Create value by taking the time to understand your customer and recommending the right product for the customer at a consistent price. - IMAGE: Getty Images

Create value by taking the time to understand your customer and recommending the right product for the customer at a consistent price.

IMAGE: Getty Images

I have been having quite a few conversations concerning product pricing and discounting in F&I over the past few weeks. The questions I have been asked over and over is “Should we discount or negotiate product pricing in F&I?” or “Should we have set pricing of products in F&I?” Great questions.

I advocate for set pricing, not discounting. There are just too many good reasons not to do it.

First, is compliance. Granted, in many states you can charge whatever the customer is willing to pay for a VSC for instance, but just because you can, should you? I think in the current regulatory environment a set product pricing and offering policy is the better course of action. The customer either sees the value in the VSC in our example or they don’t. 

I can explain to a regulator my reasoning for setting the price I charge and the margin on a product based on the market and the value I believe the product provides to the customer. What is difficult to explain to a regulator is why one person pays more — and in some cases, a lot more — than someone else for the same product mileage and term on the same vehicle. Inconsistency to a regulator looks a lot like an unfair and deceptive or abusive trade practice — regulators can’t help it, they have suspicious natures. When a regulator finds something that is not the way it should be, it can be very costly to the dealer not only in possible dollars fined, but in relationships and reputations ruined as well. 

A better outcome for dealers and customers can come from determining what is a markup that represents a competitive price for the product based on its value proposition to the customer and stick to it. All F&I managers offer products at the same price, and all customers pay the same price. 

Starting high and going low in product pricing and negotiation sends the wrong message to the customer. Offering a discount to the customer on a product after the initial offering no matter what the reason, causes the customer to be less confident in the process and diminishes the value of the product in the customer’s mind. The willingness of the F&I manager to discount can signal to the customer that they don’t see the value or have confidence in the product either.

Then there is the matter of trust. Once you begin discounting, the customer may, and often will, question whether they can trust that the product is as good as you had earlier claimed and whether you are as trustworthy as they once thought you were.

What’s the best way to avoid these outcomes and not discount, stay compliant, avoid regulators, and maintain trust with your customers? Be confident that you know enough about your customer to offer the right product at the right terms to fulfill a need or address a problem with the benefits of the product offered. With smart discovery, value is created, and we all know that when value exceeds cost, the customer will say yes. 

Talk to the sales manager and the salesperson. Chances are that during the sales process they learned a little bit about how the customer will be using the vehicle and what their needs may be. You could also go out and look at their trade. You can learn a lot about someone by looking at their vehicle. Perhaps checking the DMS or the CRM might yield some valuable information. If they have been using your service department, chances are they have a relationship with a service advisor that could be helpful. Finally, have an effective conversation with the customer prior to product offering.

Customer knowledge along with product knowledge goes a long way in creating a compelling value proposition for your customer. 

Inconsistent product pricing is a minefield that can be avoided. With some skill, smart discovery, customer knowledge, and product knowledge, F&I managers can build value in the products they offer by relating the benefits of those products to the customer’s life based on what they have learned. 

Discounting products could end up costing more than can be gained so choose not to do it. Instead, create value by taking the time to understand your customer and recommending the right product for the customer at a consistent price.

Originally posted on F&I and Showroom

0 Comments