Traditional-Markup, Service Bundles
Many distributors mark-up goods to hopefully cover the costs of their “free services” that come with the product. These include service-costs like: outside and inside reps, fulfillment, delivery, free returns, and trade credit.
What happens when digital-buying millennials increasingly take over B2B buying, and they find lower prices for equal or better goods from online sellers (with zero outside and inside rep costs)?
How many of your reps can successfully sell their own added value in order to justify your higher prices?
Bundle-Busting (Preview?) Case: Car Dealer Reps
A recent study revealed that turnover of commissioned car dealer reps has climbed to an industry average of 67% per year. A big reason: average commission income is dropping with the decreasing margin-dollars per new car sold. Why? How?
Customers are using free local-dealer services, and then shopping prices widely online. Steps to this show-rooming-type process:
- Sell the used car to Carmax for more than dealers’ offers.
- Shop for the new car category on-line.
- Settle on a category of car made by multiple manufacturers.
- Go to local dealers to test drive each car in the desired category.
- Choose the brand (along with options)
- Use sites that pit multiple dealers (across the country) in a reverse auction for your specific car.
- The winning dealer’s margins (with shipping costs included) has small margin dollars and commissions for the rep who conversed with the (non-local) customer.
How to Stop Show-rooming? (Or, Web-Rooming)
One option: unbundle services for fees with buying rebate possibilities. Dealers could pay salaries for competent “consultants”. Then, charge prospective customers an hourly fee for their time as well as a fee for test-drives. If the customer should then buy a car, the upfront fees could be rebated off the price or with discounts on subsequent service fees over time. (Precedents? Unbundling services for fees has become a science within distributor-to-retail channels since the ‘80’s.)
Most distributors (unknowingly) have big profit/loss cross-subsidies amongst their SKUs and customers. The most net-profitable SKUs will be increasingly shopped for online successfully for lower prices.
- How fast might web-rooming start affecting your firm’s most net-profitable SKUs, reps’ commissions, and your overall service-cost bundle?
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