Professor Colin Tourick looks at
a new approach to lease pricing
“How do you do your pricing?” I
frequently ask leasing company managers this question. Once they
get over the initial shock – asking someone about their pricing is
a bit like asking them about their salary – I usually get a very
similar answers.
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“We start with the purchase price of the vehicle.
We buy at great prices, taking advantage of dealer discounts,
manufacturer bonuses and tactical offers. Then we calculate our
interest cost; we’re a major institution so these are relatively
low.
“We then put a lot of effort into setting residual
values and maintenance cost budgets; our team is excellent at
predicting these. Our sales people then add on a margin and hey
presto, we have the rental.”
I have always felt uncomfortable with this answer.
It seems that a lot of analysis is done in the back office when
determining residual values, maintenance budgets and the other
‘cost’ elements of a rental, but little is done to help sales
people to determine the optimum margin to quote. The client doesn’t
care how you do costing; they just want the best price.
The issue, therefore, is simple: How should you
calculate the optimum rental – the one that will simultaneously
maximise your rentals and the volume of business you write? This is
more easily said than done, given that lessors have to produce
accurate rentals for around 7,000 models over a wide range of terms
and mileages.
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By GlobalDataSo here are a few, hopefully helpful, thoughts:
• Many clients have fixed fleet lists so
they repeatedly ask for quotes on a small number of vehicles. Your
quoting system should show the salesperson the recent quotes issued
to that client for that model/period/mileage and whether it was
accepted. If you quoted three weeks ago and lost the deal there is
little point quoting the same price to the same client on the same
car today.
• Many salespeople have annual volume and
margin targets. One of my clients’ salespeople had a particularly
successful period from January to June this year, so decided to
quote at minimum margin for the last six months of the year. How
can that benefit the lessor?
• Why do most lessors have a single fixed
margin per customer – regardless of the fact that they know that
their RV and SMR positions are making them competitive on some
models and uncompetitive on others?
• Why don’t most lessors flex their
margins, by customer, to reflect their success in winning business
from that customer?
• Why is so little analysis done in this
area, and why aren’t lessors’ systems tailored always to produce
the optimum rental in every for each client and each
model/term/mileage permutation?
• Why do so many businessmen believe they
are doing well if they are achieving The Plan: isn’t business meant
to be all about maximising profits?
All of these issues can be resolved with some
analysis, thought and perhaps a little bit of tweaking of IT
systems.
