A viable car wash is one where the owner delivers entrepreneurial objectives such as creating wealth from the business model or exit strategy.
Creating wealth from the business model requires uniqueness in terms of competitive advantage whereas creating wealth from the market environment requires products, pricing, distribution, and promotion.
Today, 80 percent to 90 percent of washes built are no longer unique in terms of business model, products, prices, or promotion. Consequently, operators lean heavily on discounting price.
For example, in addition to traditional “try me” coupons (online and direct mail) and frequency discounts (rewards program), there are mobile coupons and unlimited washing.
Unlimited washing requires a substantial commitment and investment including a large pad site, RFID, high capacity car wash system, and rows of vacuums all optimally situated within the circulation pattern of the site.
Few older washes can duplicate this. When these sites were built, they were almost always just large enough to accommodate what the developer wanted to build at the time. As a result, most simply have no excess space.
So, how does one respond to high-volume, discount car washing? The short answer might be BOGO or buy one, get one. For example, our local Nissan dealer periodically offers a BOGO deal. Buy one car and get one car free. Here, the buy car is a top-of-the-line model at full-price and the free car is a leftover, basic model with few features. Of course, if you are looking for a nice, new car as well as a second car for other needs — like kids going off to college or a work vehicle — BOGO can be a good value.
The purpose of BOGO is to help boost sales.
Experts believe the success of BOGO is due to the fact that two items are being sold for one price. The customer gets a good value for the money when the price per unit at different retailers is higher than the cost per unit when the customer uses the buy one, get one free offer.
Researchers find BOGO is very effective at inducing a visit to the store and purchase of the product or service, more so than a discount offer (i.e., percentage discount) or price-off offer (i.e., buy four for the price of three). However, BOGO is not effective at inducing brand-switching behavior (i.e., touch-less to friction).
To illustrate, let’s assume an in-bay automatic has prices of $5, $7, $10, and $12 and corresponding contribution margins of $3.88, $5.43, $7.75, and $9.30.
BOGO deal is buy the $12 wash, get the $5 wash free. The customer gets two washes ($17) for one price ($12) or a 42 percent savings. The difference in the contribution margin between $10 and $12 wash is $1.55 ($9.30 - $7.75) less $0.55 ($5 wash cost of sales) equal net profit $1.
The purpose of BOGO is to help boost sales. For example, the customer makes two trips to the store instead of one. A busier wash attracts more business. There is the chance some customers will not redeem the free wash. The program is low-cost to implement and promote.
Offered several times a year, a BOGO in-bay program would have the potential to increase net profit by $12,000 or more. Of course, BOGO is not a panacea. Results require more than psychological tricks that make the deal seem good. Consequently, operators should consider what consumers want and need and ensure they are getting a good value for their money.
Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com).
You can reach Bob via e-mail at firstname.lastname@example.org.