The Case for Upfront Pricing Why an Informed Good Price Will by jolinmilioncherie


                          The Case for Upfront Pricing
Why an Informed, Good Price Will Become the Only Price
White Paper 03 The Case for Upfront Pricing

Executive Summary
The new car retail business is now more than 100 years       But the premise for such a sweeping franchise system
old. At its core are a mature franchise system and a         has changed irrevocably. Geographic proximity is
protective regulatory/legal framework predicated on          no longer the primary driver of auto purchases.
geographic proximity of the customer to the dealer,          Convenience no longer trumps everything else in the
conditions that have held the dealership community           existing auto transaction model. And cars no longer need
accountable for more than a century. As conceived,           to be “sold” as they once did.
this system met the needs of both manufacturers and
dealers: manufacturers were able to sell geographic          Replacing the old “proximity marketing” model is a new
exclusivity to dealers so those dealers didn’t have to       paradigm built on upfront pricing embraced by more and
worry about market saturation, and dealers paid for that     more forward-thinking dealers—businesses that want to
exclusivity—thereby building a massive service network       compete successfully in a rapidly evolving market.
nationwide for the OEMs, who could not legally set prices
for their autos, that effectively supported and sold their   Upfront pricing is the new world order. Its arrival
product for decades.                                         heralds a bona fide tipping point in automotive retailing.
                                                             Upfront pricing is non-negotiable in an environment
The franchise system that guaranteed dealers their           defined by net margin compression, anonymous
zone of geographic protection gave them the freedom          access to robust product information for consumers
to operate a business model based on optimizing profit       via the Internet, and the commoditization of the car. To
per transaction. The system also helped OEMs propagate       facilitate a purchasing decision, the online commodity
their brands and made them look bigger than they             shopper wants an informational advantage, and that
were while growing the effective sales force. As 2008        is truly achieved only when the buyer can get access
began, there were 20,700 new car dealerships with            to an upfront price—anonymously—and has the tools to
nearly double that in new vehicle franchise operations       compare that price with the market average, to know
nationwide.1                                                 it’s fair. This combination of upfront pricing and pricing

White Paper 03 The Case for Upfront Pricing

“relevancy”—that is, unimpeachably accurate data about                                             Dealerships that are not sensitive to and remain ignorant
what others have paid for the same vehicles—ultimately                                             of this Internet-driven expectation of adequate pricing
will set market forces free within the auto industry for                                           information risk irrelevancy. Some of the nation’s largest,
the first time. This market equilibrium is good news for                                           publicly traded dealerships, along with other progressive
consumers and for dealers who know how to compete.                                                 dealers, are accordingly offering upfront prices online
                                                                                                   as their primary go-to-market strategy. And Ford’s
While many elements contribute to and inform customer                                              “Employee-Pricing” was one of the most successful
satisfaction at dealerships—including selection,                                                   auto retail initiatives in recent history. At its core, this
convenience and the overall buying experience—                                                     program was upfront pricing consumers could trust.
consumers’ actions online prove that what they really
want to know is the price, which is the focus of this paper.                                       The world is changing; upfront pricing for new cars isn’t
After all, they are willing to surrender their anonymity                                           just nice to have, it’s the new paradigm in automotive
for the (frequently unrealized) prospect of receiving a                                            retailing. If dealers are not prepared to upfront price
price. Price dramatically impacts customer satisfaction                                            their cars and win customers based on informed, good
in the auto purchase process, particularly when it comes                                           prices, they’re ignoring the very nature of the online
to making Internet purchases. What’s more, research                                                shopper they’re trying to court. Put in starker terms—and
confirms that offering upfront price also correlates                                               with very few exceptions—dealers who don’t embrace
directly to significantly increased customer loyalty.2                                             upfront pricing won’t thrive, or even survive in some
                                                                                                   cases, going forward.

 Geographic proximity is no longer the primary driver of auto purchases.
    Convenience no longer trumps everything else in the existing auto
transaction model. And cars no longer need to be “sold” as they once did.

1. National Automobile Dealers Association Industry Analysis   2. J.D. Power and Associates, 2007 Dealer Satisfaction with
 Division, NADA Data, “Economic Impact of America’s New         Online Buying Services Study; eMarketer.
 Car and New-Truck Dealers,”, 2008.

