Finishing Line

$3 Car Wash - Competing with a Low-Price Rival

By Robert Roman

04/01/19

Arguably, the photo above is not an image that most developers who invested $4 million in a new express wash would relish seeing anytime soon. However, more and more low-priced express washes are popping up.

Competitive pricing is the practice of selecting strategic price points to best take advantage of a product or service-based market relative to competition.

An example is motor fuels, where increased competition keeps prices low and retailers spend a considerable amount of time to monitor competition and match street prices.

A loss leader is a competitive pricing technique used to increase traffic to the business based on the low price mentioned. Once customers visit the store to purchase the loss leader, the hope is to convince them to purchase other products or services the store sells that generate a profit or higher profit.

For example, 15 years ago a low-priced express exterior car wash had price points of between $3 and $9 with an average per car revenue of between $4 and $5.

Today, these numbers would make an operator’s knees buckle — but it only cost half as much to build then as compared to now.

Normalizing prices would put the base price today at around $5 and average revenue at $10, which is consistent with industry norms. Consequently, a $3 base price is both competitive pricing and a loss leader in most if not all circumstances.

Based on information in the latest Auto Laundry News survey, unit variable cost for an express exterior is $2.50. This includes expenses for chemical, maintenance and repairs, utilities, and credit card fees.

If average sales are not sufficiently high, covering fixed cost and making an acceptable profit with a base price of $3 could be a problem. So, what can be done to fend off a low-cost rival? According to the experts, the first step is to understand the rival.

What gives the rival the ability to compete on the basis of lowest price? With express exterior, it’s the business model and technological innovation that allows express operators to offer products and services at prices dramatically lower than what other car washes charge.

Express targets a broad consumer segment, it delivers a high-quality basic product in less time for less money, it offers free self-service vacuums, and it has efficient operations to keep cost down.

So, only competitors with an even lower cost structure can compete with a low-price rival. In fact, researchers find that challenging such a rival can set off a price war.

To avoid all of this, car wash operators may look to differentiate their business. Being different means offering customers something unique they are willing to pay for and that provides an acceptable margin. Different could be a themed car wash, additional profit centers, customer amenities, unique product guarantees or warranties, special offers, etc.

However, delivering additional benefits usually requires operators to incur costs; they must charge a price high enough to make it worthwhile. For example, it doesn’t cost a lot to set up a prep area or provide free-use window cleaner and towels, but it does require a certain amount of labor and support equipment to consistently maintain it.

Offering assisted services such as interior cleaning and detailing differentiates, but the delivery involves additional equipment, labor, and management oversight. In the case of a retrofit such as an automated vehicle polisher, belt conveyor, or flex-serve conversion, the cost can be substantial.

Moreover, such strategies and tactics may not coincide with an operator’s goals and objectives. For example, I don’t know many operators that would get excited about putting several hundred thousand dollars into the business to change things that aren’t broken.

On the other hand, it doesn’t pay to sit back and ignore a low-price rival when such a rival has the potential to pull away as much profit as an unlimited-wash program makes.

In terms of countermeasures, operators tend to be most receptive to strategies and tactics that attempt to improve the brand image. This strategy is less expensive and easier to roll out than a major investment in equipment, renovations, and operations.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



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