Understanding Inventory Shaping and Market Forces (Part 1)

Note: This article explores my approach to powersports marketing and how I integrate inventory details into my overall strategy. I broke this into multiple parts. The first part outlines basic terms, while the second part discusses how this information can be used to provide answers.

I am going to outline why the tie between marketing and inventory control is so critical to maximizing the marketing department’s profit generation. This is true in a wide variety of business models such as clothing, but for powersports and automotive it plays a very large role. This is because of the outsized role that time periods, time decay and seasonality (model release and weather) have over cost.

It is essential for the people who handle the inventory to have a clear channel of communication with the marketing team. There are companies where that isn’t always the case, resulting in wasted money and slow reaction time. Slow reaction time is excruciating, especially in today’s marketplace. But in contrast, quick reaction time and a dialed-in inventory will let you eat into a competitor’s customer base.

When it comes to new units, powersports dealers procure inventory primarily either through the manufacturer (new) or dealer trades.  For used units there are trade-ins, outright buys, and auctions. In theory the cost of the unit begins the instant the money leaves the bank. For reporting purposes I use the date the unit enters the DMS which in my case is LightspeedEVO. There is a gap between when the unit is paid for and when it finally arrives at the dealership in some cases. For the percentage of times this happens and the amount of time involved its not really relevant to the understanding of profit decay.

I will take a minute and define profit decay as how I think of it and how I use it. A unit has it’s maximum profitability the very first day lands on the premises. You have the minimum financing costs, while the overhead of cleaning, assembling, picturing, listing have not yet occurred. Every day after the first day a unit’s cost rises. Maximum profitability is different and not defined by time.

For my purposes I do not attempt to calculate interest from flooring plans. There was a time when I briefly looked at what it would take to get a reliable number and then automate a report. It just was not worth the time and effort on the marketing side. I look at the flooring end date as my flooring data point.

Below are some categories of data that I believe are critical to making smart marketing decisions as they are tied to your company’s inventory.

Item Traffic

One of the critical statistics across the board for the Marketing team is always traffic. This can be broken down into many sub-components, but no matter what, we always look at traffic and conversions (more on conversions another time). Item traffic is simple – how much traffic does an item receive? A category of items? Brand, model, trim level etc.? But it is more than just your website; what about other platforms? Almost all of us sell using listing/shopping services like Google VMP, eBay, AutoTrader, CycleTrader, Facebook Marketplace, Craigslist, etc. Each of these platforms are competing with each other to give us a sophisticated analysis of our inventory on their platform and the traffic it receives.

Item Leads

Nothing is as important to projection and accountability as lead counts.  Within the DNA of the lead there are many other reportable characteristics, but raw lead count by unit and lead count by source are the foundation. There are so many times when I believe a trend or result is happening only to find the number and the real stats paint a different picture.

Chronological Points

Sales can and often do vary by time. If we build up and store historical data, we can use this to project demand, significantly impacting how we shape inventory. Powersports is much more effected by seasonality than automotive sales. We are not a dealer group that focuses on clothing or gifts. For us, the big yearly event dates are manufacturer demo events. Holidays are usually downtime. We change focus geographically in the winter to maintain unit sales in the November to January gap. Typically in this time period I will focus on moving prior year models and anything coming off of flooring.

The single biggest time related effect on inventory value is new model year. In general terms, the dealer does not want to be left holding the bag – too much. By this I mean that surplus prior year inventory can be an advantage when trying to hit certain unit number goals or to stretch traffic and sales using the discounted pricing versus new model year MSRP.  This is especially true when there is a model year y-o-y price increase.

The most important understanding is simple, nobody is on your side because the manufacturer has no qualms with over-loading you (as we saw when supply chain problems disappeared), and the customer will almost always choose current MY without a monetary incentive. You must know each expected new MY model release by manufacturer and which dealerships have those product lines.

Accurately projecting demand for specific categories of products can allow you to take advantage and sell into surges or reduce the money tied up in your inventory when traffic slows.

Last is the relationship between all of this and COOP funds. Each manufacturer handles their fund eligibility dates differently, as well as their deadlines for filing. It is important to know when those funds are available and when you want to use them to offset cash flow challenges elsewhere.

PMA (Primary Market Area) Traffic
*I used to call this DMA but both Polaris and BRP use the PMA designation and I decided to stop swimming upstream.

Sometimes there are single-line dealerships who only work within a single PMA. Then there are multi-line stores, and multiple locations that share product lines. Last, there are national sales. For some dealers this is minimal or none while others may do a fair amount of this type of business.  I have evolved my geographic tracking into these 3 general designations.

  • PMA – Primary Market Area as defined by the manufacturer. You need to know this by zip code.
  • Non-PMA – This is a larger area and encompasses the areas that you want to sell into, and especially the PMA’s assigned to your competitors. This zone is also defined by eliminating the PMA area. Looks like (Non-PMA subtract PMA)
  • National – I use anything outside of a 150 mile radius from the store’s physical address. Our stores currently do over 15% of delivered unit volume outside that 150 mile radius.

I just want to emphasize that these are certainly not the only geographic zones for ad placement.  In fact, many of my ad platform audiences operate with no regard to these boundaries. It is still very important to understand where they are and how they affect you competitively. Your ad platform audience and ad goals will impact the lead reporting you receive on these PMA related zones.  That is really where they come into play, on the lead reporting side.

It is important to understand traffic and interest within your target audiences. This knowledge allows the inventory team to make smarter decisions knowing that they can take advantage of predictable, changing trends to reduce swings in demand as well as predict storage issues.

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