White Paper 03 The Case for Upfront Pricing

Automotive Retail Doesn’t                                             Which toaster would you buy?
Function as a Free Market
Below we will provide you with a snapshot of the forces
driving this transformation of the traditional auto sales
system, followed by an overview of adjustments dealers must
make to succeed under the emerging new model.

Market forces within the automotive industry have been
bound up by a system that has traditionally favored the dealer
in the transaction by making dealers the customer’s primary
resource for comprehensive product information and by
maintaining a lack of transparency in product pricing. But
consumers are now empowered; they have anonymous access
to product information online. This empowerment dovetails
with the movement within the industry to embrace an
upfront pricing model. And at the center of this intersection
is the car itself—ubiquitous, utterly reliable… and a
                                                                      One easy way to remove yourself from consideration is to withhold
commodity in every sense of the word.                                 price on a well-defined product in a market where others do provide
                                                                      upfront pricing information. While cars are different than toasters, the
What Has Changed:                                                     pricing concept is the same for these.
The Car Has Become a Commodity
As Merriam-Webster puts it, a commodity is a “mass-                  Buyers are now more confident in the product as brands
produced unspecialized product whose wide availability               have achieved high levels of safety, quality and consistency.
diminishes the importance of factors other than price.” In the       Given the same make, model, trim and option level from
context of auto retailing, cars are already there. Because cars      the factory, meaningful variations in quality and reliability
have been individually priced for so long (and many dealers’         simply do not exist. Put another way, based on what the factory
business models rely on keeping it that way), the idea that the      is delivering, there is no greater value in patronizing Pete’s
car has become a commodity is still somewhat heretical. Still,       Porsche-Audi than there is in buying from Paul’s Porsche-Audi.
heresy or no, cars are now commodities.
                                                                     Consider how a consumer might approach buying a toaster.
                                                                     Granted, cars are not toasters. But the buying process, for
Compare two cars
                                                                     consumers, is essentially the same. He or she would research
                                                                     various brands, find out what’s available and compare
                                                                     features. He would assess his own wants and needs: two slots
                                                                     or four, wide enough to accommodate bagels, appropriate
                                                                     color to match his kitchen. Then, he would compare prices.
                                                                     Now suppose the make and model of toaster he chose was
                                                                     available at K-Mart, Sears, Circuit City and Best Buy, all
                                                                     conveniently located at the same intersection a block from
                                                                     his home. Imagine three of those stores have signs out front
                                                                     advertising that toaster—one for $145, one for $150 and
                                                                     one for $155. The fourth retailer won’t disclose its price. The
                                                                     moral is clear: the competitive price gets the business. Price
Find the differences between these two similar looking cars. Check   matters, and the retailer who doesn’t give a price won’t even
the last page of this white paper for the answer.                    be considered as part of the purchase decision.

White Paper 03 The Case for Upfront Pricing

Vehicles are more complex than toasters, of course, and the                                                    If we’re comparing apples to apples (or toasters to toasters, or
financial commitment much larger. But people follow the                                                        BMW 550i’s to BMW 550i’s), there should be no difference
same steps when shopping for a car because they have the                                                       in price. Today there is no reason why two people each
same needs—to learn about the products and to compare                                                          buying a BMW 550i with the same factory options should
prices to make informed decisions.                                                                             pay different prices for the same car, whether they’re in St.
                                                                                                               Louis or Los Angeles or at the same dealership. Yet the
                                                                                                                            reality today is that it’s possible for those two
Commoditization3                                                                                                            buyers to pay prices that differ by thousands,
                                                                                                                            even if they bought from the same dealer on the
                                                                                                                            same day. There is, then, utterly no objective
                                                                                                                            reason for a consumer to pay more for a car
                                                                                                                            based on where it’s bought and sold. That’s the
                                                                                                                            essence of a commodity business.

