More and more dealers are implementing a Limited Negotiations Sales (LNS) process. The way the model works is dealers post a market-based price derived from a third-party reference site: New vehicles sites like Edmunds or KBB work just fine. The store establishes how much they are willing to negotiate from the market-based price; let’s call it $200. This is a one-pencil form of negotiations – no multiple desk trips. One variation of the model allows qualified sales people to negotiate on their own without having to go to a manager; however, if the sales person negotiates off the posted price he/she loses about half of their commission. The other method for the LNS model is not allowing the sales people to negotiate; only the manager can drop off the posted price – in which case their compensation is lessened.
So how does LNS raise grosses? Women and Gen Y hate to negotiate and they do their homework before coming to your store. They already have a very good idea what they should be paying for the vehicle; these two groups purchase about 60% of the vehicles sold today. As long as these groups recognize that the market-based price is within the bandwidth they expected to pay, they will more easily settle for the posted price to eliminate the perceived hassle of negotiations and the accompanying lengthy sales process. In essence, they will pay a little bit more to not have to go through the traditional negotiation process. The LNS model also improves grosses because all dealership stakeholders are incentivized not to discount from the market-based price.
It is important to note that the LNS process must reinforce the benefits of not having to negotiate for the customer (ease of purchase; saving time; stress free…) multiple times; so you’ll need to alter your road to the sale. Also, pricing must become a core competency for your management team. The LNS model also starts to move sales managers from being mostly “deal managers” – their focus must shift to sales person development along with enforcing a rigid sales process. This “empowerment” sales model will also attract a younger, more gender-balanced and better-educated sales force. Finally, you need to move salesperson compensation from being paid on the gross to one that rewards volume (I’ll be glad to send you a sample LNS sales consultant pay plan).
The era of fooling the customer is long gone; so why not get on their side of the table and join them in a process where all parties are playing the auto buying game with the “cards face up”?