Yachts, Boats, and PWC

Compensating sales primarily through commission has always been controversial. To those who love it, this is the free-market system at work. Many who sell on commission compare it to owning their own business. Indeed many managers try to spur their commissioned teams with the notion that they are in control of their own destiny. That is what lures so many people into selling on commission, but it also may be what leads to its eventual death in automotive retail.

I've had many sales jobs that were purely commission based and also owned several businesses, the difference is essential to understanding the problem. When you own a business you control your equity, not just your income. The value of the business is partially a function of the assets minus liabilities and partially a function of the brand value. Business owners care about the value of their brand, because they own it. Commissioned sales people are free to take risks that may trash the brand, because they can move on virtually without recourse. Just as individuals on Wall Street can no longer be permitted to  risk entire companies for their own short-term gains, commissioned sales people cannot be left free to risk the reputation of the entire store in order to gain an extra $1,500 in gross profit.

The blue sky portion of a dealership's value has fantastic growth potential. The number of franchised dealers is at a historic low; the driving population is at a historic high, and the nation has an incredible amount of pent-up demand for automobiles. Any boost in the economy will bring a fantastic boost to auto sales.

Many dealers are using social media to grow the value of their store name or group name to levels never before seen. The flip side is that social media can kill in a matter of hours the store value that took generations to build. Catastrophic risk is in this area is something dealers cannot insure against and must diligently work to avoid.

Telling a commissioned sales team to "just get them in" or "just get 'em closed" can be a recipe for disaster. Commissioned sales people will do exactly what they are incentivized to do, close deals for short-term gain by any means necessary. Managing commissioned sales people is extremely hard, precisely because they feel as though they are running their own business their own way. As long as the sales come in, everyone should just shut up and cash the checks. But that is the kind of thinking that jeopardizes all that beautiful brand value. If you can keep the store or group brand strong, it will continue to generate additional sales each month for years to come. But your commissioned sales team isn't being paid on brand value, and they darn well know it.

Recent industry shifts combined with the growing importance of social media place great emphasis on retailers' reputations. Those with extremely strong management teams may be able to keep the incentivized actions of sales people within the parameters of the store reputation. Those with weak management teams must invest in training, bring on a new team, or consider a more controllable compensation model. I don't know whether compensating sales primarily by commission will ever die across the entire industry. I do know that it needs to be seriously reconsidered at thousands of stores with practices that are all but inviting a social media catastrophe. 

Advertising budgets are formulated in any number of ways. Most professionals and academics find Objective Based Budgeting yields a superior result to the "I just feel" method, yet the latter dominates among dealers. I bring this up not as a criticism but as a demonstration of opportunity.

Competition will continue to intensify among car dealers. The shopping radius of consumers continues to grow, and the transparency of market information to consumers continues to increase. Under these conditions, every competitive advantage matters. A store spending $40,000 per month with 90% efficiency will bring 50% more traffic to the store with the same budget compared to a store advertising with 60% efficiency. Sadly, we are finding stores that are performing at considerably less than 50%.

Advertising is the devil's playground. There are many temptations - attractive sales people, the ability to be seen on television, a bias for what worked years ago or what one thinks they know how to utilize. Many advertising products have no variable cost to the seller, making wild discounts possible. This naturally appeals to people used to selling products with very high variable costs, but it does not change the fact that 60% off the rate card may still be a very poor option. The best way to discipline yourself and avoid these temptations is to base all advertising and marketing decisions on sound performance metrics and Objective Based Budgeting.

I spend a fair amount of time contributing to discussion sites for various durable goods industries. It's a bit disappointing to me that so much time is spent talking about what is changing or what will change. I'm not downplaying the importance of forward thinking, quite the opposite. Some years back, I learned an extremely valuable lesson from Jeff Bezos of Amason.com, focus your thinking on what is not going to change. Here are a few examples of things that will not change:

Mobile – For ever more, shoppers will want access to a transparent marketplace wherever they go. Mobile does not always mean mobile phones. More and more people are shopping with their iPad or other tablet device both at home and on the road. Along with this change, many shoppers are relying less on websites and more on apps. Don't get too hung up on devices and software, they will change. The demand for mobile access is what will remain constant. Think about how that impacts marketing today and tomorrow.

Text – Whether it is in the form of snail mail, email, chat, or anything else, communicating with text is here to stay. There will always be times when it is just not appropriate to speak. Text is the silent method of communication. It used to be that text was the nearly exclusive form of information storage. That seems to be changing, as we can see with podcasts and YouTube. However, the need for text as the silent form of communication will not change. It may benefit from more added illustration and graphics, but text will remain.

Audio – Communication using sound alone will never be as powerful as using site, sound, motion, and interactivity together. However, there will always be times when we want to communicate or absorb information while remaining site free and hands free. Driving is the classic case for audio communication today, and that may change as driverless vehicles emerge. However, there will always be times when hands and eyes are required for activities that do not fully engage us. For those times, audio is essential.

Value Demonstration – How shoppers gain transparency into the market has changed and will keep changing. What will remain constant is the need to demonstrate value relative to other options and/or whatever situation the customer is living with now. There are lots of ways of defining value. My favorite is simply benefits divided by cost. In every exchange, the shopper will be getting something (an act, promise, or good) in return for something (usually money, the promise to pay money, or an exchanged product). Demonstrating that the value of your product is superior to other alternatives is a core competency that will continue to be needed for all but commodities. Value demonstrations don't need to occur in every form of communication, but ultimately they do need to be available and always will.

