市场学case-11-pricing-strategies

Companycase11(pricingstrategies)CIRCUITCITY:SELLINGUSEDCARSLIKESTEREOSAHassle!Buyingausedcar!Justmentionthesubject,andanyonewithexperiencewillprobablyfrownandimmediatelylaunchintoasadstoryabouthisorherlastpurchase.Theusedcarsalesperson,infact,isoftenwhatpeoplehaveinmindwhentheythinkaboutmarketing’sexcesses.SowhywouldCircuitCity,acompanythathassucceededinsellingstereos,televisions,carradios,andotherelectronicitemsthroughits300superstores,suddenlytrysellingusedcars?Why,whenmanagementconsultantsadvisecompaniesto“sticktotheknitting,”wouldanelectronicsretailertryitshandatusedcars.TheusedcarmarketTheanswerissimple–newcarprices.Duringthepast10years,theaveragenew-carpricehasrisen70percenttoabout$19,500.government-mandatedpollutioncontrolsandsafetyfeatureshavedriventhepriceincreases.Overthatsameperiod,however,medianfamilyincomeandtheconsumerpriceindexhaverisenonlyabout40percent.Forsomeconsumers,today’snewcarscostasmuchastheirhouses!Consumersalsounderstandthatnew-carqualityhasimprovedandthattheaverageusedcarondealers’lotstodayisonly3.5yearsold.Thus,theyreason,theycangetalow-mileageusedcarthatwillbeveryreliableandsave$5,000to$10,000intheprocess.Moreover,surveysshowthatthevalueconsumersplaceonnewcarsasastatussymbolhassteadilydeclinedandthatusedcarshaveincreasedinstatus.Besidesgrowingdemandforusedcars,supplyhasalsoincreased.Toencourageconsumerstobuynewcars,manymanufacturersanddealershaveturnedtoleasingprogramsthatallowconsumerstodrivenewcarsandturntheminaftertwotothreeyears.Thedealersthenreselltheusedcars.Further,thegrowthoftherentalcarbusinesshasresultedinagrowingsupplyofusedrentalcarsasthecompaniesturnovertheirfleets.Moreover,althoughitusedtobedifficulttofinanceusedcars,banksandfinancecompaniesareofferingfinancingforusedcarsatinterestratesonlyslightlyabovethosetheychargefornewcarloans.Whereaslendersoncesawusedcarbuyersashighercreditrisks,today’snew-carbuyersactuallyhavehigherloandefaultrates.Finally,dealersmayearnmorenetprofitbysellingausedcar.Arecentsurveyindicatedthatausedcarsaleproducedanaveragenetprofitof$265,versusa$130profitforanewcar.PluggingintoanewwayDespitethesechargesindemandandsupply,however,theprocessofsellingandbuyingusedcarshasnotchangedmuch.Becausemostconsumersbuycarsinfrequently,theyareoftenatadisadvantagedealingwithusedcarsalespeople.Consumershavetonegotiatethepriceoftheusedcaraswellasthepricethedealerwillpayforanytrade-inthatisinvolved.Consumersworryaboutwhethertheyarepayingtoomuchorgettingtoolittle.Theyworryaboutthecar’squality.Theprocessproduceshassled,worried,anddissatisfiedcustomers.CircuitCitybelievesitcanchangeallthisbyapplyingtheprinciplesofelectronicsretailingtosellingusedcars.In1993,thecompanystartedCarMax,theAutoSuperstore,tocarryoutitsvision.ItopeneditsfirstCarMaxstoreinRichmond,Virginia,andasecondinRaleigh,NorthCarolina,in1994.AsimplestrategyCarMax’sstrategyisstraightforward.ItlocateditsRaleighstore,forexample,onthecity’soutskirtswherethecompanycouldbuyalargepieceoflandonamajorhighway.Onthenine-acretract,CarMaxdisplaysupto500usedcars,aselectionfarlargerthanthetypicalusedcarlot.Thetypicalstoreservesamarketareawitha25to40mileradius.Customersenteranattractivedisplayroom,similartooneinanew-cardealership.Iftheybringtheirchildrenalong,thereisanattendedchildcareareacompletewithtoysandvideogames.Asalesassociatecladinabluepoloshirtandkhakisgreetscustomersandescortsthemtoacomputerkiosk.Theassociatefindsoutwhattypeofcartheconsumerisseeking.Usingacomputertouchscreen,theassociatecancallupafulllistingofallthecarsortrucksinstockthatmeetthecustomer’scriteria.Forexample,ifthecustomerisinterestedinlatemodelsportsutilityvehiclespricedbetween$12,000and$17,000,thecomputerwillquicklydisplayeachsuchmodelininventorybybrandandmodel.Thedisplayshowsacolorpictureofthevehicle;listsitsfeatures,suchasfour-wheeldrive;anddetailsitsspecifications,suchasenginetypeandEPAgas-mileageestimates.ThescreenalsopresentsCarMax’spriceforthevehicle,apricebasedontheaverageretailpriceintheNADA“BlueBook”thatcardealersuse.Thecompanysaysitspricesare$500to$1,000lowerthantheaverageretailbookvalue.Thecustomercanprintacopyoftheinformation,includingthepictureandthevehicle’slocationonCarMax’slot.Thecustomeristhenfreetolookatthevehicle.Inaddition,allsimilarvehicles,suchasothersportsutilityvehicles,arelocatedinthesamearearatherthanbeingspreadhaphazardlyacrossthelot.CarMaxpaysitssalespeoplecommissionbasedonthenumberofcarstheysell,notbasedontheprofitfromeachsale.Thus,thesalespersonhasnoincentivetopushthecustomertolookatmoreexpensivevehicles.Beforeputtingcarsitbuysonitslot,CarMax’smechanicscarryouta110pointinspectionandthoroughcleaning,evencleaningtheengine.Theemployeesaddnewtiresormakeotherrepairsasneeded.Nocaronthelotismorethanfiveyearsold.CarMaxoffersafive-day,money-backguaranteeanda30-daycomprehensivewarranty.Foranadditionalcost,italsooffersextendedwarrantiesthatstretchuptothreeyears.Ifthecustomerdecidestobuythevehicle,thereisnohagglingoverprice.ThepriceCarMaxsetsisitssalesprice.Thereisnonegotiation.Therearenohiddenorextrafees,juststatesalestax,