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You ever heard the one about the two entrepreneurs who set out to make their fortune selling watermelons? As the story goes, these two guys from Texas had a little money and a truck, so they decided they would start a watermelon wholesale business. They would head over the border to Mexico and buy watermelons at the super discounted rate of one dollar each. So, off they went across the border, loaded the truck full, left Mexico and headed towards Dallas selling off the melons for $10 per dozen. Business was so good they were sold out before even making it halfway to Dallas. But, while sitting on the side of the road counting their money, they realized they were a little short on cash from the original amount they started with. They wondered what the problem was as business had been so great. Then the one entrepreneur looked at the other and said, “You thinking what I’m thinking?” “Yes,” he replied, “we need to get a bigger truck!”  

I share this joke, because all too often Dealers choose to focus their advertising, and even their entire business model around sales and discounts. This is a very slippery slope, and it’s important that Dealer Principals understand that fundamentally, business is a game of margin, not volume. If a dealership doesn’t maintain adequate sales margins, no matter how much volume they do, they will inevitably go out of business. This was evident during the recent recession where the total OEM dealer network shrunk by nearly half. The majority of those who went bust during this time did so because of a focus on top-line sales, rather than margin.

But, it’s not just the small guys who make this mistake, many large companies hire ignorant CEO’s who mistakenly think volume and market share are the secret to business success. If this is the case, then in the years of 2000 and 2004, 23 of the 40 biggest bankruptcies of all time wouldn’t have taken place, but they did. Even going further back in history, there is more proof. In 1978 President Jimmy Carter deregulated the airline industry. This allowed the airlines to charge whatever they wanted. So guess what they all did. They lowered prices. All copy-catting the other trying to increase sales volume, and ultimately leading to hundreds of bankrupt airlines. In the 27 years before airline deregulation, no airline went bankrupt. Since 1978 over 160 have come and gone.

Often times it’s the little guy, the local Gilly’s Got It hardware store copy-catting the big guys, like Home Depot, who gets himself into big trouble. Gilly, the little guy, putting up a billboard that says, CHEAPEST PRICES IN TOWN, has just set himself on a catastrophic trajectory towards bankruptcy. From there Gilly will be forced into doing less, cutting corners, decreasing payroll, hiring less talent etc. And it’s very difficult to ever recover from the Big Discounter positioning. “We used to be the cheapest, but now we’re a premium brand,” just doesn’t go over well with local customers.

Small business love to observe what the Wal-Marts are doing and attempt to copycat. Few realize that behind closed doors Wal-Mart and other big boxers struggle with margin too. But, they’re playing a different game, and their business scales different than the local guy. If they only make a nickel off of one item, they may be able to sell 2 million of those items worldwide. Gilly’s is headed to extinction when he follows suit.

So, here’s what happens. The small guy sees what the big guy is doing (discounting) which isn’t necessarily right and he models his advertising in a similar way. Then, some moron (there is one in every market) will then go and copy his competitor and lower his prices even more providing a perfect road map to extinction for them both. Seriously folks, I’m not making this stuff up, it happens all the time.

Then, when a business gets in trouble, it has a cash flow problem. This creates an intolerable situation for the owner. If the bills aren’t paid, then the needed products and supplies will be cut off. If payroll isn’t met, there will be no one to take care of customers. So what’s the owner to do? Shift straight from logic to emotion and say, “If they can sell it for that cheap, then so can we!”

No! It’s a trap, and you don’t want to be caught in it. There is a better way, and just because you’re selling the same products as your competitors across town doesn’t mean you can’t outperform them and out market them without promoting sales and discounts. And, this is exactly why you need to join me, and my team of experts here in Atlanta for our Fall Marketing Boot Camp, October 24 through the 26, where I’ll be covering in detail how and why you can grow new market share and increase retention without discounting. Don’t delay!  Go now to www.powersportsmarketing.com/bootcamp and get registered. There’s a no risk money back guarantee so you have nothing to lose. See you there.