Matrix Pricing

[gene calhoun]

Is anyone using matrix pricing, does it still have a place in todays market, to generate extra profit. How do you deal with dealers in your area that do not use matrix?

Have attended seminars recently by two of well known consultants, one says matrix needs to go away, the other says is alive and well.

[David S]

Gene:

During my travels across the country I can say unequivocally that the Matrix is alive and well. Though I must say I have seen a dramatic shift in pricing strategies that utilize a Matrix. In the old days the typical philosophy was to make a high gross on the cheap parts, in part to help cover the acquisition costs. As the cost of the part increased the mark up was reduced, theory being that consumers are more likely to shop price on expensive parts. We did end up with good GP% but the industry also received a reputation for ripping people off with $6.00 nuts and bolts and $9.00 cans of brake clean.

Nowadays, I often see a Matrix that has a relatively small mark up on the less expensive parts and competitive items. The matrix then increases as the cost rises to a range of $25-$50 and then decreases again as parts become more expensive. The thoughts in this philosophy are that we must be competitive with the aftermarket on common items, we dont want to gain a negative reputation for ripping people off on the $6.00 nuts and bolts, and we can still be confident of a reasonable price on expensive items if shopped. It takes a little effort to fine tune a Matrix that covers each of these situations but if set correctly you can maintain a decent GP% while offering a competitive pricing structure. In addition I also see frequently where a dealer will price items like oil filters manually and sell them below list.

David S.

[Chuck Hartle]

I have to agree with David. Matrix is alive and well. You might want to request the April 1998 issue of "The Parts Manager" where two different views of matrix pricing were discussed.

What I see is exactly what David elaborated on with a heavy emphasis of matrix pricing put on captive parts and next to none put on competitive products and accessories.

Chuck Hartle'

[This message has been edited by Chuck Hartle (edited 10-06-1999).]

[gene calhoun]

thank you for your reply.but i still have the problem of the other dealers in town,one large dealer a half mile from me that does not use matrix at all?????

we have a large older customer base and they shop!

[David S]

Gene:

Considering what little I know of your situation, here are some thought starters. First verify that the other dealer is if fact selling at book list to all customers. If they are selling based on book list to the service customer, retail customer and wholesale customers you are limited to a few options. You could just bow to the precedent they have set, sell at list and try to improve your net by running a more efficient operation. (You should do this anyway). Or you could tweak prices slightly and work with your sales force to sell the features and benefits of your product, providing the consumer with added value.

Though I dont recommend it, there are many parts departments, which only use a matrix to the service customer. Considering, other than routine work, most customers do not have a price quote until the car is in the shop, many see this as captive business. These customers are not likely to remove their car from the shop because a dealer half a mile away sells the same parts for a few dollars less. The concern I have is first the relationship between you and your service manager. He is not going to be comfortable with this situation, and for good reason. The other concern is if a customer discovers that they can by the same part at your front counter for less than through your shop.

David S.