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July/August 2003

HOWARDNAGS Notes
  hot topics

nags@mitchell.com

Dilemma Pricing
by Catherine Howard

Life has been rather difficult for all of us in the AGR business lately. The high price of gasoline has reduced travel across the country, and bad weather hasn’t been good enough. Business is down. ‘R’ parts are up. The NAGS® “R” part strategy has reduced profitability on more than 2,700 parts with no hope of recovery. People are cross. There are no answers.

Pricing is the single most significant dilemma we face today in this industry. Safety, training, professionalism and ethics are all important issues to us, but none of this matters if you can’t stay in business.

Now, our customers are complaining, as is everyone else in the supply chain. Pricing addenda are the norm with more and more net-priced parts. We’ve been through two Revaluations already, in 1989 and 1999. Discounts are already more than 60 percent, 70 percent and even 80 percent. We can’t make it another seven years. It isn’t working for us—any of us. People are milling about scratching their heads trying to figure out what went wrong with the system. What are we to do? What are the options?

The “R” Part Strategy
One option is what we have been implementing as our “R Part Strategy” dubbed by some as the long, slow death march. In theory, it made a lot of sense. We would change our base from manufacturers’ published truckload (which had become essentially irrelevant) to market acquisition cost (derived from our research and analysis). We would then establish two different but consistent levels of pricing relative to the cost base, one for normal parts and the other, lower level for “R” parts (those with high costs resulting in outrageous list prices particularly in comparison to the published dealer lists). We would highlight the “R” parts so that folks could negotiate a better buy or sell price on those parts, particularly if it involved getting more value for labor.

Great in theory; poor in practice. The reality is that few retailers have the market power to negotiate a lower discount or more labor on an exception basis for “R” parts. And even if they did, systems are not set up to handle this exception pricing.

MSRP Lists?
What other options are there? One is to invite glass manufacturers to establish a suggested retail-selling price for their branded products. This idea has been kicked around for a number of years. Some seem willing to give this a try while others are hesitant to go in this direction. There are pros and cons on this approach from all sides of the market. However, other industries seem to manage with this method. I’m sure the glass industry could grow to embrace this concept as well. It will require significant changes in how this industry markets its products and services not to mention the huge systems changes needed to accommodate this new model.

In the meantime, there is another alternative. NAGS could withdraw from the long, slow death march in favor of radical surgery in trying to save the patient. This might even mean reversing some of the “R” parts where practicable in preparation for surgery. That could mean interim increases in discounting, particularly if some insurance companies were to decide to give fair labor pricing a test.

Then, on the announced day, the NAGS Benchmark would become a product-only list. Product Only … NO LABOR AT ALL … not in the list prices … list prices for glass only. It would be a revolution … not a Revaluation.

Shops would have to charge for the service of installing the glass since there will be NO margin for labor in the NAGS List Price. That is revolutionary in this business. As old Riley would say, “what a revolting development this is.” 


Catherine Howard is the vice president/general manager of National Auto Glass Specifications (NAGS) in San Diego. NAGS® is a registered trademark owned by Mitchell International Inc.

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