                                                                                                                                     The Internet has Replaced
                                                                                                                                     the Rooftop Gorilla
                                                                                                                                     For most of the automobile’s history, dealers
                                                                                                                                     could count on the geographic exclusivity
                                                                                                                                     of their franchise agreement to ensure a
                                                                                                                                     certain level of walk-in traffic (read: built-in
                                                                                                                                     opportunities for aggressive selling techniques)
                                                                                                                                     because walking into a dealership was the only
                                                                                                                                     real way for consumers to research their car
                                                                                                                                     purchases. They picked up the brochures, looked
                                                                                                                                     around and talked to a salesperson.

                                                                                          Technology has transformed the auto sales
                                                                                          paradigm. Today, the Internet is enormously
                                                                                          influential in determining how consumers find
                                                                                          dealers and how they decide when and where
                                                                                          to buy. Consequently, dealers from outside a
                                                                                          geographic market area now have a shot at a
                                                                                          customer browsing online, effectively stripping
                                                                                          away the protections of geographic exclusivity
Commodities are defined by high product uniformity and low pricing variation.             granted to dealers under franchise law. More
That is to say that the same product on the same day will not have a high variation       than ever, in a stagnant or shrinking market,
in price. Clearly several industries are not commoditized industries, such as
real estate, jewelry, and travel, due mostly to their low product uniformity. The         competing dealers rely on this dynamic to
automotive category is remarkable as a category with near perfect product                 increase market share, to expand their trade area,
uniformity within models, yet high pricing variation.
                                                                                          and to take sales away from other dealers. This is
                                                                                          a classic zero sum game: for one to win, another
                                                                              must lose. Those who succeed are doing so at the expense of
                                                                              their competitors.
Put in starker terms—and with
                                                                                                               That’s not to say that convenience doesn’t matter. It does,
very few exceptions— dealers who                                                                               but serving the local community is no longer a sufficient
don’t embrace upfront pricing                                                                                  differentiator or sole competitive advantage because
                                                                                                               consumers go online first. That means any other dealer
won’t thrive, or even survive in                                                                               can make a better offer at an earlier or more critical stage
some cases, going forward.                                                                                     of the purchase process and thereby expand its trade area,
                                                                                                               sometimes pitting dealer against dealer for the same
                                                                                                               customer seeking the same brand vehicle.
3. “Jewelry Report, 2006 Update: The Who, What, Where, Why and How     Malinda Geisler, “Grocery Industry,” AGMRC, September 2007. Suzanne            Restaurant Association,, 2007. Grocery Manufacturers
Much of Jewelry Shopping,” Research and Markets, June 2006. National   Duffree, “CEA forecasts $155B in Consumer Electronics revenue,” Electronic     Association, Inc. and PricewaterhouseCoopers LLP., “Insights into the
Association of Realtors, NAR Data, 2008. National Automobile Dealers   News, January 8, 2007. “Travel, Airline, Hotel, and Tourism Industry           Food, Beverage, and Consumer Products Industry: GMA Overview of Industry
Association Industry Analysis Division, NADA Data, “Total Dealership   Trends,” Plunkett Research, LTD., 2007. “Clothing Stores, Industry Profile,”   Economic Impact, Financial Performance, and Trends,” 2006.
Sales Dollars,” NADA’s AutoExec, May 2008. Mary Holz-Clause and        First Research, April 2008. “2008 Restaurant Industry Forecast,” National

White Paper 03 The Case for Upfront Pricing

Dealership Concentration and the Loss of Geographic Exclusivity

This map shows the concentration of dealerships for a specific automotive brand within the entire county of Los Angeles. One can infer the
franchise boundaries by looking at the dealership distribution. Consumers state they are willing to drive 10-15 miles4 to buy a car. This map
shows that there are as many as 8 dealerships for this brand within driving distance for most of LA County. The idea of geographic exclusivity for
dealerships is a thing of the past as consumers are typically within reach of multiple dealers.

