March 20, 2012

Kicking The Discount Addiction

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In late 2008, when the Great Recession began to show its teeth, retailers didn’t know what to do. Before the public fully understood the extent of the housing bubble, Lehman Brothers, Washington Mutual and AIG were down on the mat and weren’t getting back up. With uncertainty and fear swirling, consumer spending quickly contracted and retailers looked for ways to off-load their holiday-bloated inventories.

Their only possible response was the last tool left: discounting. As holiday shoppers traversed the malls, “50% Off” and even “75% Off” signs hung in every store like ornaments on the tree. The game was clearly changing and retailers hoped the deep discounts would help them limp through what was one of the worst holiday shopping seasons in decades. The lower prices seemed to help some retailers, but for many it simply wasn’t enough and eventually many well-known retailers closed their automatic sliding doors.

Even for those who saw short-term benefits, there were still side effects. Consumers came to expect deep discounts. Even when the initial shock had worn off in 2009, consumers still expected the discounts and were willing to wait for them before opening their wallets.

Even now, 24 months later, consumers remain highly price conscious. Prior to the recession, consumers were saving 1 percent to 2 percent of their annual income. By June of this year, it was 6.4 percent. That’s a huge change in behavior and attitude. Consumers are simply not as willing to spend, and when they do, they want value.

Watching this trend in the economy and in retail spending is particularly important for carwashers that have resorted to using frequent discounts as their main tool for attracting customers. In my opinion, many carwashes found themselves in this discounting dilemma long before “sub-prime” was a household word.

A great example of this is the Detroit market where 20 years ago someone realized that when you drastically lower your price, lots of customers show up. The problem is this doesn’t last forever unless you can drastically lower your operating costs. In a carwash, cost reduction can only go so far. Compounding the lower prices was the added competition discounting created when investors saw this “new” model. The problem is a discount model only works as a short-term solution unless those drastic operational cuts are found.

In Detroit, the end of that “short-term” period started a while ago and was sped up when the recession hit its stride. Even though the average price for a carwash in Detroit has now risen from $2 to $3, there simply aren’t enough cars to do the volume necessary to make the majority of those carwashes profitable.

In Detroit, consumers were retrained to believe a professional carwash was worth only $2 to $3.

In a video I recently did for (see below), I interviewed Dale Huggins who has been washing cars in Detroit for 40 years. You could hear the exasperation in his voice as he told me that even relatives come back from visiting other places and say, “Boy are they ripping people off out there. They want $5 for a carwash.”

Although he tries to explain to them the $5 price is what it should be, it’s too late. An entire market has been trained, and one carwash operator is not going to convince them otherwise, even if they’re relatives.


Does that mean the situation is hopeless? Of course not. However, I do believe that carwashing has been forever changed by the recession and that discounting can’t be the favorite tool we turn to in order to attract customers. The question is how do retailers who trained consumers to expect discounts, retrain the same consumers to make purchases without resorting to bribes (aka coupons)?

Retraining Customers

Let’s start by talking about value. Value doesn’t mean cheap. It is essentially the relationship between price and what consumers perceive they are receiving. It is what you get for the money.

At retail, shoppers are not willing to pay full price for a pair of jeans if they know a discount is coming in the near future or if the same jeans are available somewhere else for less. However, carwashing is a service, not a product, and that is a key difference.

Answer this quick question: What is it that carwashes are selling?

Most people see an obvious answer here. We sell the service of cleaning cars. Specifically, we remove dirt from inside and out and make the surfaces shiny where applicable. While this is what we do, I don’t


believe it is what we are selling. Carwashes are selling the sense of well-being that accompanies being clean. Driving a clean car feels better than driving a dirty one.

People don’t buy things simply because of the rational benefits. Someone doesn’t buy a Rolex watch because they need to know the time; they buy it because of how it makes them feel. People don’t buy Starbucks just because the coffee could win a taste contest; they buy it because of the way it makes them feel. Even in value-based stores like Walmart, people like the feeling of having saved money.

When we talk about providing customers with a feeling that they are getting a lot for their money (i.e., value) we are talking about experience. Experience is the sum of everything customers receive from purchasing carwash services. This certainly includes getting the rational benefits of a carwash (dirt removal and polished surfaces), but it goes beyond that. It is the feeling they leave with; that sense of well-being that comes from being clean.

For example, you could have a brand new rack of equipment and do a fantastic job of cleaning the car, but if the site is strewn with garbage, then you probably will not deliver that sense of well-being to your customer. It is a simple idea but a profound one because it shifts the focus away from the tunnel and onto the entire customer experience — from the instant they drive onto the property to the moment they leave.

Before we talk about some specific ways to create an experience, keep in mind that this takes a lot of work. Discounting is a problem partly because it is easy. You provide a much lower price, put up a sign, send out a coupon and wait for customers to show up. Creating an experience is more difficult but has long-term benefits. It also is the only way to wean customers off discounts. There is no other way.

If you have customers only because of discounts then it means the market has devalued what you offer. The only way to get them to pay full price is to change what you offer. This means selling more than just the soap and water. You must create an experience that leaves the customer saying, “That was definitely worth the money.”

Creating an Experience

The first thing you need in order to provide a great experience is the ability to clean the car. This may be obvious, but if you travel around the nation you will see carwash after carwash that misses this point. You don’t have to have the latest and greatest, but you do need to make sure everything is well maintained and working properly.

Part of the problem with the discount crutch is that it creates cash flow, not profit. Less money, therefore, goes back into the business and the quality of the product diminishes. However, if you want to create an experience with the goal of being profitable, then you have to clean the car. Keep in mind that this is just the “cost of entry.” It doesn’t end in the tunnel. This is just the beginning.

The second thing you need to provide a great experience is people. If you think you can skip good hiring practices, training, uniforms and regular encouragement, then you will always need the discounts. A great carwash experience is not possible without good people. That doesn’t mean you need dozens of them, but the ones you have must be well trained. They need to know how important it is to smile and to communicate effectively with customers. For many this seems impossible. However, kicking any addiction is difficult, and if you want to get away from coupons, then you need good people.

The third thing you need for a great experience is personality. This is less obvious than the first two. Retailers successful at separating themselves and increasing their perceived value focus on personality. This is because personality equals individuality, and customers love individuality. They love businesses that are different and unique. When businesses are perceived to be the same, consumers look for discounts because the discount becomes the point of differentiation.

Personality comes down to beliefs, style and procedures. Your beliefs are what inspire your services, prices, priorities and everything else the customer sees. Your style is how you communicate those beliefs and includes tone of voice (whether “folksy” or “formal”), color palette and messaging. Your procedures also have a major effect on the customer experience and are a reflection of your personality.

Take a look at leading retailers and you will always see strategic placement of their personalities shining through. At the Gap, it’s white space, wood floors and pictures of silhouetted models in denim. At Target, it’s the color red, wide aisles and messages that focus on value, such as “maximize living space, minimize spending.” The important point is that it is strategic and it is consistent.

The fourth element of a great retail experience is signage. It is impossible to provide a great experience without communicating to your customers through signage. Big retailers spend considerable amounts of money on regular changes to signage because they know it makes a difference. Signage should convey your business personality and focus on the core messages you’re trying to get across.

There is no question that coupons and discounts in general have the potential to bring in customers. However, reliance on coupons is a dangerous practice that will always harm you in the long run. The long-term solution is to provide a great experience and deliver the positive feeling consumers are looking for. It is much harder, but it is absolutely essential for sustainable success in this economy and into the future.


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