Price or Value — Which is More Important?
In March 2012, the Connecticut Car Wash Association published a Venus/Mars article where Linda Feriod and Paul Vallario discussed the question: What is more important, price or value?
Feriod, an 18-year industry veteran and former association executive, took the position that value is more important than price. “You do not go to a restaurant with lousy food because the food is cheap.”
Vallario, an operator and board member of the New York State Car Wash Association, took another position. “In a way, the price you pick for your service will go into determining perceived value.”
Since the economic crisis, industry participants have increasingly jumped on the low-price bandwagon. Evidence is growth in express exterior, unlimited wash programs, pay-one-price self-service, etc.
Arguably, operators who designed or altered their business models in such manner believe that car washing is a service that consumers can easily forsake when the economy tightens up. In other words, as discretionary income decreases, consumers will change behavior — wash less frequently, select a lower-priced alternative, or wash at home.
The U.S. Department of Labor accounts for consumer unit expenditures in a baker’s dozen of categories including apparel and services, alcoholic beverages, contributions, education, entertainment, food, insurance, healthcare, housing, personal care, reading, tobacco, transportation, miscellaneous, and subcategories.
Although people’s incomes vary significantly, the data in Table 1 shows average household spending patterns in the United States across income categories are fairly similar.
Spending shares may be similar, but poorer people spend more of their budget on basic necessities whereas people with more money are able to spend a bigger chunk on education and savings.
In a trade area containing 12,000 consumer units (30,000 persons), car wash operators would typically be competing for some portion of $37.5 million in annual expenditures for transportation related products and services. How much of this amount consumer units spend on car washing is a function of average expenditure and purchase frequency.
In 2000, average revenue per wash was $10.00 full-service, $5.50 exterior-only, and $3.50 self-service. Today, the averages are $15.00 full-service, $7.50 exterior-only, and $4.00 self-service. This equals average annual increase in price of 5 percent full-service, 3 percent exterior, and 2 percent self-service.
Arguably, these data suggest that price level is correlated with consumers’ perceived value of a car wash. There are a variety of ways operators can relate the value of their products and services in terms of solving customers’ problems.
Data on the U.S. EPA website state that auto manufacturers now use acid-resistant paints at an average total cost of $61 million per year for all new cars and trucks sold in the United States.
In a press release, a recent study conducted by online retailer Halfords revealed that leaving bird droppings on paint costs U.K. motorists around $89 million annually in paint damage repairs.
We also know oxygen and UV rays combine to attack and eventually destroy paint and, when combined with ozone (smog), UV causes rubber to dry and become brittle and results in tire sidewall deterioration.
Of course, car wash operators know the steps to help prevent these occurrences are frequent washing and drying and use of protective coatings that claim to protect the original finishes.
Although some operators believe car washing is one of the first things to go when money gets tight, the price of a car wash appears to pale when compared to prices of other things consumers routinely pay for, and it becomes nearly insignificant considering the potential cost of vehicle neglect.
So what is more important, price or value? I believe Vallario, a price proponent, says it best: “To sum it up, I believe that value is everything in business. No matter what your prices are, your customers need to see value in it.”