American Recycler, October 2008

Climbing above the competition:
Who wants to be the low price leader
Part 3 of 5

In the mid-eighties, I thought things were moving along pretty well for my business. One of my competitors was a former employee. He was a low-price provider. He bought cheap cars from individuals and sold parts for very low prices. I bought cars at auctions where I had to pay more for them in most cases. This competitor seemed to be doing a lot of volume, but I couldn’t tell whether he was making a profit.

After awhile, I began to get irritated at the number of customers coming in who’d been over to my competitor. They whined when they came to my business, saying such things as, “Over there, we got it for this amount,” or “I can get it for such and such at that other store.” Not willing to drop my prices and start a price war, I decided I would not offer the same products as my competitor. I shifted to selling parts for luxury cars such as Mercedes and BMWs. At the same time, I began a nationwide marketing campaign.

Within just a year or two, 60 percent of my sales came from outside the state of Texas. Another 20 percent were well outside the Dallas/Fort Worth area. Instead of competing for the same local customers on price, I shifted my focus so that 80 percent of my buyers were coming to me from an area beyond the reach of this price-cutting competitor.

How did I do it? First, I identified a core customer for parts that was not a general population customer. I was looking for a customer that was less price sensitive and wanted excellent service. I targeted buyers of parts for Mercedes and BMWs and found there was a big market for that if I expanded my thinking to include all of the shops in the United States.

At that time, I entered the German luxury car parts market, I had virtually no competition. To find buyers, I went to garages and body shops nationwide, tracking as much information as I could. Later, when Lexus and Infiniti became popular luxury makes, they were natural additions to my product offerings.

I was able to make this transition so profitably because of how carefully I tracked where my advertising dollars went and which ads resulted in sales. Not far into my new strategy, and I knew which zip codes I could profitably advertise in and which zip codes did not produce good return on investment.

From there, I could refine my strategy based on sound data. Tracking ad spending is easier now, thanks to advances in telecommunications and computing, but the techniques we developed were sufficiently noteworthy to warrant an article in Inc. Magazine in June of 2004. A lot has changed in the parts business, but it is still important to track how your advertising dollars translate into transactions.

Don’t forget to subscribe to Ron's free monthly auto recycling e-newsletter, with news and tips, register at www.autosalvageconsultant.com .

Ron Sturgeon is past owner of AAA Small Car World. In 1999, he sold his six Texas locations, with 140 employees, to Greenleaf. In 2001, he founded North Texas Insurance Auction, which he sold to Copart in 2002. In 2002, his book “Salvaging Millions” was published to help small business owners achieve significant success, and was recently reprinted. In June 2003, he joined the new ownership and management team of GreenLeaf. He also manages his real estate holdings and investments. You can learn more about him at WWW.autosalvageconsultant.com He can be reached at 5940 Eden, Haltom City, TX 76117, rons@rdsinvestments.com or 817-834-3625 ext 6#.