The personal computer has evolved into four distinct types, each with their own capabilities and advantages. The impact on durable goods sales is just beginning to surface, but will grow rapidly over the coming months and years.

For durable goods, shoppers do not convert they transition. That is to say, they do not convert into online sales; they transition to a human representing the store and make the purchase within the store. There are exceptions, but very few. Transitions can take place by walking into the store, phoning, emailing, chatting, or using video chat. Overall, the mix of transitions will be changed by the mobility of online computing power, the size of the screen, and the way shoppers interact with the device.

The four types of computing devices and their characteristics relative to online shopping and transitioning are as follows:

Desk top PC – Provides the largest screen and a full keyboard, but offers no mobility. These are the best devices for text inputs. When shoppers first began using the internet, most activity was on desktop PCs, and filling out email lead forms was common. However, most shoppers never filled out an email lead form even in the late 1990s and early 2000s. The most common transition from the desktop was and is walking into the store.

Laptop PC – Although it has a more limited screen and keyboard than a desktop PC, the laptop has mobility. For those who have a wireless internet service connected to their laptop, they have almost limitless mobility, in theory. In practice, few shoppers ever bring their laptop into the store with them. Like the desktop PC, the transition is typically from 100% online with no human interaction to no online connection in the store with 100% human interaction.

Mobile – Smart phones are dramatically changing the way people shop for durable goods. They may start on their internet enable phone or transition to it from a desktop or laptop PC. Either way, millions of shoppers are taking their smart phone into the store with them. They can compare what they see in the store to what is online, either from that store or a competing store. The screen is smaller and text is laborious, but the phone is enabled with a single click. This makes it possible to transition from talking to a human in store A to talking to a human at store B while still at store A. Sharing a screen this small is very difficult and unnatural.

Tablet – The iPad is not the only tablet PC, but it dominates the category. Sales success of the iPad was twice as fast as even the iPhone. Each month more than one-million people join the legions of iPad owners, and they tend to be much more active and affluent than the national average. The combination of a relatively large screen and complete mobility is a huge part of the attraction. However, the new iPad launched on Friday has both front and rear cameras to enable fantastic video chat. Communicating in text on a tablet is not as fast or easy as it is with a traditional keyboard, but video chat is far and away the highest form of distance communication. Most importantly, the tablet enhances transparency and in-store communications by being big enough for both the buyer and seller to view it in the store at the same time.

The new iPad is but three days old, but tablet computers may become the dominant method for durable goods shopping within five years. Sales teams that begin using the iPad within the store today will have an experience advantage as more and more shoppers bring their tablet computers into the store with them. Learning how to sell in an environment comprised of simultaneous human and technological touchpoints will be mandatory.

Most manufacturer sites do an insufficient job of demonstrating the differences between the various trim levels within a model offering. This shortcoming provides an excellent opportunity for dealers to earn trusted adviser status.

Customers are much more nervous about buying a truck from a Ford dealer than a motorcycle from a Yamaha-Kawasaki-Honda-Suzuki dealer. The latter offers a multitude of competitive options. The retailer can act as the trusted adviser across brands, rather than the representative of a single brand. This puts the sales person on the side of the consumer, rather than tying the sales person to the brand as the voice of a single option. Of course, most dealers do not have this option. What they do have is the ability to act as the trusted adviser across the various models available and the trims within those models. Having enough product knowledge to execute within the store will close more deals. Facilitating the trim level decision on the dealer's site and within each new-vehicle listing enhances preference for the vehicle and the store, driving more phone calls, chats, emails, and walk-in traffic.

As an example: The Chevrolet Malibu comes in four trims. Chevrolet.com says nothing about these trims on the model page. Trim is the first decision the shopper is forced to make within the Build Your Own tool, yet the information provided for facilitating this decision is terrible. The shopper gets nothing more than text descriptions in bullet points. Here are the differences in the wheels between trims:
• LS – 17" fascia-spoke wheels with silver trim
• 1LT NEW 17" ultra bright aluminum wheels
• 2LT – 17" Chrome-Tech aluminum wheels
• LTZ – 18" ten-spoke bright finish aluminum wheels
Let's face it, the difference between these options is appearance, and these text descriptions don't do the job. I started telling manufacturers this was a lousy effort in 2004; I wrote about it in my book in 2010, and my best guess is the problem will still exist in 2012. That presents dealers with an opportunity.

Pictures of the four rim types would be good. A video would be even better. One or more videos explaining the advantages and cost difference of each trim will help the shopper narrow their consideration set, help convince the shopper your store exists to help them, and drive more leads. You can run the same videos on every Malibu on your site, AutoTrader.com, and Cars.com. The same is true for motorcycles on marine dealers as well. There are plenty of dealers offering 19' Lund boats and lots of choices to make within that category.

On the listings sites, the presence of the video icon on the Search Results Page (SRP) makes your vehicle listing stand out over listings of competing dealers with identical vehicles. There is plenty of evidence this drives a higher conversion rate from SRP to Vehicle Details Page (VDP).

Many dealers are reluctant to demonstrate trim differences on their websites because they may not have a particular trim available in a color acceptable to the shopper. There is no argument about the fact that dealers with broader selection have an advantage over dealers offering less. However, letting the larger dealer enjoy the natural benefits of increased inventory and exist as the only dealer who cares enough about the shopper to provide this information is like stepping into a coffin. Those who do more to help their shoppers select the right vehicle in the easiest way possible will win more business. Videos demonstrating trim level differences are but one way to inch ahead of the competition as a trusted adviser.