Private Labeling in the Agency: The Key to Dealership Income Development

Because the general agent is the key liaison between technology & product providers and automotive dealerships, his (or her) most important goal is to bring income development to their dealer-clients, yet at the same time meet the sales goals expected of him from his product or technology providers. This poses a dilemma for the agent as competing products and agents vie for the dealer's business.

How does an agent ensure his dealer-clients will choose his products and services? How does the agent ensure that his dealer-client is going to select his products and services over the manufacturer's or over those that other agents are offering?

The answer: PRIVATE LABELING (also referred to as branding).

Private labeling allows you to separate yourself form the competition, but more importantly, it opens the door for dealer loyalty because the bigger commitment the agent has made to the success of the dealership, the stronger the dealer's loyalty to that agent.

Many general agents or agencies caught onto this concept years ago. So, Agent Entrepreneur decided to reach out to several agencies that have been private labeling either technology or products or both for some time now so that we could see what their perspectives of private labeling are and whether it is a concept that should be continued for the success of their agencies.

I spoke to three agencies that Private Label. Through Innovative Aftermarket Systems (IAS), National Dealer Alliance USA out of Texas has been private labeling all of their aftermarket ancillary products such as tire & wheel road hazard, dent protection, vehicle etching, Halo Clear Bra, and many other auxiliary products for about seven years. ADM Marketing Group out of Pennsylvania private labels several of its software programs by VisionMenu, and Dealer Resources out of Texas private labels software programs such as menu programs &/or F&I Reporting software through MaximTrak Technologies.

Why

My initial question was to find out why these companies decided to private label. Marketing was the leading reason that the agencies I spoke with private labeled. Ray Swinea with Dealer Resources noted, “We began private labeling about four to five years ago. For us, it’s all about letting your customers and potential customers know that you do have technology in the organization, general agency, or agency. We don’t think there are very many agencies out there that haven’t gone to an outside source to create a menu or other program because most agencies don’t have an employee or employees who have the ability to write code. Branding allows your agency to place itself ahead of the curve, and therefore allows you the possibility of staying ahead of the competition.”

Carmine Esposito and Richard Hamburg with ADM Marketing Group added that, “There is a high demand for technology in the automotive industry today. By private labeling with these software companies, we can provide our dealer base with all of the needed technology and do it under one umbrella with a limited cost. And, like everything else, our business has become a very competitive marketplace. This type of partnership allows us to level the playing field with our competition.”

Pros & Cons

Knowing these companies had some experience with private labeling, I asked them what they felt the pros and cons were as they pertained to their agencies. Esposito and Hamburg noted that for ADM Marketing Group the pros definitely outweighed the cons.

Some of the benefits for ADM Marketing Group are that they can provide the latest technology available in today’s market with minimal cost and leg work involved to set up the relationships. And it keeps overhead down by eliminating the need to add additional employees and keeps expenses at a fixed rate. By private labeling, ADM Marketing Group has partners who focus on servicing one product or program which allows the agency to focus on marketing and customer relationships. The flip side to that is that they have to depend on an outside company to represent their agency – we all know that opens the door to potential issues or problems beyond our control.

Pat Heinsen with National Dealer Alliance USA commented, “If you do it right, and you truly private label something, you don’t just slap your name on someone else’s contract and sell it. National Dealer Alliance looks at products like commodities, and our approach is that we market our service right along with these commodities. Our job is income development for the dealer and it is our services like our recruiting & staffing, our training and mentoring, and pay plan structures and analysis, partnered with our private labeled products that puts us right out in front of the dealer. When our dealer-clients are asked ‘Who do you sell?’ they reply, ‘National Dealer Alliance’.”

As Ray Swinea commented previously that one of the very reasons they chose branding their products was that by doing so, you put your agency ahead of the competition curve, and stand out from your competition. He added, “There are a lot of agents, who are knocking on dealer’s doors, and you might have seven days before your competition catches up with you.”

According to our participants, some of the cons about Private Labeling depend upon what is being private labeled and whether the agency is offering services along with its products. For example, Swinea mentioned that you need to really research and understand the market of whatever product you decide to private label because the liability issues and risks involved can be detrimental in such a way that they can go over and above what many would expect or budget for.

This is the reason that many agencies restrain from private labeling Service Contracts or GAP. The cost to enter the markets of the larger VSC and GAP providers is unbelievably huge and not in the least bit realistic. Heinsen added that “to truly private label a vehicle service contract, you have to be a PNC company, and as you know, PNCs aren’t cheap. You have to have millions of dollars (and probably more) to back these.”

Measurement of its Success

So how do agencies know that private labeling has improved business for them? In a nutshell: They don’t!

Measuring this type of occurrence is almost impossible because too many other factors play a role in acquiring and retaining customers, and the private label is not only included in marketing the agent’s product and services, it is incorporated into actually servicing the client as well.

Heinsen provided a great example of how services are incorporated into the marketing, sale and customer service of their privately labeled products. “Private Labeling puts us right there in front of the dealer, and because of this a dealer calls us, not the insurance company, if they have a problem. We handle their questions, concerns, problems. We put the product in, all the product comes back to us as soon as the dealer is done with it. This allows us to double and triple check every one of the contracts. So we catch any mistakes before they ever reach the insurance company, and a year down the road when the customer rolls into the service department, we save the dealer and the insurance company the embarrassment and prospective problems associated with the customer realizing their contract or products were never validated.”

So if private labeling a product is such an attractive practice, if these agencies were in a situation where they would have to make the decision to private label again, would they, and are they looking to add any other products to their current private label inventory of products? Absolutely!!!!

Heinsen’s comment was that “any time a product comes out, our stance on it is that, if we don’t have a PNC company, we private label it. We have always done it this way. It has worked for us and we are happy with our dealers. We have a good relationship with our vendors and wouldn’t change anything about that.” I think Ray Swinea summed it up when he said, “We are always looking for products that we can private label and anybody in the market today who doesn’t, should get out of business.”