The New Four Square
A seasoned car salesman escorts a customer into the sales office at his dealership. Sitting across the desk from his customer, the salesman says, "So how can I earn your business today?" The consumer contemplates – Will I be treated fairly and given a good price? Will this salesman try to take advantage of me? The salesperson proceeds with the negotiation, based on the four-square leverage points – trade-in value, purchase price, down payment and monthly payment. While the consumer struggles to understand a good deal from a bad one, the dealer “works the numbers” and ultimately gains the upper hand in order to settle on a deal that works in his favor.
While this is how a negotiation scenario may have played out in the past, history has led many consumers to feel jaded about the car buying process, often feeling like the negotiation process is set up to confuse them into buying a car at an unfair price. Participating in a four square negotiation often resulted in the buyer feeling ‘worked’ by the end of the process. However, while the dealer has traditionally had most of the leverage in the negotiation, in today's Internet Age, negotiation leverage has now shifted to the consumer—particularly in today’s down market.
Dealers are now contending with super-empowered consumers, who have spent an average of 6.5 hours researching online before ever setting foot in the dealership. In fact, unlike the days of traveling from shop to shop down dealer row, today the average consumer only visits 1.5 dealerships before purchasing. Super-empowered consumers are typically armed with very specific information about the car they want to purchase. They know the availability and price of similar vehicles in your market and have a sense of “fair price” based on guidebooks such as Kelley Blue Book, Edmunds True Market Value and others. As a result, the negotiation advantage has been turned in favor of the consumer.
Consumers and Dealers Collide
While most dealers sell based on the four money-related leverage points of the four square method, most consumers buy based on what they value, or what we like to refer to as the M.A.R.K factors:
- MISSION: Does the vehicle fit my Mission?
- e.g. Safe, fuel efficient, family car that seats 5 (including 3 car seats) and has a cargo area instead of a trunk to fit my dog - AFFORDABLE: Is this vehicle Affordable given my financial means?
- Payment range is the primary factor - RISK: How much Risk on reliability am I taking?
- One-owner, still under warranty, service history, low mileage, JD Power Quality Ratings, projected total cost of ownership - KEY DIFFERENTIATORS: What are the Key Differentiators of this vehicle versus my alternatives?
- Leads consumers to make purchasing decision based on price to value equation
Let’s face it, in the Internet Age, dealers need to recognize that the four square method is no longer the primary consideration when negotiating a sale. Of course, Price, Payment, Trade-In and Down Payment are still critical components to the deal – but they should not be the starting point. Starting with the dealer’s “four squares,” which focus on money levers, rather than the consumer’s “M.A.R.K Factors,” which focus on personal mission, can lead to a huge disconnect between how dealers sell and how consumers buy. The haggling that ensues can erode dealer profits and prevent deals from being closed.
What dealers need is a new approach to selling – one that takes advantage of the consumer’s knowledge and sells on value, rather than selling solely on price. At the Digital Dealer Conference in Las Vegas (just days prior to writing this article), we presented this “New Four Square”.
The New Four Square
In order to meet the needs of the empowered consumer, it’s time for dealers to adopt the New Four-Square method, which centers on the M.A.R.K. Factors, or the emotional and functional NEEDS OF THE CONSUMER. The New Four Square shifts the process from a confrontational negotiation based solely on price to a more ‘win-win’ negotiation based on consumer values. The key lies in shifting the sales focus from haggling over price and payment to focusing on the principles of Consumer Optimized Selling, (see Pat Ryan’s May Digital Dealer article Stop Haggling…Start “Value Closing”), and a technique called “Value Closing.” In this more transparent approach to selling, the dealer’s job is to highlight the value of each car and leverage the information that consumers have been using in order to meet their needs and values:
- Vehicle Highlights: Focus on the high value equipment that most closely fulfills the customer’s mission. Differentiate your vehicle from similar vehicles on the market.
- Quality and Risk Profile: Highlight the vehicle attributes that have the potential to reduce risk and reinforce vehicle quality.
- Certified Pre-Owned: Highlight vehicle certifications, which provide a general sense of quality (better inspected, reconditioned, etc.). It is critically important to emphasize some of the powerful benefits of Certified programs that currently have low consumer awareness such as “7-year, 100,000 mile Extended Warranty” and “24-hour roadside assistance”.
- The Value of Your Pricing: Sell the value of the price you are offering as it compares to the trusted sources that your customer has likely already reviewed such as Kelley Blue Book, Edmunds TMV and JD Power Information Network as well as the vehicle’s own pricing history (i.e. original sticker price, your original list price, average selling price, etc.).
By aligning dealer’s goals with consumer’s goals, the New Four Square puts dealers in a better position to persuade the consumer based on how they define value. The result: a win-win negotiation process that allows you to:
- Draw a parallel between what your customer has learned and what they need
- Determine what evidence you have to support them
- Empower your sales team
In today’s internet-empowered world, the “Old Four Square” should no longer be the centerpiece of the negotiation. Rather, it should be used after the four pillars of the “New Four Square” have been sold to the customer. In the end, dealers who adopt the New Four Square will earn the trust of consumers—and will be rewarded with not only the sale, but with buyers more willing to pay a fair price for value. As a result they will create satisfied customers while also increasing potential for strong gross profits.
David Nelson is senior vice president and general manager for FirstLook’s Elite Operations Division. FirstLook by INCISENT Technologies is the leader in automotive retail performance solutions and was ranked as the #4 Fastest Growing Software Company in the United States in Inc Magazine’s 2008 Inc500 as well as the #1 Fastest Growing Company in the Automotive Sector. David can be reached at david.nelson@firstlook.biz.