If you've been following my column for a while you'll likely note that I seldom shy away from discussing controversial topics. Discounting is a topic that generates plenty of impassioned discussions online, in casual conversation and in the classroom. Personally, I don't like them and with very few exceptions, I seldom offered them for reasons to be discussed later in the article. There are, however, many shop owners and coaching companies that firmly believe that discounting is an appropriate and necessary sales technique that, when properly executed, can yield impressive numbers and they have the data to prove it.
Advantages of Offering Discounts:
1. Attracting New Customers
The most frequently heard reason for offering discounts is the ability to increase car count. At its core, the auto repair business is a production-based business. In order to increase production, you either need to sell more per car or increase the number of cars you sell to. A properly marketed discount can provide an incentive for a potential customer to choose your shop over a competitor. For example, a “free visual brake inspection,” “free tire rotation” or a $29.95 oil change promotion, may prompt someone to give your shop a try when they might have otherwise gone elsewhere.
2. Building Customer Loyalty
Discounts can also be used to encourage repeat business. By offering a loyalty program or discounts on future services, shops can create a sense of value and reward for returning customers. Airlines do it with frequent flier miles, coffee shops, car washes, movie theaters, restaurants, and many other businesses employ this tactic.
3. Increasing Cash Flow and Volume
When discounts are carefully implemented as part of a structured plan and not an emotional reaction to a customer’s tale of woe, they can lead to an increase in volume, which in turn can result in higher sales. Although the individual yield on the service which is discounted is lower, the higher volume of business and increased opportunity for upselling can offset the discounted price, resulting in greater overall profitability.
4. Filling Slow Times
Slow periods are common in our business. In some respects, our business is somewhat seasonal. For many shops, including mine, the winter months were slow. Offering a discount during these slow times can help fill the schedule and keep the techs busy. A discount during this period can be the incentive that some customers need to perform that service now instead of waiting until a later date. This helps ensure that the shop remains profitable even when demand is lower.
The Disadvantages of Offering Discounts
1. Reduced Profit Margins
Discounts, (most often not properly applied and not part of a plan) kill profit margins. Our fixed costs do not change based on the price of the service. Remember, the cost of production stays the same unless you've negotiated a deal with your parts vendor or your techs where they are willing to take less pay. When we reduce the price of a service through a discount, our yield shrinks. The math is pretty simple. For every percentage point discount that you offer to customers, that is a percentage that is coming off your bottom line.
2. Setting Unrealistic Customer Expectations
Offering discounts regularly can set expectations in the marketplace that there is no “real price” or that the “real price” is the discounted price. This can lead to situations where customers may delay necessary repairs or maintenance until a discount is available. We see this occur in the retail commodity realm as people wait to buy gifts on 'black Friday.”
3. Attracting the Wrong Kind of Customers
Discounts frequently attract people who value nothing except the lowest price. These individuals seldom buy anything other than the discounted service and in so doing they cost you money; twice. First by not producing revenue for that time in the bay that they occupy and secondly, the opportunity cost.
4. Negative Impact on Customer Perception
Consistent discounts can send a message that the shop is in financial trouble and may not be around to honor their warranty should a problem arise.
Conclusion:
Discounts are tools that we as shop owners have available to us to benefit both our customers and our businesses. But how the tools are used and when the tools are to be used must be part of a comprehensive marketing and sales strategy that is fact based. This is where a thorough understanding of a shop’s financials is of paramount importance.
