What is a value-added program for a dealership? It is a business to consumer incentive plan that gives a quid quo pro “bonus” when someone purchases something from the dealership. For example: customers receive free oil changes for life when they buy a car from your store. This is one of the most common value-added programs.
My experience with these programs dates back to 1999 when I started selling Volkswagens. Our competitor gave free oil changes and state inspections for life. They were one of 3 dealers in town doing anything like this. At the time, I estimate roughly 40% of all customers mentioned their program and that was mainly due to them buying so much newspaper real estate to push it. As a salesperson, 40% of the customers saying something about it translated into 100% of my customers asking for it. It really is amazing how selective our memory can be isn’t it? I was all about our store offering the same or better. What we were given was a program that only tackled 5 oil changes and state inspections for life. It forced me to continue to be a better sales person by finding ways to sell around the other guys oil changes for life.
Since 1999, I saw more and more dealers bringing value-added programs into their mix. They ranged from free tires to free manicures every week. It got to a point where the focus of advertisements were no longer cars; advertisements were all about who could whore out the most free stuff in 30 seconds. This went on until the economy crashed in late 2008.
During that 9 year period I received a promotion that took me to the executive side of the dealership, giving me a 10,000 foot view of the place. It wasn’t the new view that changed my perspective on these programs, it was the economy. We were forced to dump a lot of expenses and one of those we killed was our value-added proposition. Only a few others killed theirs, but we were the only big group to kill ours. Our biggest competitors still have their programs going to this day.
In hindsight the value-added program was bad for business. Yes, it probably did sell a few more cars here and there – nothing drastic. Yes, it gave us some extra advertising ammunition (always a good thing).
BUT it maintained the laziness status quo that most dealerships are so plagued by. Let’s face it, America has become a society of excuse makers. Instead of sucking it up and taking responsibility we get extremely creative in finding things to blame our mistakes on. A value-added program is an excuse. “How did they beat us last month?” – “Boss, I’ve been telling you for months we’re getting killed because they have free oil changes” ….have you heard anything like that before? Where are the flaws in that statement? What about training? What about stocking? What about a happy service department who treats customers well? A value-added program is not a silver bullet.
When we were on our value-added program we invited customers to ask for more. We loudly advertised that we are solely here to give you free stuff. To the public, who hates car dealers, that meant “let’s see how much more free stuff we can pull out of those devils.” Our value-added program created an air of negotiation you couldn’t shake. It filled our service department with customer who had the mind-set that they didn’t have to spend money, so our service departments couldn’t up-sell anyone. And we had to heavily rely on F&I to make the front-end profit because our sales people were virtually just order takers (lazy). What happens when you whack the hell out of people in F&I?……charge backs and court cases.
When we got off the value added-program our front-end gross immediately went up. PVR’s were higher despite the fact that it left less room for F&I to go nuts. Within a few months the service departments were selling again. This also meant they weren’t so ready to gauge the used car department all the time. And the really crazy part: our sales volume stayed relative to the market.
You now know where I stand on value-added programs. What do you think?
This article was inspired by a discussion on the DealerRefresh forums: The WOW factor at your dealership