For prospective car buyers, indeed, the “neighborhood”                                           Today, the Internet is most often the first stop for prospective
dealer has gone the way of tail fins, according to a recent Zag/                                 car buyers. According to the 2007 Dealer eBusiness
Synovate survey of 1,000 consumers.4 Dispensing with the                                         Performance Study5, 83 percent of new-car shoppers use the
geographical niceties of the local dealer franchise system, 42                                   Internet during the shopping process—and that number
percent say they would be willing to drive at least 45 minutes                                   continues to grow. In a report measuring the changes in the
from home to buy a new car from a dealership.                                                    primary source of auto buying information from 1998 to
                                                                                                 2005, the Internet gained the most (15 percent) and dealer
When adding in recommendations from a trusted source—                                            brochures lost the most ground, when compared with word
and the prospect of saving $2,500 on that $40,000 car—                                           of mouth, Consumer Reports, and newspaper, magazine and
geography is even less of a factor. Fifty-five percent of the                                    TV ads.6
sample would drive 45 minutes or more for a great deal, on
the counsel of a trusted source. And 17 percent would drive                                      Consumers are primarily seeking an informational
more than 90 minutes, according to the survey.                                                   advantage when shopping online. To get it, they boil the
                                                                                                 process down to answering these key questions: What kind
To adjust to the new rules of auto retailing and take                                            of car do I want or need? What kind of price can I get? What
advantage of how consumers now shop for cars, dealers must                                       will my monthly payment be? While some consumers will,
first understand the new expectations created by today’s                                         at some point, want to test drive a car at a local dealer, the
online model, including how potential buyers are using the                                       test drive is no longer as important in a car-as-commodity
Internet during the shopping process, what they’re looking                                       world. For many, it’s enough to browse models and features
for, what they hope to avoid, and what they’re getting and not                                   online and then to narrow selections down by price. At this
getting online.                                                                                  stage, consumers need a price to gain the very informational
                                                                                                 advantage they seek. For many, any price will do even if it’s
                                                                                                 not a particularly good price (which explains, in part, why

4. Zag data, survey of 1,000 consumers conducted by Synovate   5. The Cobalt Group, in partnership with Yahoo! and R.L. Polk   6. “Changes in Primary Source of Auto Buying Information:
 eNation, May 2008.                                             & Co., Dealer eBusiness Performance Study: The New Buying       ‘98–’05,” CNW Marketing Research & Time Inc., www
                                                                Influences, 2007.                                     

White Paper 03 The Case for Upfront Pricing

online lead generation has worked until now). The lead
generation model is built on the assumption that consumers                                        A snapshot of what’s happening now online. A buyer conducts
will surrender their names and contact information, passed                                        online research and submits price requests, which require her to give
on to dealers for a fee, in exchange for a price. Yet this                                        out a phone number and an email address. That price request and
                                                                                                  the buyer’s personal contact information is then shotgunned out
model ignores what consumers dislike most: exposure to
                                                                                                  to between three and seven separate dealers by the lead generation
the commissioned salesperson. Indeed, one reason many go                                          aggregators. After spending time researching the product and
online in the first place is to be able to remain anonymous                                       reaching the point at which she needs to know price in order to
while they conduct product research and begin the shopping                                        move forward, the buyer has just inadvertently provided dealers with
process.                                                                                          her contact information. But given that only 38 percent of dealers
                                                                                                  say they provide a price quote in the first email responsei, dealers as
This is the crux of the informational advantage consumers                                         a group are fundamentally missing the point. Many dealers do not
seek online: not only do they want pricing, but they want to                                      bother giving a response; and if they do, they tend to shy away from
get that price in the same way they’d get the price of a book                                     giving an upfront price, preferring instead to launch into a “come on
on immediately and anonymously. What’s                                                down” sales pitch. (For a more detailed discussion of lead generation,
more, they need to know the price they get is a good one.                                         see Zag’s white paper, “Lead Generation is Broken for Dealers and
That explains why online shoppers typically cross reference                                       Customers.”)
pricing data with three other sources: to confirm the fairness                                    Why that approach doesn’t work. Holding back price and making
of the price, and to move forward in the process knowing                                          the online experience anything short of a completely convenient
they are informed enough. Just as the interstate highway                                          process for the buyer ignores the very nature of online shopping and
system transformed commerce locally, regionally and                                               the psychology of the shoppers themselves and ultimately can harm
beyond, so the Internet’s information tributaries are altering                                    sales efforts.
shopping and buying behavior for good.
                                                                                                  A study by the Pew Internet & American Life Projectii, released in
                                                                                                  February 2008, reveals that American Internet users have embraced
Follow The Price Request…
                                                                                                  online shopping for its convenience and time-savings. At the same
Incidence of consumers being able to get a real price on the car7
                                                                                                  time, most online Americans have high levels of concern about
                                                                                                  sending personal information over the Internet. In fact, 75 percent
                                                                                                  of Internet users either agree (39 percent) or strongly agree (36
                                                                                                  percent) with the proposition that they do not like giving out credit
                                                                                                  card or personal information online.

