Why You Should Sell Value Over Price

Consumer spending on automotive products increased about 4% in 2015 compared with the previous year, and the top eight premium product categories surged over 15% in dollar growth. Clearly, consumers are choosing quality
over price.
Popular growth categories include synthetic motor oil, premium beam wiper blades, performance oil filters, premium headlights, and premium spark plugs. “Something different is going on in this space,” says David Portalatin, industry analyst for the NPD Group.
Portalatin attributes this recent growth in higher-value products in the automotive aftermarket to a rise in the average selling price of automotive parts, as well as a continued increase in vehicle miles driven, which is largely due to the recent drop in fuel costs.
“The average selling price is largely being influenced by the way consumers are defining value in automotive products; they continue to seek out value by choosing a higher-priced item because they believe there is ROI (return on investment) in that,” explains Portalatin.
The year 2015 turned out to be a good one for the automotive aftermarket, he says. Vehicle miles driven, a key factor that impacts how soon auto parts wear out and maintenance services are needed, increased 1.8% in 2014 compared with
the previous year, and grew to 3.3% by the end of 2015, thanks
in part to lower fuel prices. NPD predicts this will level off to 1.9% growth in 2016.
“It’s an overall positive environment for selling automotive products, but the rate of growth probably will not be quite as robust as seen in the past several months,” predicts Portalatin.
The good news is many consumers who had cut back on their driving during the height of the recession have been reverting back to their old driving habits. “Now every month that goes by, we continue to set a new record high for total vehicle miles of travel. We’re now at 65 billion miles on an annual basis, higher than we were at the pre-recession high.”

Growth Of Premium Parts
While consumers are willing to drive around more now that gas prices have dropped, they are still careful with their cash when it comes to general retail purchases. However, in the area of automotive products they are willing to spend more.
“The automotive products spend is a better value for the consumer today than some other things. They obviously see some ROI in doing that,” says Portalatin.
The average selling price for what moves through retail continues to grow, he says, and while this helps boost the top line from a dollar standpoint, in some categories it’s also suppressing the volume side a bit.
Based on NPD consumer surveys, 71% of consumers say “reasonably priced” is an important attribute in deciding what they buy. Other top attributes that impact their purchase decision are whether the product is made with quality materials, whether it increases vehicle gas mileage, and whether it increases engine performance.
“The consumer mindset is looking for ways to create value with those attributes. Jobbers need to think about their product offerings and services and how they can present them to the customer. There is a clear opportunity to create value by offering these differentiated attributes to grow your top line. It’s not always about being the cheapest,” adds Portalatin.
“Based on our consumer surveys,” he continues, “when it comes to automotive-related products, for the most part, there’s a lot more weight at the quality end of the spectrum. So this is an opportunity for jobbers to differentiate in the marketplace and grow top-line sales by focusing on what’s better, what lasts longer, what performs better, what extends the life of the vehicle, or has some other attribute around it that gives value to that consumer besides just saving money at the register.”
There are about 500-plus segments in aftermarket automotive products that NPD tracks, and the top eight differentiated premium segments (premium beam and hybrid wiper blades, full synthetic motor oil, premium spark plugs, premium/performance oil filters and air filters, HID capsules and bulbs) added $137 million in sales in aggregate from September 2014 through September 2015, up 15.4% compared with the same period a year ago.
“Would you rather grow 15% next year, rather than 4%? Premium merchandise is a vehicle that can make that happen,” says Portalatin.
“If I compare the price of a premium wiper blade to the price of the cheapest conventional wiper blade, it’s about double. So the same value-driven consumer who’s looking to cut back on how much she drives is trying to save money by extending the life of her vehicle and is willing to pay double for the beam wiper blade. Now that’s a trend. That’s a mindset. That’s an opportunity for you to leverage your growth.”
He noted that the premium categories are priced anywhere from 30% to even four times higher than similar value-priced items. “So consumers are not walking in the door looking for the absolute lowest rock-bottom price all the time. They’re really looking for what’s best, what gives them the longest-term ROI.”
However, as consumers shift toward these premium differentiated segments, such as fully synthetic motor oil, they are extending their service/purchase intervals.
“The very same thing that is driving the top-line growth is probably suppressing some of the velocity of products moving off the shelf,” explains Portalatin.
“As an industry, we’re going to have to be very strategic and get very smart about how we find the right balance between value and volume, because we need both. If you don’t optimize the relationship between those two, then you are leaving money on the table.”

New car sales
New car sales in the U.S. hit about 17 million units at the end of 2015; however, the aftermarket doesn’t need to worry. “If there’s 17 million new cars sold, there are probably 30-35 million used cars that are changing hands, too. And those are different kinds of cars with different kinds of behaviours that create opportunity in the marketplace,” he says.
According to NPD’s consumer survey, the vast majority of consumers in 2016 are going to drive exactly the same car that they’re driving right now. Average vehicle age is moving toward 12 years old.
“A 12-year-old car is not an old car; it’s just an average car. And 61% of North American drivers are going to keep driving that car in 2016. It’s actually higher than that because 11% don’t know whether they’re going to buy a new or used car,” he says. Another 16% of survey respondents said they “might” buy a new vehicle.
Even though more than 17 million new cars were sold in 2015, there is still tremendous opportunity in the aftermarket around the existing fleet, which is the majority of the market that the consumer values and is willing to keep investing in.
In the past when a consumer bought a used car, it was three to four years old. Today, there is tremendous growth in the number of consumers purchasing cars that are already 10 to 15 years old.
“Those cars are good cars. They’re lasting a long time. That’s the reality these days: if you take good care of these cars, they’ll last and people are demonstrating that they believe that by their willingness to invest in older cars,” says Portalatin. “The majority of those 11-plus-year-old car owners are saying they’re going to keep their cars another four to six years, and some even seven or 10 years.”
The age of these older cars means many need replacement parts that car owners in the past never needed, because they never kept the vehicle long enough –
such as headlight bulbs, lens restoration kits, air conditioning charging kits, etc.
“If you differentiated your business around premium value parts for older cars, and in some cases, newer cars, you can grow your business much, much faster than the average industry rate of around 4%,” he advises.
Portalatin predicts new car sales will continue to be strong in 2016, but may not be as robust as in 2015. But even an increase in new car purchases can mean an increase in aftermarket auto product sales, he notes, as these car owners tend to buy appearance products.
“They’re much more enthusiastic about keeping that new car looking new. If you’re in the appearance end of the business, you’ll know that since the recession hit, a lot of appearance-related categories have struggled as expenditures in those categories were deemed to be discretionary. We’re now starting to see this very trend reflected by these new car owners in retail sales data. We’re starting to see appearance categories do quite well,” he added.
Premium is the new value in the automotive aftermarket, as consumers take to heart the old adage “You get
what you pay for.” nJN