Lot Stocking: Sometimes Familiarity Isn't Your Friend

Familiarity is often a dealer’s friend. You arrive at work at the same time, greet customers the same way, negotiate deals the same way, and leave work at the same time.

This routine may even play into the cars you’re stocking on your lot. For example, a dealer who’s consistently able to sell Buicks will continue to stock the lot with that inventory, and for good reason.

On the other hand, familiarity and routine could also be holding back potential profit opportunities in the car lot, especially as buying trends and customer preferences evolve. Perhaps the competitor down the street isn’t doing a good job of selling Hondas, potentially creating an opportunity for you to stock more Hondas and sell them to a previously untapped audience.

Or, maybe a certain make is particularly hot in the local market and can be used to reach new customers. Leveraging these opportunities requires a thorough understanding of your target customer, as well as a strong pulse on what the competition is up to. Luckily for dealers, their existing efforts can be combined with today’s data advancements to shed light on opportunities to expand their horizons.

Not all customers are created equal

Working at the dealership, you’re the person interacting with customers, talking with and helping them find exactly what they’re looking for.

You likely have a firm grasp on what your main customer audience is looking for, and stock your lot based on those preferences. But don’t lose track of your other key customer segments along the way. Keeping a close eye on additional customer segments may open your eyes to a new customer base and additional profit opportunities.

For example, maybe your main customer segment can’t get enough Honda Accords, so naturally you’re more inclined to stock them. There may be a budding customer base that wants more Nissan Altimas, however, and until you’ve identified it, you’re stocking yourself out of those sales. Identifying these segments is as simple as using the data points right in front of you: your customers.

First, ask yourself what drives customers, what makes them choose your dealership over your competition, and what differentiates you. Next, talk to your customers, asking what brought them in and how they heard about your dealership.

Did their responses align with yours? Noting and responding to any differentiators you uncover in this exercise will point you in the right direction.

Keep an eye on the competition

Once you’ve pinpointed your key customer segments, there’s an additional demographic you should take into consideration: your competition. As much as shifting customer preferences can impact your bottom line, competing dealers can have a similar effect.

What are you competitors stocking, what are they selling, and how does this compare to your local market’s demand? Consider these questions to find your specific opportunity and risk zones. Opportunity lies where there is a low supply and a high demand, and in your market, this translates to high monthly registrations of a make and model and low average inventory.

Conversely, the vehicles that have low monthly registrations and high average inventory are exactly the ones you may want to consider cutting your losses on and sell wholesale to avoid further risk. Honing in on these two categories and stocking your lot accordingly will not only set you apart from the competition but also help you stand out to customers.

Matching the right customer with the right vehicle is something that all dealers set out to do. Dealerships that use data in tandem with their existing efforts, however, will be able to offer a more efficient and effective dealing process and will see the benefits in their bottom line.

John Manganaro is the vice president of analytics at DRIVIN, a business unit of KAR Auction Services, Inc. (NYSE KAR), where he is responsible for combining data analytics with their online solution, Marketplace. DRIVIN is focused on helping dealers manage their used-car inventory effectively by leveraging advanced analytics. Previously, Manganaro was a strategy consultant for PwC and a product owner at Cars.com.