                                                                                                  According to AlixPartners’ 2007 Consumer Brands Index™ which
                                                                                                  surveyed 5,000 U.S. consumers, auto buyers are no longer willing to
                                                                                                  settle for anything less than totally honest and consistent pricingiii.
                                                                                                  Consumers ranked “honest price” as more important than “lowest
                                                                                                  price.” Convenience is also a factor: auto shoppers no longer have
                                                                                                  the patience to sort through rebates and other incentive offers to
                                                                                                  discern the actual price they’re expected to pay at the dealership.

                                                                                                  When the dealer’s business model is to maximize profit per
                                                                                                  transaction, it makes sense to hold price close to the vest. But
                                                                                                  now that consumers have anonymous access to product and
                                                                                                  pricing information online, and the cars themselves have become
                                                                                                  commodities, there’s no reason or opportunity for elasticity in price
We estimate that only about 9% of dealerships provided upfront                                    from buyer to buyer and, therefore, there is no financial benefit to
pricing of any kind. Of the remaining 91% of dealerships, only
38% will give a price upon request. 18% will not see a price unless                               the dealer for withholding price. And there’s no reason not to give
they visit the dealer.                                                                            consumers what they want: anonymous access to an upfront price,
                                                                                                  online. In fact, there are plenty of reasons to do just that.

7. eMarketer, “Automotive Marketing Online: Negotiating the   i. J.D. Power and Associates, 2007 Dealer Satisfaction with   iii. AlixPartners, 2007 Consumer Brands Index™, as reported in
 Curves,” June 2008.                                           Online Buying Services Study.                                   news release titled “Consumers Want ‘Honest’ Pricing in
                                                              ii. Pew Internet & American Life Project, Online Shopping,       Autos,” January 10, 2007.
                                                                February 13, 2008.

White Paper 03 The Case for Upfront Pricing

How Dealers Can Thrive                                                                           Why Offer an Upfront Price?
One of the best ways for a dealer to thrive in a market                                          An upfront, transparent price is an informed, fair price given
saturated with dealerships is to upfront price their cars—                                       in real time. The consumer doesn’t have to provide personal
capturing the attention of buyers online by giving them what                                     information or wait for an email response from a dealer prior
they want when they want it. After all, if the customer is                                       to expressing interest. While online, the buyer can remain
going online and can shop anywhere, the one overriding goal                                      anonymous until he or she is ready, and that places the buyer
is now an informed, good upfront price. This is, in Malcolm                                      in control.
Gladwell’s apt (if now overused) phrase, the “tipping point”
for auto retailers—“the level at which the momentum for                                          According to Forrester Research, consumers who
change becomes unstoppable.”                                                                     understand car prices are happier with their vehicles and
                                                                                                 their dealers. They feel significantly better about their car-
Dealers who refuse to acknowledge this are hanging onto                                          buying experience and are more likely to purchase from
the last vestiges of “proximity marketing” and will continue                                     the same dealer again9. The sheer volume of price requests
to lose market share to dealers who are already offering                                         consumers submit every month shows just how badly they
upfront pricing. Dealers traditionally argue that when they                                      want this information. Just one of the major infomediaries
give an upfront price, they are surrendering their profitability                                 processes 13 million price requests per month.10

