The Transparency Advantage

Car shoppers today have access to all kinds of online data when making a purchase decision: car reviews, price information, inventory availability, dealership reviews, you name it. With a few clicks (likely from their smart phone), they get the answers they need, possibly while standing right in front of you in your store. Talk about consumer empowerment.

The thing is, all this ready-access to information can also be hugely empowering for dealers. Dealerships that adapt their Internet strategy to the new ‘transparency paradigm’ will gain advantage over those that have not.

What should you consider as you make the shift? Read on:

1) Are your prices fair?

Price transparency is not exactly new, but the Internet has certainly made it the new reality. Consumers have more information than ever about how your listings stack up in the marketplace.

The big misconception is that Internet price transparency sets dealers up for a race to the bottom. Not true. However, online transparency does mean that to be relevant in a customer’s online car search, you have to price fair. Not rock bottom low, just fair.

Here’s some interesting data from our site: 96% of the leads we send to dealers are on listings validated as “fair” or better according to our Instant Market Value (IMV) analyses. A mere 4% of leads sent to dealers are on “overpriced” cars – shoppers don’t even see these. The takeaway here is that if you price a car fair, you’ll get on a consumer’s radar.

Now is the time to invest in the right tools and resources that enable you to monitor and set prices that are fair in your local market (our company offers one free to subscribing dealers, in fact). Equally important, make sure your sales staff understands and can speak to the pricing data that customers will inevitably have in their pockets.

2) Do you have the right marketing mix?

I am sure your website is just the most awesome thing ever. But I can just about guarantee you that most in-market prospects are not starting their car search by typing in your URL. When they are finally ready to buy, they will start their shopping with a Google search.

I’m not saying your website efforts aren’t important – they are. However the new reality of how people shop for cars should lead you to take a close look at your marketing mix and the ROI you are getting. Moreover, when it comes to marketing your inventory and driving leads, search is where it’s happening. Unfortunately no matter how much you invest in Search Engine Optimization (SEO) or Search Engine Marketing (SEM) to get people to your site, online in-market shoppers don’t just use one site. On average they are using eight different websites.

If you are solely focused on driving consumers to your site I am convinced you are missing opportunities. The best way to win at search is to make sure your inventory as searchable in as many places as you can get it. If Cars.com, AutoTrader, or (most likely) CarGurus end up higher in the search results on Google, don’t look at it as an opportunity lost for your website, look at it as a way to broaden your reach. Start by posting your inventory anywhere that you can for free (or for not much money), then take the time to evaluate which third party sites provide you the most bang for your buck, and increase spend there.

Constantly evaluate your marketing ROI. As you allocate those dollars, think about how to best engage potential customers where and when it matters most.

3) Are you wowing your customers every chance you get?

In the age of online transparency, your reputation is totally exposed. Now is the time to double down your efforts to impress, and ask your customers to write home about it. I understand why dealerships worry a lot about dealing with bad reviews, but I’d suggest pouring as much effort into encouraging good ones.

Our data team recently did an extensive analysis of the comments in more than 100K dealership reviews from our users. The findings suggest that consumers still value their interaction at the dealership, and that it has a big influence on their purchase decisions (and the likelihood they’ll refer a dealer to their friends and family).

Friendly service leaves a lasting impression. Clear, honest, consistent communications go a long way. Remind your sales team of these basic customer service principles every chance you get, and ask your customers to review you.

Sean Peoples is Vice President of Sales at the auto shopping site, CarGurus (www.cargurus.com).

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Comment by David Ruggles on February 13, 2014 at 1:39pm: Actually, I am appreciating the role of the dealership, ESPECIALLY compared to the travel agencies the companies like Expedia displaced.

Comment by Sean Peoples on February 13, 2014 at 12:16pm: I think you are underselling the role of the dealership. Car dealers are not travel agents, and bring a much bigger value add to the equation. Putting aside the service portion of the business (which is a big thing to put aside), the biggest difference from a sales standpoint is that its a franchise, not just a professional organization that gets you access to the reservation system. Any travel agent can sell you any seat on any plane, but not any car dealer can sell you any new car, and pricing transparency isn't going to change that. Yes, several franchises exist in a particular area, but in a perfect world, each one has expertise in the product, and the facilities to sell and service that vehicle. Looking at transactions across all dealers and showing market median pricing (which is what Edmunds' TMV, and KBB's Blue Book Values have done for decades) doesn't necessarily cause a race to the bottom, nor does it eliminate the dealership.

