An untold truth: are price reductions good for your dealership?

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Since the early days of the industry, price reductions (markdowns) have been “the” tool used to move inventory as it ages, but now post-pandemic, dealers should be more serious than ever about holding margin on their in-stock vehicles. Not only because inventory is scarce, but it is vital to take advantage of new technology that avoids these negative impacts to your bottom line. 

Conventional wisdom has been that if a car is not moving, reducing price is the way to put a consumer on a car. However, markdowns are also a clear sign that dealers are not taking the time to explore the many interconnected factors impacting their inventory sales. Market pricing, vehicle merchandising, online engagement, stocking issues, applicable incentives, and more should all be taken into account before considering a price markdown. 

Walk through the Inventory Markdown Decision Tree for step by step guide to avoiding markdowns.

Over the last few months, we’ve found not even a global pandemic can deter in-need consumers from purchasing vehicles. So why do we still believe price adjustments are integral to generating consumer demand? In reality, markdowns result in very few incremental Vehicle Details Page (VDP) views while setting dealers back hundreds of dollars per unit. Our internal research finds that, on average, dealers receive less than one VDP view per $100 to $200 of markdown. And, the online impact of marking down a vehicle only lasts a maximum of five days. 

In the long run, overuse of markdowns to resolve inventory aging issues undercuts the ability to sell additional units at full price with maximum margin. Think about it – why would a consumer care to pay more for a car that has been on the lot 8 days compared to 80? It’s the same car to them, so they will choose the cheaper option. But, if they’re never presented with a lower-priced aged unit, they will confidently pay closer to the asking price regardless of days on lot. Another way to look at is that consumers are payment driven.  A $500 price reduction on a typical new car changes the monthly payment by only $8.

Our research shows that each week 55% of your inventory doesn’t get viewed online, and it’s even worse for a newly listed vehicle the first week it is listed. Just before the sale? 85% of vehicles get seen.

So, if the vehicle hasn’t had significant views and therefore hasn’t sold, dealers are back at square one with a cheaper vehicle. And what’s the logical next step? Make it cheaper? Before touching the listing price for a vehicle that’s slow to move, there’s benefit to first exploring cost-efficient alternatives. 

1. Set up VDP analytics

VIN-level insights are crucial to making marketing and sales decisions – especially when it comes to inventory markdowns. Before adjusting listing details, dealers should consult trustworthy analytics sources and have a strong understanding of their feed and website data.

2. Analyze online engagement

The vehicle may have received online traffic, but were those visits from engaged shoppers? Engagements such as clicks to call or chat, directions, photo views, etc. are far more predictive than VDP views alone, and these engagements differentiate the low-funnel shoppers from those just browsing.

3. Adjust promotion strategy

A change in price won’t do any good if shoppers haven’t been around to see the existing price. Before sacrificing margin with a markdown, dealers should first make sure customers know the vehicle is for sale with a targeted marketing campaign. This also includes making sure the vehicle is properly merchandised with great photos and descriptions.

4. Adjust price strategy

Only if the vehicle has already received adequate online attention should dealers reassess its pricing. Things to consider before taking the appropriate next step: the target buyer’s budget, all local competitors’ sales and pricing, and market-wide inventory pricing tools. 

Has your dealership been turning toward markdowns as an attempt to increase sales over the last few months? Luckily, there is a wealth of data and analytics available to any dealer looking to break this trend and make more informed pricing and promotional decisions. For a better understanding of your market, check out the LotLinx Market Report. And, tune in to the CBT Market Update for weekly sales and marketing advice from the industry’s top experts


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