            Progressive dealers recognize that to grow market share they
              must remove suspicion from the transaction and begin to
            engage in trust-based conversations with consumers. And they
                 understand further that upfront pricing is the most
                      effective way to start those conversations.
opportunity. But not giving an upfront price no longer equals
a financial benefit for dealers. In fact, when competing for                                     Progressive dealers recognize that to grow market share they
static market share, this is one of the most effective ways to                                   must remove suspicion from the transaction and begin to
raise sales volume. Online lead generation has hit a wall. The                                   engage in trust-based conversations with consumers. And
leads dealers are buying are diminishing in quality, due to                                      they understand further that upfront pricing is the most
the very nature of the lead generation business. (For a more                                     effective way to start those conversations.
detailed discussion of lead generation, see Zag’s white paper,
                                                                                                 Roger Penske, chairman of United Auto Group Inc., the
“Lead Generation is Broken for Dealers and Customers.”)
                                                                                                 nation’s second-largest new-car dealership group, embraces
The automotive sales industry cannot put the upfront                                             upfront pricing. In a 2005 Washington Post article11, Penske
pricing genie back in the bottle, and dealers can’t continue                                     said car companies should implement no-haggle pricing and
to optimize price on a per-transaction basis as a way to                                         selling across the board, because that’s what consumers want.
grow their businesses. Key to making upfront pricing work,                                       “The closer we can get to one price in this business, the better
however, is ensuring that the price is informed, fair and good,                                  we are going to be long-term,” Penske said. “Such pricing
if not great.                                                                                    calms the consumer because the consumer sees the price,
                                                                                                 knows the price.”
Today, Internet consumers have had a taste of what
anonymous access to information can do to empower them                                           Another auto retailing pioneer—Sid DeBoer, CEO of
in the new-car transaction. But that information still falls                                     Lithia—has launched L2, an Internet-based company
short: one-quarter of car buyers who use the Internet for                                        committed to bringing upfront pricing to the used car
research still don’t know why they paid what they did for their                                  market. L2 offers transparency in every transaction,
cars.8 They want more: they want price.                                                          including availability of a broad selection of popular late

8-9. Forrester Research, Auto Site Designers Must Rethink Price   10. Kelley Blue Book;                   11. Warren Brown , “Do Automakers Grasp Why ‘Employee
 Info, June 19, 2006.                                                                                                  Discounts’ Worked?” The Washington Post, August 14,

White Paper 03 The Case for Upfront Pricing

model used vehicles, clearly marked “negotiation-free” prices                                     Potential dealer resistance to upfront pricing comes from
based on current market values, and a number of other                                             an adherence to the practice of maximizing profit per
consumer-friendly policies.                                                                       transaction, an outdated model. Others wonder whether
                                                                                                  giving an upfront price might just cause buyers to take
Further examination of how upfront pricing can affect dealer                                      it to the next dealer and use it as a negotiating tool. But
operations and the dealer/consumer relationship underscores                                       research suggests that most consumers don’t like to haggle.
the benefits of disclosing a bottom-line price upfront:                                           A university study13 investigated consumer preferences for
                                                                                                  negotiating the purchase of a new car versus purchasing the
• If price is pre-determined, dealers can spend their
                                                                                                  car at a fixed-price dealership. Researchers found that most
 time with the customer telling them about the car
                                                                                                  consumers strongly prefer not to negotiate the purchase of
 they just bought, getting them excited about the product,
                                                                                                  a new car and would pay substantial premiums to avoid this
 and seeding future sales and referrals rather than spending
 that time haggling across the table.

    “The closer we can get to one price in this business, the better we
    are going to be long-term.”
                                                                                                                             - Roger Penske, United Auto

