance, the sales manager’s primary function at a no-haggle dealership isn’t to train and aid the sales force in negotiating the best possible price for a vehicle. Instead, it’s to train and develop salespeople to guide customers in finding the best vehicle to fit their needs and desires, providing a pleasant experience, and completing transactions with little-to-no assistance.

Of course, the one-price selling model is not a one-size-fits-all baseball cap, and won’t fit every dealership. However, if you decide that the traditional negotiation model is still the correct one for your dealership, be aware that there is a good chance that at least one of your direct competitors has adopted the no-haggle selling model as well. Carvana continues to add locations, meaning a vehicle vending machine could be on its way to your backyard in the not so distant future.

How can you compete with this foe? Since it is very unlikely that you won’t have the better price, you must strive to create the best customer experience you can within your dealership. In this aspect, focus on the negotiation process, removing as much stress and anxiety as possible from the transaction. Training salespeople and sales managers to not appear confrontational or threatening is key. No-haggle pricing is centered around the customer experience, and with customers willing to pay more for it, you will have reduced leverage when focusing on price alone.

Could you benefit?

Switching models is a wide-sweeping change, one that is not easily reversed. Part of the transition will include marketing the model, meaning that going back on it will not be painless. However, the benefits in the realms of customer satisfaction and financial performances can be well worth the risk. Consult with your department managers and financial advisors about whether your dealership could reap benefits from no-haggle selling.