Keith Goodrum

This weekend I saw Chrysler advertising a new incentive program called Let’s Refuel America! I thought it was a brilliant marketing program. It sure beats the same old copycat “Cash Incentive’s” every car manufacture and his brother is waving around.

Cash incentives works until everyone copies each other. Once everybody copies a marketing tactic what happens to the tactic? It loses its power, and you no longer appear different. You become part of the herd, and cannot stand out from the crowd.

Another problem with cash incentives is two fold…

One is you are giving away profits. The only thing cash incentives do is profits. Think about it… every dollar you give as an incentive comes straight off the bottom line.

Let’s say you knock $20.00 off a $100.00 purchase. You only need to sell $20.00 to make up the difference, right? Wrong. Look at the math… you are giving up $20.00 in profit, not $20.00 in revenue.

Say you run at a 20% profit margin. (Single digit profit margins are more realistic… but we will go with 20%. ) To get back that $20.00 you need to sell $100.00 worth of product or service just to get your money back.

Now, I’ll admit that this example is overly simplified. If you want to see the real impact this has on your business get the book How to Sell at Margins Higher Than Your Competitors By Larry Steinmetz. This book will be a real eye opener.

Second is its easy to copy. Any clown can lower price… all it takes is a decision. So, all the competitors in town offer incentives. Then what happens is a competitor notices that the cash incentive is losing effectiveness. They figure if a $1000.00 incentive works… then $1500.00 will work better. Then the next bozo concludes… If $1500.00 works better then $2000.00 will knock their socks off! Where does it end?

Chrysler’s new incentive program might be hard to copy, and that should give them a longer competitive edge…

Steven Levitt at Freakonomics said today in his post $2.99 Gas that it would be hard to copy. That could mean Chrysler will be able to hold a completive edge that much longer. Here’s what Steve said…

If it works, I don’t think it will be that easy for the competitors to copy, at least not quickly (in contrast to the “employee discount” plan which spread like wildfire across the various car manufacturers). Setting up and administering this program must be a logistical nightmare. I could imagine it taking another company many months to get all the pieces into place.

Instead of offering cash incentive, having a sale or knocking down your price… what could you do to add value to your offer without giving away profit?

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