F&I Product Pricing
When it comes to pricing your F&I protection products, how much is too much?
We often see dealership management push F&I product pricing that might seem excessive and be cause for concern. While we understand maximizing profit opportunity and not wanting to miss out on a single dollar, we also understand that as retail price points push upwards, and profit margins expand, there are two topics that throw up the caution flag. Those are: 1) ethics and compliance and 2) price elasticity.
Ethics and compliance has been thrust to the forefront over the past decade plus with extra scrutiny in recent years to product pricing. I think we all understand that being reasonable with regards to setting retail price points on products is paramount and really boils down to one thing: Is it justifiable or gluttonous?
Price elasticity is a whole other animal. Analyzing your product offerings and establishing price optimization is a science.
Price elasticity of demand essentially determines at what price point you would maximize sales and profits together. For example, if you raise the price of a product by $50, you may lose sales and not even realize it. Conversely, if you lowered the price $50, you may gain sales but not enough to make up for the lost margin.
The point of this article is to have a basic understanding of why we offer a menu of valuable protection products in the first place. Sure, immediate profit is one, but enhancing the customers ownership experience and tying them to your dealership is another, possibly more important, reason.
So let's be sure we are pricing our products to maximize sales so as many customers as possible can enjoy the many benefits of these great programs.
Next time the topic of product pricing comes up, just think about how much is too much, and understand that the higher you go could be deemed unethical and could be costing you sales and profits.
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