Matrix pricing

[brink]

I am thinking about using matrix pricing. What is the best matrix pricing setup and how do you handle wholesale body shop accounts that use the factory suggested list price for insurance jobs?

[Chuck Hartle]

Here is a sample of a matrix table from cost:

0.01 to 0.99 = COST + 250.00
1.00 to 9.99 = COST + 150.00
10.00 to 24.99 = COST + 115.00
25.00 to 49.99 = COST + 100.00
50.00 to 99.99 = COST + 90.00
100.00 to 9999.99 = COST + 70.00

This is a sample of an escalated matrix table. It is based off of the cost of the part rather than the list price of the part. The more expensive the part, the less the list price is escalated. I would shop the dealers in your competitive area as a retail customer and have them give you quotes on what their price is before you begin to develop your matrix pricing.

One key to keep in mind is that your mfg usually have a 40% profit margin for suggested retail as a guide. So, what would a 40% profit margin be from a cost plus basis; COST + 67.00 percent. In other words, you can have LIST or COST + 67.00 and you basically have the same as suggested retail. Anything above that is a bump.

Finally, to answer your second question about wholesale body shop accounts; You CANNOT bump your sheet metal prices with the matrix pricing, unless you don't want any body business. How you accomplish this is by applying the matrix table to your retail price code (or price level) and have several price codes for wholesale that don't bump and discount off true suggested list. The key to your matrix pricing is the application to price codes.

Good Luck,

Chuck Hartle'

[fburrows]

I would like to add to Chuck's answer. You will also need to create a list of parts that you do not want the matrix to affect. These might include quick service items like oil filters and oil as well as stuff like spark plugs, exhaust and hose clamps, light bulbs, brake pads. You can easily do this by source. You also need to make everyone aware that there is a change and to let you know if there are any problems so you can adjust your matrix or which parts are in which group. There will invariably be parts that you have not thought about and these parts are usually what cause problems.

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Frank Burrows
Automotive Business Solutions
frank@autobusiness.org

[Farfinator]

I would like to add, that utilizing cost +, has a definite advantage particularly for wholesale because it eliminates the threat of people selling at cost or worse yet below cost on narrow margin, big $ items like tranys.
Take Chuck's advice about ensuring you remain competive.
But, rest assured, it's unlikely you will get hurt bumping the 0.1-$25 stuff. You bump a $500 part 10%, and you will probably get shopped...so be careful and do your homework.

[johnnyo]

Matrix Pricing ....

In order for matrix pricing to be effective, two primary factors should be reviewed prior to creating the pricing mix.
First of all it is advantageous to consider, exactly what is the current situation and what END RESULT is required. This seems simplistic , yet it is with these 2 fundamentals you are on the road to success.

FOR example: I started with a firm that for a number of years had a loss in the parts store ... the mandate was "MAKE IT PROFITABLE" .... one of the first things I ascertained (from accounting) was "WHAT IS OUR CURRENT LEVEL OF SALES AND MARGINS". From that financial information I used a bit of basic math to discover what average increase in margin was required to show a profit. Surprisingly this value yielded a very low figure of 2 PERCENT. In other words each year the parts department missed breaking even by two percent. The next step was to efficiently as possible find a way to move the average markup to produce a value of +3 percent margin. This would (if all things remained equal) create a net profit of 1 percent for the year. In deciding how this could be accomplished I looked at Matrix pricing as one possible method.
While there are a few templates that may be offered (and some theories) it comes down to each parts manager doing some basic home work to create a MATRIX formula that works for each specific dealership. One of the keys to doing this is the ability to "DATA MINE" , to be able to write and create reports that can be studied and analyzed for relevant data.

It is of interest (and well known) that as the cost of a part rises the amount of sales on each part decreases. It is this type of information that can be graphed and plotted. Once you know the quasi-basic bell curve for your parts department you can ascertain all kinds of wondrous information. IE: From this you can begin to see various cost/sales points that drop (and in some cases drop dramatically). It is at these points that you can target each reduction of the MATRIX value. AS THE COST OF THE PARTS INCREASES YOUR MATRIX VALUE DROPS GEOMETRICALLY. Once you know where the greatest turn over of parts is situated for your store, you can TARGET those key areas with the highest MARKUPS. You not only then increase your overall MARGIN but you are doing this on parts with the highest turn over. Once again keeping in mind 'WHAT IS THE "value" END RESULT OF THIS, what is it you are trying to accomplish ?' ...

It comes down to some basic math that says IE: a 3 % increase would be 20,000/ year increase .... if you sell all the parts in each MATRIX group that is being setup, and do indeed improve the MARKUP on these items, what will be either the average markup or the REAL DOLLAR VALUE realized. Once you do the math you will have success .... otherwise you will be guessing.

As mentioned by (fburrows) on individual items or "CATALOG GROUPS" you will have exceptions .... but this is where good marketing and competitiveness comes in.

Here is an example of a template we have used here. However, what matters more, is what you are trying to accomplish financially at your dealership. Once that END RESULT information is known you work the math so that your current sales and markups give you your desired END values.

Canadian Dollars


.01 to $ 4.00 net cost markup retail 40 %
$ 4.00 to $ 8.00 net cost markup retail 20 %
$ 8.01 to $30.00 net cost markup retail 10 %


If you do a check on your NET cost / to sales RATIO you will find a dramatic drop off of sales (DEPENDING ON YOUR PRODUCT LINE) at a specific point on your graph. For our GM dealership values over $30.00 Canadian net cost begin to have sales dramatically dropping off.
As well, the sensitivity of buyers increases dramatically past the $50.00 retail value. The value of using MATRIX pricing in our competitive markets is no longer a good marketing tool when generally applied to higher priced items.


We currently enjoy a counter retail margin of 6.53 % higher then the National Canadian average. However, while Matrix Pricing is an accepted method to consider improving your financials, it should only be considered as ONE of many ways to improve your bottom line. As with many things it can be quickly over used and dangerous to your financial health.


Hope this is of value to you.

[This message has been edited by johnnyo (edited 03-04-2002).]

[glevans]

Another thing to think about is your non-body shop wholesale. These are the independent shops, Firestones, City Garages, etc. Since our dealership does not have a body shop, these folks are our own shop compeditors. There is no way I will give them list price minus. We quote our matix to our shop and these shops get the discount off the same. (These guys usually don't shop other dealers since we take good care of them. They do go aftermarket, so know what to be competitve with. ((By the way, know your aftermarket competition, don't assume they are cheaper than you are. I have found many aftermarket parts more expensive than our "bump" price.)))