To Discount or Stand Out
Let’s take a trip back to the 1980s. Back then, cars broke down at an alarming rate. GM, Ford and Chrysler supplied shops with a never-ending flood of broken cars. Shops did little advertising, didn’t bother to understand business, and were booked out a week and a half. Life was good. The repair shop was king.
Were shops profitable? Yes, in fact when you compare prices on many services, our margins were higher in the mid-1980s than now. Take oil changes, for example. I remember charging $39.95 for a full service oil change. There were quick lubes charging less, but who cared, bays were full and if you wanted me to change your oil, it was 40 bucks.
Maybe we were too busy in the ’80s to notice the world was changing. By the 1990s the tide had turned. Cars became hi-tech marvels and the Japanese introduced quality to consumers. That changed the new car market forever. The Big Three would never be the same. The once profitable, repair-oriented automobile was evolving into a species that didn’t require the amount of repairs its ancestors did.
Little by little many repair shops saw car counts decrease and repair opportunities erode. Shops that relied on tune-ups, carburetors, exhaust, engine and transmission work, were finding it hard to keep their bays full. Car dealerships realized that lost margins on new car sales could be made up in the service bays. Tire stores, brake, muffler, and transmission shops would transform into “Total Car Care” facilities. The king’s domination would soon be in jeopardy.
Global competition would also play a key role in our industry’s future. Parts companies began buying and manufacturing parts from around the world, bringing down prices and in some cases, quality. Prices across the board on hard parts fell. Today, low price has become the norm. Many of us, working on a price matrix, still maintain margin percentages, but gross profit dollars fell. And we all know that you pay your bills with dollars, not with percentages.
Repair shop owners, seeing the change to the industry, shifted their focus from wrenches to the office. Customers were no longer showing up at our doorsteps with broken cars. Seeing what many national chains were doing, many shops began competing on price. And most of them led with the infamous $19.95 oil change. Many shops held down labor rates, reduced prices on some jobs and found it hard to charge for diagnostic testing. Even new car dealers began price positioning themselves the same or lower than many repair shops.
There are now websites where consumers could post needed repairs or service jobs, and shops bid for those jobs. The end result: We are telling today’s motoring public to choose your repair shop based on price, a market position that is not sustainable. In essence, it’s a race to the bottom to see who can offer the best prices, a race that no one wins.
So how do we compete today? You can try to be a true discount shop, but can you truly be the cheapest? Can you really offer the highest quality with the lowest prices? If your marketing strategy is price driven, people will choose you on that alone. I am not suggesting that price never matters, but concentrating on price alone is a risky strategy. You need to find the balance between being profitable and competitive.
There is another way called “differentiation.” Companies that adopt this strategy separate themselves from the pack. Companies like Starbucks, Michelin, Apple and Harley-Davidson. Through distinctive branding these companies create an emotional tie to their customers. The customer experience and culture helps remove price from the picture. They don’t under-price, they over-deliver on the experience.
Without differentiation, consumers tend to view all shops in a market area as the same. It’s like buying commodities, such as eggs and milk. The consumer sees little difference between them; the price is about the same wherever you go. So where you purchase eggs or milk really doesn’t matter.
Ask yourself, what makes you different? What are you known for in your community? Are you a green shop? Are you known as the shop that’s involved with youth sports? Study the competition, then dare to be different. Don’t focus on repairs or your equipment either. We all basically do the same thing. That’s not what defines you as being different.
No one goes to Starbucks for a cheap cup of coffee and no one goes to McDonalds for the fine dining experience. Each is different. One promotes price, the other the experience. Both are engaged in a race. Which race do you think you have the best chance of winning?
Joe Marconi has more than three decades of experience in the automotive repair industry. He is the owner of Osceola Garage in Baldwin Place, N.Y., a business development coach for Elite Worldwide and co-founder of autoshopowner.com. Reach him at email@example.com.