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RVDA’s Hirsch: Sales Up, Profit Up, Anxiety Up

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October 24, 2013 by   Leave a Comment

Editor’s Note: The following is a column by Recreation Vehicle Dealers Association Chairman Jeff Hirsch that appeared in the latest issue of RV Executive Today looking at the changing dynamics in the RV retail arena. 

This is turning out to be a great year. Surveys point to both higher sales and better profit margins. However, it feels like there is higher anxiety in spite of these positive factors.

One of the reasons our anxiety continues to increase has to do with the business models we use. Our competitors can compete on price, value, quantity, or a combination of these factors. Please take a look at the accompanying chart. Each of the dots represents a different business. Every business provides a given amount of value per dollar spent (the cost/value proposition). Another way to look at this is that every business has its asset classes, and as these assets are deployed we look to achieve optimal returns on our investment. The question we must ask ourselves is, “Are these returns sustainable in the long term?”

This ratio changes, depending on where the business is located on the chart. The efficient frontier line represents the maximum value that could possibly be provided at a given cost, and the closer to the frontier, the more value a business is providing for every dollar spent. In other words, the closer you are to the efficient frontier relative to your competitors, the more secure you are in your business model.

We have seen the cost/value proposition play out in industries such as the airline industry. In the chart, you will notice that many airlines (the black dots) provided a similar cost/value proposition before the entry of the disruptive competitors (the red dots). These competitors provided more value for each dollar spent and therefore put themselves closer to the efficient frontier than the existing players. The original airlines had to change in order to provide a better cost/value proposition in order to compete. However, some of these airlines have had more difficulty changing due to legacy issues – such as the use of many models of aircraft while Southwest uses only the 737. Other legacy issues could be the age of the fleet, the aging workforce (pilots), or the multiple aircraft certifications each pilot needs.

It’s important to note that disruptive forces don’t have to compete on a lower price. Disney theme parks, for example, compete at the high value/high cost end of the efficient frontier. However, disruptive forces will take the form of a cost/value proposition that puts a business closer to the efficient frontier.

We are experiencing this today in our industry. We have mom and pop stores, off-site show dealers, destination locations, Internet dealers, regional players, and industry consolidators – and many of these competitors have been forced to change their value/cost proposition to remain competitive in the marketplace. In other words, some competitors have squeezed the competition because they provide more value for each dollar spent. This is especially likely to occur when competitors converge in the same market – let’s say a mom and pop after the entry of both a low cost/low value and high cost/high value competitor.

When we better understand the business models of competition, we become more tolerant of that competition. This understanding helps us better determine our system of activities that allows us to be comfortable with our own cost/value position, it indicates if we are in need of improvement, and it will help reduce anxiety caused by the unknown. I truly believe all of us are asking the same question, “In the long term, do we have the right business model to thrive in today’s market?”

Finally, we have to be mindful that no matter what business model we choose, the other business models will affect our own. These varying business models are representative of RVDA’s membership. Our association will need to be mindful that our dealers have gone through tumultuous change, and it is the association’s job to recognize the land- scape and help you navigate those changes by either developing or referring the resources to help you secure your place on the efficient frontier.

In closing, I want to thank everyone who attended the convention. I hope it was an opportunity to help you move your business a step closer to the efficient frontier.

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