The Business of Selling
Problems with Pre-Selling
Dr. Jim Weber, Weber Consulting
At the turn of the 21st century as the dot-com bubble came to a screeching halt, all eyes turned to the burgeoning real estate market. Low interest rates, unscrupulous mortgage brokers, and a Washington policy that promulgated a belief that every citizen should “own” their own home, regardless of their ability to pay for it, resulted in real estate prices far exceeding projections of even the most sanguine observer.
Into this cauldron of escalating prices flocked an incredible number of incompetent individuals who proclaimed a desire and a “passion” for “selling” real estate. As more and more people were “flipping” houses and/or buying on margin, neophyte salespersonnel were making never-before-seen levels of income. Then the inevitable day of reckoning arrived.
Subprime lenders, as well as investment banks, went out of business because of risky trades and undercapitalized balance sheets. Real estate sales plummeted as credit became non-existent. Prices cratered and short sales and foreclosures became commonplace in many parts of the country. Salespersonnel, who only a few years earlier were making six figures, now returned to their jobs in restaurants where they had previously waited on customers. The gravy train was over and only the strong would survive.
One could easily substitute agricultural equipment for the aforementioned real estate and get a pretty good picture of what has, and what will, transpire in the ag industry, especially in the grain markets where commodity prices continue to reach stratospheric levels.
A year ago while conducting a sales training program, I came across two salesmen who had left their previous jobs of driving trucks and, in their first year of selling, had made in excess of $100,000 in salary and commissions. Incredulously, I asked them how many calls a week they had made that would enable them to be so successful and was informed that they never left the dealership. I later found out that the previous field marketer had been promoted to store manager and had simply turned over his accounts to the two new salesmen.
Why would anyone who had spent the previous 5-10 years cultivating a customer base simply turn over the accounts to tyros who could then cherry pick the accounts? Yet the day of reckoning is coming and when it does, many of these novice salespersonnel, especially those compensated on the basis of gross margin or cash difference, will simply flush out of the system, similar to the real estate salespersonnel of the last decade.
Prior to the uptick in commodity prices, manufacturers and dealers were uncharacteristically aligned in the belief that “pre-selling” equipment would be a win-win-win for all concerned parties. Yet record farm income and inexperienced salespersonnel have obviated an otherwise excellent sales tool for dealers and salespersonnel alike. Nevertheless, forward looking dealers interested in weathering the next downturn would be wise to reestablish a dealership wide policy of pre-selling new equipment.
One advantage of pre-selling is it takes the customer out of the “market,” which should lead to higher equipment gross margins. Similarly, a pre-sold unit will not only ensure that the customer receives the desired unit, but a pre-sale should also improve the chances of the dealership getting the desired product in a timely fashion. Unfortunately, however, many manufacturers who profess a “just-in-time” supply chain philosophy have proven woefully incapable of meeting the requested delivery times of even the most basic products. Thus, many dealers have used this “legitimate excuse” to shy away from an otherwise promising tool.
Pre-selling equipment should improve both the sales budget as well as the profit forecast while simultaneously shifting much of the risk from the dealer to the sales force. Similarly, pre-sells should dramatically improve the off-season service department workload. Additionally, pre-sells will provide more time to market the used unit, which should increase the margins on used equipment while concomitantly improving the used equipment turnover.
In addition to manufacturers being unable to provide the product as needed, one of the biggest drawbacks to pre-selling equipment is the need to change the customers’ buying habits. Accustomed to walking into a dealership and selecting their desired, or needed, product from a myriad of units, pre-sells will require the customer to purchase the product months in advance, which will require salesmanship, trust and loyalty; traits sorely lacking in many new salespersonnel.
Another potential drawback to an effective pre-sell program is the continuing changes in the manufacturer programs and discretionary discounts used to achieve their budgetary numbers for the month or the quarter. Customers would have to be assured that by purchasing in advance they would not forfeit any future manufacturer discounts.
By working together, pre-sells should improve dealer and manufacturing planning, increase margins, enhance inventory turnover and provide the customer with exactly the desired product in a timely and efficacious manner. And isn’t that what selling and marketing is all about?