By Kyle Doyle
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 carwashTV.com (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)?
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