We have concrete and specific ideas about what it means to be customer-friendly. Free soda refills. Free return shipping for catalog items. Guaranteed airline seats that don't get overbooked. Even dog-friendly shops complete with a water dish.
But is being customer-friendly a viable strategy?
The business of selling used cars, with its reputation for sneaky salespeople and poor customer satisfaction, can be anything but customer-friendly. Richard Sharp and W. Austin Ligon, executives from Circuit City, changed all that with the launch of their "big-box" car retail concept, CarMax
CarMax was the fix for everything that was wrong with buying used vehicles. The company operates according to four core customer benefits:
- low, no-haggle prices
- a broad selection
- high-quality vehicles
- and a customer-friendly sales process
According to the company, 93% of its customers said they would recommend CarMax to a friend.
But would I recommend investing in CarMax?
Even as automakers Ford
Hundreds of dealers -- both for new and used cars -- are expected to go out of business by the end of the year. From the consolidated competition, CarMax likely will pick up market share, especially if it can convince Congress to include used cars in the pending "cash for clunkers" legislation. Given that used-car sales outnumber new-car sales 3 to 1, CEO Tom Folliard contends that including used vehicles would better achieve the legislation's goals of promoting fuel efficiency, saving jobs, and helping Americans afford a car.
However, CarMax might not be the only auto superstore positioned to capitalize on the industry's downfall. Competitor AutoNation
Does it pay to be friendly?
A comparison of CarMax's closest competitors suggests it does. CarMax has delivered operating margins around 3.5% to 4% over the past few years, about on par with AutoNation, but better than Penske Automotive
CarMax, which operates 100 stores, has aimed to grow its store base by about 15% per year. To achieve this, it has focused on mid-size markets, defined as those with television viewing populations of 600,000 to 2.5 million people. These regions have proven to be the easiest markets to enter, with accessible advertising to build awareness. However, because of the tough economy, the company has had to temporarily halt its expansion plans.
With a difficult credit environment and lower consumer confidence, CarMax will be a long-term bet on the automotive retail industry. But the company will continue to prove that delivering to the customer delivers results to the business.
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Rebekah Hughes owns shares of CarMax and Berkshire Hathaway, but no other companies mentioned. CarMax and Berkshire Hathaway are Motley Fool Inside Value recommendations. Berkshire Hathaway is also a Stock Advisor recommendation, and the Fool owns shares of it. Take a spin in any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.