                                                                                                  Looking Toward the Future –
• Dealers who engage in upfront pricing don’t have to spend                                       ‘Relevance’ and Pricing Transparency
 personnel time negotiating the price. Decreased staff time                                       The general consumer perception is that dealers are
 results in lower costs and higher productivity.                                                  disingenuous about pricing. Recent research confirms that
                                                                                                  consumers still don’t have an objective point of reference
• Upfront pricing drives down marketing costs, especially
                                                                                                  when price is at issue; the majority are willing to cede greater
 with the introduction of performance-based marketing
                                                                                                  profit to dealers than dealers actually expect14. If dealers
 programs premised on providing that upfront price.
                                                                                                  are to thrive in a price-conscious environment, they must
• Theoretically, if dealers are able to reduce personnel,                                         reinvent their approach to the consumer, shift gears for the
 commission and marketing costs, they can lower their                                             commoditized market, fundamentally change their cost
 prices even more and still maintain (or increase) margin.                                        structure, and restore trust and confidence in a customer-
 The result is a domino effect: by lowering prices and                                            dealer relationship that has too often been adversarial.
 offering them upfront, dealers can take market share from
                                                                                                  For dealers, the fear factor around upfront pricing is that
 competing dealers, and the cycle continues.
                                                                                                  it compels them to offer a price that isn’t always their best
• Dealers achieve higher close rates. Infiniti of Tyson’s                                         negotiating position, and that they’ll need to surrender their
 Corner enjoys over a 35 percent close rate on leads that                                         margins to be profitable under this model. But that thinking
 come from upfront pricing; the general manager reports                                           is archaic; it doesn’t acknowledge the new realities of how
 that upfront pricing customers arrive at the dealership                                          consumers are shopping online. (See Zag’s white paper,
 much happier than others12.                                                                      “Long Live New-Car Profitability.”)

This dynamic can transform showroom activities, where a
preponderance of sales time isn’t spent selling cars but rather
tap dancing around price. Instead of spending three hours
trying to get an extra few hundred dollars on one car, dealers
can spend that time selling several cars and focusing on
delivery. The bottom line is that if dealers offer upfront price,
dealers won’t have to “deal.”

12. Zag interview with John Gwinup, general manager of Infiniti 13. Devavrat Purohit, Harris Sondak, “Fear and Loathing at     14. Zag data, survey of 1,000 consumers conducted by Synovate
 of Tyson’s Corner, Vienna, Va.; used with permission.           the Car Dealership: The Perceived Fairness of Pricing          eNation, April 2008.
                                                                 Policies,” paper presented at Washington University,
                                                                 Feburary 1997. Available for download at http://home

White Paper 03 The Case for Upfront Pricing

Conclusion                                                        was one of the most successful auto retail initiatives in
The automotive retail industry recently commemorated              recent history. At its core, this program was upfront pricing
a century of operating under the franchise system—one             consumers could trust. Those in auto retail who reject
hundred years that saw remarkable changes in the cars             such developments and resist upfront pricing risk market
themselves but relatively few in the ways they’re sold.           irrelevance and, over time, a likely exit from the business.

Of late, however, the changes in auto retailing have come         Pricing transparency is both inevitable and profitable. It
fast. The advent of the Internet has diminished the dealer’s      offers a better buying experience for consumers and a more
frontline role as product information gatekeeper; shoppers        efficient selling experience for dealers. On a macro level,
now seek—and have obtained—an informational advantage             upfront pricing is beginning to trigger a powerful ripple
online. Nearly nine out of ten shoppers are referencing the       effect across automotive retailing. With the haggle gone, the
Internet as their first step in the auto purchase process.        role of the commissioned salesperson changes dramatically
                                                                  (read: flirting with extinction) and, accompanying it, the
And what are they looking for most avidly as they triangulate     prospect of dramatically streamlined dealer operations.
OEM, dealer and third party websites during their research        Satisfied consumers mean higher sales volumes over time.
and auto purchase process online? Pricing information.            Because dealers are giving consumers what they want, close
With the Internet effectively neutralizing the geographic         rates and repeat business will grow accordingly.
exclusivity the franchise system was set up to ensure, savvy
dealers recognize that there’s no reason for consumers to pay     As mentioned earlier, according to Forrester Research,
more for a car based on where it’s bought and sold, especially    consumers who understand car prices are happier with their
when it’s beginning to dawn on the industry that the car itself   vehicles and their dealers. They feel significantly better about
is a commodity.                                                   their car-buying experience and are more likely to purchase
                                                                  from the same dealer again. Upfront pricing is the linchpin
To take advantage of this trend among online shoppers,            to making this happen and the key to thriving in automotive
smart dealers are embracing upfront, good-to-great,               retailing’s new world order.
informed pricing. For example, Ford’s “Employee-Pricing”

                                                                                                 A: The price.
                                                                                                 Q: What’s the difference between these two cars?
                                                                                                 Question on page 4


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