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Monday, 11 August 2008 17:13

 

 

GRID PRICING REMAINS CONTROVERSIAL, MISUNDERSTOOD OPTION

 

Judging by a recent thread on the DealersEdge forums, the controversy surrounding Matrix, or “Grid Pricing,” for customer pay labor isn’t going away anytime soon. Skeptics say it is unethical, and possibly even illegal. Supporters argue that if it is implemented properly it is “fair and equitable” for all concerned.

 

“This is one of the most controversial issues in our industry,” says proponent Ray Branch, CEO of The KEEPS Corporation in North Carolina. But after giving more than 100 workshops to thousands of dealership service managers, Ray says he’s noticed that those who come from other industries into the car business tend to embrace the idea much more quickly than long-time dealership service managers. That’s partially because Matrix pricing has gotten an undeserved bad reputation because some Service Managers, under tremendous pressure to hit certain target numbers, may have used it unethically, he says.

 

“I’d say close to 60 percent of dealerships have tried matrix pricing, and for some it has been a disaster, others a huge success,” Ray tells Service Manager. Those who fail usually do so because they fail to remove the flat rate hours from customer invoices and they don’t adequately train their service consultants on the concepts behind Grid, or “matrix” pricing so they get it and then cannot explain it to the inquiring customers. And it goes down hill from there.

 

Basically, a good matrix pricing program allows Service Managers to base their labor charges on competitive market forces and the degree of difficulty for the work. By shifting the emphasis away from a labor flat rate, Service Managers can let higher-skilled and higher paid techs do some of the easy stuff like fluid changes and menu services without dramatically impacting their customer pay labor gross profit percentage.

 

Grid, or matrix, pricing is intended to “make up for the marketing discounts dealerships have to give on highly competitive work like flushes, tire rotation and oil changes, and was never intended or designed to gouge customers,” Ray says.

 

Here’s a quick example of how it can work: A customer comes to your shop for a water pump replacement, using your door rate of $90/hr. for repair work, your service advisor comes up with a quote of $225 [a 2.5 hour job] for the work. But under a Matrix Grid Ray says that same job might be priced at $235.88. Those few extra dollars help offset marketing labor discounts and service consultant estimating mistakes.

 

One of the critical issues for success is the flat rate hours must be removed from the customer’s copy of the RO.

 

If a customer asks about the price, Ray says an educated SA will tell the customer that the price is based on the job at a competitive price rather than a flat labor rate. “If we get this work done in five minutes or 5 days, your price is the same…Customers love this because they see it as price protection, especially when they discover they quite often get their car back faster.”

 

But it is also important that your techs, especially your more skilled ones, understand the rationale behind the pricing. If you don’t explain it, they’ll see the gap between that $225 in labor and the $235.88 in labor and wonder why they aren’t getting a cut. But if you explain that this system allows you to let them do “easy” stuff like maintenance work without asking them to do it for less flat rate time or less pay per hour, they’ll see that you are making it possible for them to keep a mix of easy work in their work bay, Ray says. Otherwise, a dealer will have to let the $12/hr less-skilled tech do all the easy stuff, and force the $25/hr rate more skilled tech to just do tough stuff like electrical repairs, he adds.

 

Ray conducts day long seminars on this single topic and says he’s been able to convince most long-time dealership service managers that Matrix pricing is fair and smart for everyone. For more information, go to www.keepscorp.com or call Ray at 800-948-9377 and he’ll be glad to share some of his experiences over the past 25 years of using Matrix pricing successfully. In most cases, he has been able to help service managers find $4.50 to over $6 in hidden effective labor rate in their service department applying some of his advanced Grid Pricing strategies.

 

 

Sidebar

 

BIGGEST PITFALLS TO AVOID FOR

SUCCESSFULLY INSTALLING GRID PRICING

 

You should:

 

1.)     Start with VERY low labor mark-up formulas

The idea is to TEACH your Service Consultants HOW and WHY to use Grid Pricing – NOT to hit and Effective Labor Rate home run out of the gate.

 

2.)     Take Flat Rate Hours off Customer Pay ROs

All DMS systems have this ability

 

3.)     Convert Service Consultants to “One Price” Selling

NEVER again say:  Mr. Customer, to have your water pump repaired today it will be 2.5 hours, the parts, tax, and shop supplies = $386.58

 

Instead say:  Mr. Customer, to have your water pump replaced it will be $386.58 with everything included.

 

4.)     Install Grid Formula into DMS

So Service Consultants will not have to manually override labor sale amount on each Repair Labor line.

 

5.)     NEVER leave same grid formula in place over 4 months

Change with the seasons to adjust for different kinds of repair mix driven by the seasons.

 

6.)     Track and reward Grid usage

Grid usage is far more important than grid mark up formulas.  (Are you scratching your head yet?)

 

7.)     Become a student of the GAME – reach out for knowledge at every opportunity

 

Source: Ray Branch, The KEEPS Corporation

 

 

Last Updated on Friday, 14 May 2010 12:19