Monday, April 16, 2012

Being Fair to Your Customer is not only Right But it’s the Fastest Path to Long Term Success

I was shocked to read the AP news release last week about the RL Polk study on hybrid loyalty, the measurement of how many owners buy another hybrid.  My first shock was that only 25% of hybrid buyers buy another hybrid. Based on my dealership’s experience (I thought to myself) “This cannot be right!” In fact, the article was brought to my attention by a Prius customer of mine who had just bought his fourth Prius from me.

My second shock was to learn that my market in Palm Beach County was the number one market in the USA for hybrid loyalty! RL Polk termed it the West Palm Beach market but that identifies the central, major city in a given market which is all of Palm Beach County. How could my market have a greater hybrid loyalty than Los Angles or Seattle?  These markets are where the demographics are skewed heavily toward environmentally sensitive people, often disparagingly referred to as “tree huggers”. Now I was “sure” that this RL Polk report was wrong!

I Googled the report and found it at . After studying the report, I learned that with Prius, the number one selling hybrid by a wide margin, removed from the study, the national hybrid loyalty was only 25% vs. 35%. Now I felt a little better. I knew from my dealership’s experience selling Priuses that we had a very high percentage of repeat buyers…over 75%!

Finally, it all dawned on me. My dealership sells more hybrids than any other dealership in the Southeast USA and ranks very high nationally. The only dealers that outsell us are a few in California and the Pacific Northwest where, as I said, the demographics skew toward very environmentally sensitive people. Also, California and some of the other Northwestern states give special subsidies to purchasers of hybrid and all electric cars. Because we sell so many, in Palm Beach County, we moved the average from only 25% loyalty all the way up to 43%, the highest in the USA. I sell a lot of hybrids on the Internet to markets outside of Palm Beach County too. If I sold all of those in Palm Beach County, the average would have moved much higher toward 75%.

So what has all of this got to do with “Being Fair to Your Customer is Not Only Right, but it’s the Fastest Path to Long Term Success”? The answer is in how I became the largest volume hybrid seller in the Southeast USA and one of the largest in the USA. Flash back to 2001 when the Toyota Prius was first imported into the USA. Toyota began selling them in Japan in 1997 and just a few were exported to the USA in 2001. My dealership received only one Prius every couple of months or so. But word had spread that the Prius was a remarkable vehicle from the experience of the first four years they were sold in Japan. Toyota could not keep up with the demand. Consequently, “everybody wanted to buy a Prius”. We had a waiting list over a year long. Other dealers do what they usually do when they have a high demand, low supply vehicle…they marked their Priuses up over MSRP by THOUSANDS of dollars. They do this by adding another sticker next to the Monroney label with a markup they sometimes call ADM for “additional dealer mark up” or MAA for “market adjustment addendum”.  I refer to this as the “Phony Monroney”.  Crazed customers gladly paid egregious prices to have the first Prius on their block. My dealership took, and still takes, the approach to never charge over MSRP for any vehicle, no matter how low the supply and high the demand. In fact, we wish we could sell all of our cars for MSRP because it represents a generous profit to the dealer. My customers had to wait  a long time to get their Priuses back in the first few years of its introduction, but they paid a much lower price than all of the other dealers charged. We actually had customers flying in from as far away as California, buying their Prius from us and driving it back home. They saved so much that they were able to cover their airfare and a Florida vacation while they were here.

Over the last eleven years, the price dealers charge for Priuses has fluctuated pretty much in direct correlation to the price of gasoline. But we have never varied from capping our price at MSRP. Now here comes the real interesting part. Auto manufacturers, including Toyota, distribute cars to their dealers based on the “turn and earn” system. This means that the faster you sell cars, the faster they ship you fresh cars to sell. The dealers marking up their Priuses thousands of dollars over sticker didn’t sell their Priuses nearly as fast as I sold mine. Because we had a waiting list during times of high demand, all Priuses that came into my dealership by truckloads were sold and delivered immediately. Consequently, I began receiving more Priuses than any other dealership in the Southeast USA and than most in the entire USA!

Now you can understand what I meant by “Being Fair to Your Customer is Not Only Right, but the Fastest Path to Long Term Success”. Now, after over eleven years, I’m selling many times more Priuses and other hybrids than any other dealer in my market and more than any dealer in the Southeast USA. I’m making a smaller profit per car but I’m selling so many more that my total profit is much greater. Words and phrases like Karma, “What goes around comes around”,  “Cast thy bread upon the water”, and “As ye sow so shall ye reap” come to mind.

You would think that the other dealers would catch on some day, but they still haven’t. Gas is over $4.00 per gallon again and they are price-gouging their customers on Priuses just like always. More and more of their customers are coming to me and buying their hybrid at a fair price. This is why my hybrid customers are so loyal. They know their next hybrid will be priced fairly just like their last. My sales are soaring and other dealers’ are plummeting. They do make a lot more on a Prius than I do, but I make a lot more in total, and I get their customer when she’s are ready for her next Prius.

Another interesting fact is that Toyota did a study when they first came out with the Prius that proved people would pay up to 20% more for a Prius than a comparable gasoline car just for the idea of driving an environmentally friendly car. They really scooped the rest of the industry on this. Nobody else figured this out until it was too late and Toyota had already captured the hybrid market. But what Toyota didn’t anticipate was the greed of their dealers. Toyota priced the Prius on the MSRP to be under that 20% limit that a customer will pay over a gasoline car, but the dealers wouldn’t listen and greed overcame logic. Toyota has no power to tell a dealer what he can charge for a car. But fortunately for me, they do reward the dealer who sell their cars fastest and that’s how I came to be #1 in hybrid sales in the Southeast USA with the highest hybrid customer loyalty in the USA.

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