Interview: Lexus Plus Negotiation-Free Pricing from a Dealer Perspective

A new business model has arrived to select Lexus dealerships in the USA, and its goal is to make the vehicle purchase negotiations a thing of the past. Called Lexus Plus, this program sets a single price for all aspects of the dealership — new cars, used cars, all service, all accessories.

It’s a dramatic shift in the way dealership sell cars, and it leads to plenty of questions and misconceptions. I recently spoke to Lexus of Lehigh Valley president Peter Cooper about his decision to join the new program.

Lexus Enthusiast: How did you decide to become involved in the Lexus Plus program?

Peter Cooper: Our dealership realized about three or four years ago that the traditional business model of how cars are sold in the US is flawed. It’s not a pleasant experience, and that’s because people believe that negotiating means being taken advantage of.

What lead you to the idea of negotiation-free pricing?

We went on a bit of soul searching. We looked at the situation. Today, there’s just so much information out there. It used to be that the dealer had all the information, and the consumer was at a disadvantage. Today, the consumer can find out anything they want about any car — find out about features, find out which dealer has the right car, even find out how much the car costs a dealer. We spend so much time fighting this information, but really, if the customer has this information, why not just embrace it?

And then we looked at it from another angle. When people come in to have their vehicle serviced at our dealership, there’s almost never any question of pricing. We identified 25 years ago that the price of service is secondary to giving the customer what they want, when they want it, where they want it. So if people love our service department but don’t love the buying experience, why not flip that model over to the sales process?

We had actually started on our own research into negotiation-free pricing model when Lexus Corporate decided to work on developing a better retail experience.

Lexus Lehigh Valley Service

The idea of developing a brand new sales process must be daunting, there must be so many factors to consider.

It was major disruption to our business. It took everything we learned over the last 35 years as a dealership group and threw it out the window. The biggest problem is our current success — we have a business model that’s working pretty good, I’m making pretty good money, and I don’t want to mess with it.

You have this traditional model that works well, and making any changes is going to bring economic pain. You don’t decide to implement a new method of business without expecting disruptions.

Lexus Lehigh Valley People

Our research told us that 65% of customers do not want to negotiate on the purchase of a car. They are also only visiting one or two dealerships in person, and are now relying almost completely on Internet research.

Before that, you have to get buy-in from your employees, and that is no small task. Our employees, they thought this was a great idea that was going to last about three months. But we decided to embrace it.

When did you implement the program?

We implemented what we called “Proper Pricing” in October of 2014. We lost some longtime employees, we lost some longtime customers.

We research the market every week, and we find out what deals are out there, what are the specials that are being advertised. We look at what our competition is offering, and we adjust our pricing virtually every week. Sometimes it goes up, and sometimes it goes down. It depends on incentives and available inventory, if there’s a popular color, if there’s a color that’s not doing well. It’s all over the place. It’s not static — it’s not like a customer is stuck with one price.

Lexus Plus Stickers

So it’s not like someone comes to the dealership for an RX, and there’s a single price. If a customer wants an RX, there’s a range of RX inventory to choose from based on their budget.

You’ve got it exactly. The marketplace sets the price of the car. There’s also another part of this, and it’s also part of the overall Lexus Plus program. You have a single person responsible for your entire transaction. When you buy something like a car, you want to talk to a decision maker.

So you started up your own program in 2014 — how did this morph into the Lexus Plus program?

Just prior to the New York Auto Show last year, Lexus Corporate sent some people out to examine our “Proper Pricing” initiative. They thought it was great. They had already started developing their own program, and we spent a few days unpacking the whole process.

From there, Lexus established some general guidelines — in every store, in every market, you need to have some flexibility. What our Lexus Plus model looks like will be similar to other stores, but there are also some differences. Lexus Plus isn’t a one-size-fits-all solution to the dealership.

We had to figure what was going to work for us and our people and our marketplace. When they brought out the initial eleven dealers to California, each dealer was given a consultant, who helped us understand the cultural changes, the practical changes, how we wanted to convey our message to the consumer.

We are prototyping this program, it’s not a pilot program. This is forever. Lexus Corporate is committed at the core to making this work.

You mentioned that pricing changes on a weekly basis, how do you deal with a customer that believes this fair pricing is a flat rate and find out that somebody else got the car for cheaper? Are we taking about significant price changes?

It’s the reality of the car business that somebody can always go out and buy a car cheaper than what we’re going to sell it for. But how much money, how much emotional energy is going to be expended trying to find that deal?

We give a three-day price guarantee. If they can find the car cheaper, we’ll match it or they can return the car. We have not had a single price match or return since starting this program.

Lexus Lehigh Valley

I spoke with Jeff Bracken at the Detroit Auto Show about this, and I used the example of Best Buy. If there’s a TV at Best Buy that you want, either you wait for it to go on sale or you buy it for the listed price. You can’t negotiate the price of a TV at Best Buy.

Negotiating is a specialized skill, it feels like a skill that some people have and some people don’t. Having negotiating at the core of your sales experience seems like an impending disaster.

In our first year with this program, we missed our old business model. It’s not a simple change. But I decided that we’re going to give up today’s profits to have a business that’s customer-centric. Lexus Plus will evolve, and hopefully it evolves into an understanding that the car business revolves around the customer and not the dealer.

If buying a car is easy at a Lexus dealer, we’ve got the leg up.

You talk about fair pricing, and maybe people’s eyes glaze over. But I believe you’re talking about the future of the automotive industry.

I can’t say this is the only way, that this is the best initiative. But I can say for us that it’s the right direction.

This isn’t perfect, but we know it’s going to evolve. We’re not in the car business anymore. We’re in the transaction business, we’re in the hospitality business. We live in a society where anything you want is a point and click away. That’s what consumers want, and that’s what we’re going to give them.