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One basic, and sometimes underused, value-added performance is the phrase, one-stop shopping center! Consider how important that phrase might be too many of your customers. You are the one place in the customer's territory that he/she can go to fulfill all of his/her parts requirements. One stop, one invoice for all of the customer's parts needs. That alone can mean a great deal to any customer. Merchandise your parts, sell features, advantages and benefits.
Before developing any parts pricing strategy, we strongly recommend that the Parts Manager spend some time doing market research on the competition in his/her local market. Parts break down into two categories: 1] Competitive and 2] Non-competitive. Competitive parts are generally available through many sources within the dealership's trade area, while non-competitive parts are available only through your dealership or a limited number of outlets. Competitive parts are generally fast, high turn, high volume parts.
Parts price sensitivity is a very important factor to remember in developing your parts pricing strategy. Don't get caught pricing certain parts above the assumed market price, or customers will judge your dealership as high-priced on everything you sell!
There are some specific characteristics of price-sensitive parts. They fall into five distinct categories: 1] Disposable, 2] Fast Moving, 3] Limited Selling Season, 4] High Dollar Parts and, 5] Heavily Promoted (or advertised) Parts.
In your strategy development, you may want to consider the Profit Turn Theory. There are some specific categories of parts that turn in your inventory much faster. The Profit Turn Theory basically follows the concept that the faster a part turns in inventory, the lower the profit will have to be on that part or classification of parts.
Conversely the slower a part turns in inventory, the higher the profit required.
Again, your strategy should also consider increasing margins by doing what many retailers and catalogue companies have done for years. Look at the pricing you find in most catalogues and decide whether or not this psychological pricing might just work for your parts department.
If an item is priced at $3.05, why not obtain maximum profit by staying within price groups that are psychologically acceptable to most customers? You could move the price from $3.05 to $3.49 or possibly to $3.99, capturing additional margin but keeping the price acceptable to the customers. You may well argue that the customer knows what you are doing, but be assured this strategy really works. We have witnessed dealers who have improved their overall parts margins by as much as 1% simply by following this procedure.
In summary, developing a comprehensive parts pricing strategy is a project that is certainly based in many instances upon trial and error. It is a project that both requires and demands research of the competition. It is not enough to simply assume what your market will bear. It is a project that will require time and effort on the part of any conscientious Parts Manager.If done correctly, the Parts Manager will have the opportunity of both increasing his parts sales and improving the overall profitability of his/her Parts Department.
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