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February 24, 2011updated 12 Apr 2017 11:53am

Cooke’s view: Taking things at face value

Peter Cooke discusses value for money and the concept of value added for car finance providers. Some look for extreme value for money but even car dealers have to make a living, so they might end up being disappointed.

By Peter Cooke

Peter Cooke discusses value for money and the concept of ‘value added’ for car finance providers.

 

Photo of Peter CookeBuyers, whether for new or used cars, look for value for money. Some look for extreme value for money – but even car dealers have to make a living, so they might end up being disappointed.

Value for money can take many forms, but in terms of buying a car during a period of austerity and economic uncertainty (not recession), buyers may have different motivations – motivations which might be turned into positive business.

To put that in the cold light of day: while 200,000 jobs may disappear, from a business point of view there are still 29 million in work and looking for best value.

Indeed, it might be suggested that the loss of jobs makes those remaining in work hungrier than ever for best value.

Many would-be buyers that one might have looked on favourably in past downturns may well have been from the public sector, whether for new or used cars.

Yet today, that is the sector which appears to be suffering.

Hardly a day goes by without some local authority, a commission, or a government agency announcing job losses or delays – and that, in turn, will affect private sector players which have historically looked to them for business.

So what might represent ‘best value’ for this restructured market?

Photo of red alphabet blocks spelling out "value" in a shopping trolley Maybe customers are a little more cautious than in the past; perhaps they look at a potential bargain with greater cynicism, thinking: ‘You just want to sell to me’.

How do we take that one step further to push the right buttons for offering ‘value for money’?

It doesn’t necessarily have to be a lower price. To many buyers, the known cost of motoring has become more important. Certainly, part of the traditional market may look to downsize – and new car sales statistics prove that. Or some habitual new car buyers may even decide to buy a used vehicle.

For many, the important factor persuading them to buy is a ‘known commitment’ about how much the car might cost to run and to maintain.

Think of the different formats that prudence and caution might take in a period of austerity. To some, a used car may be seen as a ‘risk too far’.

 

Breaking the log jam

Could ‘value for money’ break that log jam? A quality used car, or even a downsized new car with assured finance, or a form of warranty on it, could help create a value-for-money package.

But why stop there? Value for money could, during a period of austerity, seek to make costs as predictable as possible and ask the would-be buyer to determine the level of risk they want to outsource.

Thus, a value-for-money package might be expanded to include, for example, a service package over the period they have indicated they will keep the car.

‘Caps’ are popular today – a known cost for a service. Better still, service prices frozen or known for the next two-to-three years may attract some cautious spenders. Other industries have been promoting ‘caps’ – so why not get in on the act?

Maybe the customer needs a well-presented package – a ‘complete service’ rather than an hourly rate – but it needs to be attractive. Equally, what about a ‘contribution to tyre replacement’? Tyres can be a big cost in one instalment, so you might offer the client a sinking fund for tyres, provided you supply the replacements.

Once upon a time, guaranteed buy-back prices were common. Admittedly inflation then was often running rife, but there might be opportunities for some mutually advantageous buy-back scheme, with the sum perhaps set against a replacement unit.

After all, the leasing industry works on forecasting residual values – so is a guaranteed buyback so far away?

There are a number of other issues that could be included. The business model being suggested is essentially one of menu pricing: ‘Dear prospect/customer, minimise your risk by paying monthly – and we will offer you a menu of items and services that can be included to reduce your risk.’

You could build up a pricing menu of half a dozen items, each priced separately in case the client wants most of them – or you could offer a super-value price if they take the whole package.

Not all customers and prospects would be interested, but much-vaunted customer relationship management systems may help to identify prospects.

To the customer or prospect, a cap on the price of motoring or an assured cost of motoring (excluding fuel) could be a value-for-money business proposition.

To the dealer, it could be a value-added strategy that could capture incremental business and offer new profit opportunities through selling additional services and creating positive cash flows.

The issue is a simple one – what represents ‘value for money’ to the customer that can also represent ‘value-added strategy’ to the dealer in a period of austerity?

The author is professor of Automotive Management at the University of Buckingham

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