Want to make a bundle? Try bundling
Packaging F&I products can boost sales, but process must be transparent
 | Sandler: Not lowering prices |
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Providers of aftermarket products increasingly are bundling their offerings -- especially for second-tier products such as tire-and-wheel and paintless dent repair -- in customizable 3-in-1 and 4-in-1 programs.
Bundling is not yet universal. About 35 to 40 percent of dealerships responding to a recent unscientific online survey by Automotive News said they don't bundle aftermarket products, depending on the type of product.
Dealers and consultants who embrace the strategy of bundling aftermarket products argue that it streamlines product menus. Bundling thereby helps show value, simplifies the buying process and boosts product penetration. Some lawyers, though, caution that that bundling could raise dealers' potential risk.
Dealers and others also disagree about how to price bundled products: Should a bundle of products be priced lower than the individual products would cost separately?
'Finding the sweet spot'
Dominic Hughes, who has been bundling aftermarket products for 22 years as business director of BMW of Roxbury in Kenvil, N.J., is pleased with a new bundled package from BMW: Presence Protection Plus. "It's so streamlined now, it's wonderful," he says.
Instead of having to coordinate with different providers, he now has several major BMW-branded policies -- windshield repair, paintless dent repair, and tire-and-wheel -- at his fingertips. With bundling, penetration is running upward of 45 percent on new vehicles and 68 to 70 percent on certified pre-owned vehicles, he says. "A lot of customers come back and are happy because their repair bills are paid," he says.
Lisa Solodar, finance director at Park Avenue BMW in Rochelle Park, N.J., where the Presence Protection Plus program is approaching 50 percent penetration on finance and lease deals, expects continued interest. Finance customers are taking care of their cars longer and lease customers don't want excess charges when they turn them in, she says.
BWW rolled out its bundled program in late 2011 after observing customer purchasing trends. Its Mini stores are also bundling under the Mini brand.
Shaun Bugbee, vice president of sales and marketing for BMW Group Financial Services, says BMW is looking at more bundling opportunities. It's all about "seeing what customers are interested in, finding the sweet spot and bundling accordingly," he says.
Bundling is now being done by one-third of the roughly 3,000 dealerships serviced by aftermarket program vendor Innovative Aftermarket Systems of Austin, Texas, says President Bob Corbin. Its Multi-Shield program lets dealers customize multiple-products coverage. Good dealers can exceed 45 to 50 percent penetration with bundled products, he says.
Charlie Robinson, COO of Resource Automotive -- a provider of financial services (including bundled products), consulting and training for auto dealers -- says price transparency is critical.
So is the pricing itself. Bundled products should have a lesser markup than stand-alone products, he says. He notes that multiple products may be too expensive for consumers, and lenders haven't endorsed 3-in-1 or 4-in-1 packages. Although dealers set their own pricing, he recommends marking up a $300 product to $499 and a bundle of three $300 products to $1,299 to show the customer value
Morris Nissan of Charleston, S.C., has been selling a 4-in-1 Multi-Shield program for several years. Customers receive tire-and-wheel, ding and auto-glass protection, as well as roadside assistance.
'Overwhelming'
Simplifying the product presentation is a big plus for Mike Smith, the dealership's finance director. Between warranty, GAP, disability and life products, "at some point it becomes overwhelming to the consumer," he says.
Morris Nissan charges $599 for the five-year package on standard-class vehicles. The dealership purchases that package through a third-party vendor for $383. Purchased separately, the items (excluding glass protection, which it doesn't offer as a stand-alone product) would cost the consumer $797.
Homan Auto Sales of Waupun, Wis., bundles its own prepaid maintenance plan, protection packages and extended warranties. The three-store dealership group -- which started its own warranty company two years ago and has a body shop -- is trying to customize programs for different vehicle segments: new/newer, lease and budget.
Bundling has helped to double product penetration, which is now running about 60 percent for protection plans at its Chevrolet-Buick store, says Craig Bunkoske, Homan's F&I manager. But Homan does not discount bundles. "We play up the value," he says. That includes product prices that are better suited to the store's market, a farming community with many retirees.
Demitrious Kourias, a Boston-area F&I and sales consultant who bundles second-tier products for his dealer clients, is focusing on lease customers -- F&I managers' most challenging market segment.
He typically bundles tire-and-wheel protection, dent protection, windshield repair and simonizing. Key replacement, maintenance and security products may also be included. Bundling is helping his clients to sell four to five more products per vehicle on leased units. Customers are spending $20 to $50 more per month to purchase a bundle on a lease, he says.
Complement, don't bundle
Not everyone thinks bundling is a good idea. United Development Systems of Clearwater, Fla., a provider of F&I products, business development tools and training, doesn't promote it although it does offer some Multi-Shield products.
"Discounting undermines the value of the service. You have to remain credible in the F&I office or you start to waive your integrity," says Gerry Gould, director of training for United Development.
Instead, he encourages dealers to suggest complementary products and to stick with stand-alone pricing. "Our way of bundling is attaching a product that makes sense," he says, "like Mutt and Jeff, peanut butter and jelly, interior-exterior protection and paintless dent repair."
Asbury Automotive Group of Duluth, Ga., prices products separately. "We'd rather spend our time trying to create value than lowering price to bring it down to the customer's perceived value," says Scott Sandler, Asbury's national director of financial services.
But lack of discounts isn't stopping Asbury customers from purchasing multiple products like service contracts with maintenance programs. Second-tier product sales have been rising, too. "We're doing a better job identifying customer's needs and concerns," Sandler says. Asbury is also seeing some improvement in aftermarket sales to its lease customers, who are purchasing wear-and-tear products.
Consult your lawyer
Ally Insurance is not currently bundling products but is exploring the concept with dealers. "While it's not widespread today, dealers are increasingly looking to bundle F&I products, and we see this trend continuing in the future," President Tom Callahan says.
But he cautions that dealers considering bundling should make sure their product provider has a strong customer service record and understands state regulations. He recommends that dealers consult their legal counsel.
Some lawyers would agree. Attorney Michael Benoit of consumer finance law firm Hudson Cook in Crofton, Md., doesn't think bundling is a bad idea in itself, but he says dealers need to be careful how they go about it so it doesn't impede a customer's ability to evaluate the value. "When done without sufficient transparency, bundling could put dealers at risk for unfair and deceptive acts and practices claims," says Benoit, who admits he takes a conservative approach to sales practices.
"Now, if the customer is given the [documented] option to buy individually or in a bundle, that may alleviate some concerns -- it would certainly make me feel better."
Patty Covington, also a partner at Hudson Cook, says some services are governed by laws or regulations that require a refund upon early cancellation and that calculating a refund from a bundled package might be difficult.
