You can be in the commoditized price-based market, or you can be in the value-added service-based market. I don’t believe you can combine the two well, or even at all. Our industry spiralled into the commoditized price-based model very early in its inception, and it is an uphill battle to do business in any other model.
Here is a highly edited quote from a shop posting a comment online, that triggered this article.
“We have been in business for just over 20 years, and it is declining. Our service is excellent, but we are unable to compete with market changes like online shopping. We cannot compete with online sites like Amazon and Rock Auto. Our purchase prices on parts are higher than these retailers sell them for.
“The jobbers I buy from now have online sites and direct their and my customers to those sites. For example, a new starter for a particular vehicle at Amazon, including taxes, is $97. My cost at the jobber is $200, and then we need to mark it up to make a profit. We can’t survive on only labour. Our labour rate is $90. If we raise it, nobody will come to our shop. So why do I pay these high prices at the jobber when my customers can buy them cheaper elsewhere? I’d like to buy direct from the jobber again at wholesale prices like 30 years ago, without any sales to the public at lower prices. Everything is priced to the consumer right now; I don’t know how we can compete with that.”
This is a huge topic, and the reason our industry is where it is would take too long for this article. But I am going to come at this from the simple point of view of chickens and eggs. There are people who own chickens that produce eggs for free. The chickens peck around the yard, and voila, there is an egg in the nest in the morning. Most of us buy our eggs at the grocery store: $3.99 a dozen for everyday large eggs, all the way up to $9.99 a dozen for cage free, free range, organic eggs. In turn, when we go out for breakfast, we pay much more for eggs. A two-egg breakfast at a diner can run around $9.99, which usually includes bacon and toast. You can go out for brunch and pay $26.99 for eggs benedict at a fancy restaurant.
My point here is that you never hear restaurants complaining that people own chickens and get free eggs, and that some people fry their own eggs at home that they bought from the same store that the restaurant bought their eggs at. Restaurants are a Do-It-For-Me service that provides everything in a particular meal for a particular price.
Restaurants know that most of their guests know how to cook a couple of eggs, but they don’t offer a discount because of that. And most guests know better than to bring their own eggs to a restaurant. Restaurants have been dealing with the equivalent of Amazon ever since they have been in existence. What restaurants have figured out is that there are lots of customers looking to pay them for a meal.
Why would I pay someone to cook for me when I could do it myself?
- I don’t know how to cook.
- I don’t have time to cook.
- I don’t want to cook.
- I am travelling, I don’t have the facility to cook.
- I hate doing dishes.
- I want to be served for a change instead of always serving.
- Last time I cooked my family got sick.
- I want to go out for a special occasion.
- I love trying new dishes that I don’t have time to learn how to cook.
- I can’t find certain ingredients, but the restaurant does and the only way I get to try them is to pay them to cook for me.
By thinking we have to compete with over-the-counter or online, Do-It-Yourself parts pricing, we have created confusion in the mind of the consumer about which type of business we are in. Our industry has been trying to serve both the Do-It-For-Me market and the Do-It-Yourself market at the same time for decades. The DIFM market in general is a value- and service-based market, and the DIY market is a price- and commodity-based market. Choose, this day, whom you will serve!
How many people who own cars
- Don’t know how to work on their own car,
- Have time to work on their own car,
- Don’t want to work on their own car,
- Don’t have the tools, equipment and knowledge to work on their own car,
- Hate working on cars,
- Are busy doing their job and want someone else to do it for them,
- Wrecked their car the last time they worked on it,
- Like the experience of being looked after by a professional shop,
- Have not kept up with technology and don’t know how to work on a modern car,
- Have a special vehicle that they don’t trust themselves to work on?
The DIFM market in North America is between 75% and 90%, depending on the report and what definitions are used. That is a huge opportunity for automotive shops not to worry about online parts pricing.
Don’t get me wrong, I know this is affecting even the best shops to a small extent, but let’s focus on what we can control rather than what we cannot control. We can control the type of client we attract to our shop, and how well we serve them. Imagine a client who never questions the price of parts, and never says, “I can get it cheaper online.”
I bet at least 75% of your clients are like that. You only remember the ones that questioned you. And if more than 25% of your customers are questioning your parts prices, you have advertised that you are in the commodity- and price-based market.