It does seem that you are specifically taking issue with some TrueCar practices, which I can't really comment on in specifics, but the big issue that I have heard from dealers in the past (and I have no idea what they are doing today), was that they weren't necessarily taking issue with TrueCar's transparency, but were taking issue with the push to match the best deal that has ever occurred in the marketplace. And Guess what? If you are always chasing the bottom, it is a race to the bottom! But that's not true transparency, anyway. TrueCar's bell-curve, Edmunds' TMV, or in the case of used cars CarGurus' Instant Market Value, are not instruments of a race to the bottom, they are just measuring devices to understand whether a vehicle is priced to market or not. And hopefully, used well, increase consumer confidence, and provide third-party endorsements of your pricing strategy (kind of like you using TrueCar's price to close business in your store).

Comment by David Ruggles on February 12, 2014 at 8:19pm: RE: "My boss started TripAdvisor (with some other folks), and he talks about how the airlines were really concerned about sites like Kayak, and you want to talk about a commodity! You’re selling a seat! Once they embraced the programs, airlines are all significantly more profitable now then they were before comparative sites came into existence. There are lots of reasons for this, but the fact is that 100% transparency did not cause a race to the bottom in an industry that is more competitive and commoditized than Auto should provide a little proof that its not always a race to the bottom."

EXCEPT, new vehicles are sold through "middle men" called auto dealers. 100% transparency ALWAYS leads to "disintermediation," or elimination of the "middle man." What the sites like Expedia and the others did was to displace travel agents as the "middle men." True and 100% transparency means means symmetrical information. That is where buyer and seller have the same information AND the equal ability to interpret it. Consumers never received the same information as the sellers of airline seats or hotel rooms had. In that case, it didn't make any difference. If true transparency is achieved in the auto business, dealers are eliminated. So be careful what you wish for. "Perception of transparency" can be great to bring people in. But we take a risk by using the word. If you use it, you have to provide it, or be considered deceptive.

Comment by David Ruggles on February 12, 2014 at 8:10pm: To be clear, my fist post had to do with dealers beginning to discount their new inventory and paying a vendor to do it "scientifically," as if we need science to help us give gross profit away.

Comment by David Ruggles on February 12, 2014 at 8:09pm: As always, a great deal is a state of mind. And that's why we always should go for a bump. If you don't it invites your customer to ask for even more. The Internet hasn't changes human nature.

Regarding pre-owned: certainly, if your inventory doesn't show up on the first pages of a typical customer search, you don't get seen. That's a given. Today the pre-owned game is about turn. However, if you have a rare car, there won't be many of them show up on a typical search because there aren't any out there. And if you have an exceptional vehicle, don't give it away just because average cars are priced below you. Those cars should be sold by your sales staff with a phone call anyway.

Something that doesn't get talked about much is that fact that pricing gets you seen on a typical customer search of pre-owned inventory, but consumers still buy based on monthly payment. Why not advertise a hypothetical payment, preferably one based on a balloon or lease? Make a strong gross, shorten the term AND lower the payment. Isn't that what we all want? There is technology available that makes it easy to do. I don't sell it, but I've seen it.

Comment by Sean Peoples on February 12, 2014 at 7:56pm: Hi David,

Thanks for the insights. I do agree that it is more complicated than just saying "be transparent" and "be fair". To CarGurus, pricing fair (and I am mainly concentrating on used here) is pricing to the market median. We don't see enough gain in super-low priced cars to offset the revenue hit, nor do we see a big drop off on consumers interacting with cars that are priced to the middle of the market. We do see a big drop off in cars that are priced well above market, though. We even see consumers rejecting cars that look like they are too good to be true, because they probably are (now to your point, are they going to use that car to try to beat you down, of course they are.).

I can't speak to what TrueCar is doing, but I can say that from our standpoint, we analyze 6 million cars a night, and compare the asking price of those cars (for the same year, make, model, and trim) to the asking price of similar vehicles in the area. We factor for equipment, mileage, and vehicle history among other things. Pricing fair means pricing to the middle of the market, and we offer up what the market says in an automated way. Could a store publish a price that is not truthful, yes, but we're more likely to see a higher price than a lower one, since most dealers aren't one-price, and won't publish their lowest price for fear of losing that one $4K deal that they needed to make up for the $2K deal they had to do. Not to mention that you typically don’t have to explain yourself to the state attorney general’s office for selling for less than an advertised price.

The point that I was trying to make in saying price “fair” was just don’t price yourself out of the market, price is always a focus, but is never the reason someone accepts or rejects your vehicle from their shopping list (unless you are pricing way over market). The biggest reasons for missing someone’s list, as I tried to outline in the posting, was either 1) the car is way out of line price wise 2) they didn’t know your car existed or 3) someone blew the customer interaction. If you can price fair, be everywhere, and show them that you care, you can go anywhere.

Man, did I just really write that? It’s been a long day…

- Sean

BTW. I totally agree that its more difficult with New Cars, as you are selling the exact same thing as your competitor, but the race to the bottom should really be a race to the middle. If everyone is constantly providing information about where the middle of the market is, the outliers start working their way to the middle. It narrows the bell curve. My boss started TripAdvisor (with some other folks), and he talks about how the airlines were really concerned about sites like Kayak, and you want to talk about a commodity! You’re selling a seat! Once they embraced the programs, airlines are all significantly more profitable now then they were before comparative sites came into existence. There are lots of reasons for this, but the fact is that 100% transparency did not cause a race to the bottom in an industry that is more competitive and commoditized than Auto should provide a little proof that its not always a race to the bottom.

Comment by Pat Kirley on February 12, 2014 at 7:06pm: Wow David
You hit the nail on the head, these guys are selling the idea of transperancy at a cost to the consumer. We need to be better than the competition not cheaper, better quality not cheaper, better service etc., otherwise we are selling numbers. Yes we need price points to draw people in but paying every company for their advantages is not the way. If their systems were so good they would operate their own dealerships. Truth is that the real money is in training and selling leads ideas etc.

Comment by David Ruggles on February 12, 2014 at 2:36pm: At some point consumers are going to figure out that dealer's claims of being transparent aren't true. It is inherently deceptive to claim "transparency," and not to provide it. It is inherently deceptive to make up one's own definition of the word when the word means exactly what it says. Transparency is NOT relative transparency or perception of transparency.

RE: "Are your prices fair?

Price transparency is not exactly new, but the Internet has certainly made it the new reality. Consumers have more information than ever about how your listings stack up in the marketplace."

First, define "fair." WE need about $3K per transaction to break even and get a little ROI. Would a consumer deem that fair? We need to average the $3K. Do we do that by charging everyone $3K? OR do we mix in some fat ones with some skinny ones. Do you let a $2000 deal walk and lose the trade and F&I? OR do you take the $2K deal and charge the next customer $4K to maintain your average? If you haven't resolved these issues in your mind, you're in the wrong business. Most people advocating a "One Price/Fair Price" haven't worked out the simple math of this. They haven't learned the lesson Ford and others learned by trying this ridiculous policy. BUT real dealers certainly WANT their competitors to go to such a program. Bottom LIne: The people advocating this kind of stuff have self serving motivations and don't have any credentials in actually running a car dealership. I place Scott Painter at the top of that list.

Consumers come to you because of a variety of reasons. Sometimes it is just proximity. In other cases a dealer's marketing creates the perception of the best deal. This has always been the case.

RE: "The big misconception is that Internet price transparency sets dealers up for a race to the bottom."

Two points here: First, if everyone is doing it, it IS a race to the bottom in the case of new vehicles. Pre-owned is a different animal. Everyone uses available technology to undercut their competitors pricing.

RE: "However, online transparency does mean that to be relevant in a customer’s online car search, you have to price fair. Not rock bottom low, just fair."

And in the doing that you play right into most consumer's hands. Of course, there have always been just enough consumers to buy based on "One Price/Fair Price" to tantalize those who are uncomfortable with the facts of life of the car business. Saturn took a long time to die. The Ford Collection lasted for a while before the catastrophic losses caused them to pull the plug. All sorts of initiatives lasted for a while before dying including Priceline, Green Light, etc. Toyota has doggedly sticks with their SCION One Price model while starving it for product because One Price doesn't produce needed volume.

Dealers! Always beware of vendors offering up surveys where the result is exactly what they intended it to be BEFORE they did the "survey." If your competition is considering going to this business model, and is stuck making a decision, offer to pay the bill for his making the conversion. The ROI is off the charts. If you don't believe me, I'll give you the names of a host of dealers on the fringe of the Ford Collection who "cleaned up" before Ford shut it down. Just offer to beat best offers and advertise some price leaders and you'll be fine.

As a matter of information, savvy dealers are learning they can still use TrueCar WITHOUT having to pay the $299. After cancelling their TC contract, and in a closing situation, they just go to the TC consumer facing site and use the TC price to validate their own. They get the deal and not pay the $299. I wonder if transparent TrueCar tells consumers about the $299. being added in to the dealer's cost structure? What do you think?

Pretending our business isn't a dog eat dog business is naive. Attempting to get consumers to drop their guard by falsely using the word transparency is deceptive and will be found out. Word is already out on TC on the consumer blogs. Consumers are finding out their new model actually helps dealers make profit. They don't like that.

Comment by DealerELITE on February 12, 2014 at 2:15pm: Sean Thank you for sharing