IRON Solutions Inc.’s, Darwin Melnyk and Scott Derksen say what’s happening on the retailing side of the farm machinery business these days is like the new TLC television reality series, “Extreme Couponing.” Each episode features “bargain shoppers who have mastered the art of saving” and who go to tremendous lengths collecting coupons, timing purchases and leveraging loyalty programs to amass huge discounts on merchandise.

According to the IRON Solutions executives, the shoppers depicted on the show have made a science of bargain shopping, walking out of a grocery store with hundreds, if not thousands, of dollars in merchandise while paying little or nothing for it.

“They’re able to stockpile stuff for nothing because they’ve leveraged both factory and retailer programs to drive their grocery bill down to zero,” says Derksen.

“This is a great metaphor for what’s happening in farm equipment these days because the farmer is working both ends of the channel, and neither end is coordinated enough to offer the product at a fair price,” says Melnyk, CEO of IRON Solutions, which specializes in gathering data and analyzing values and trends of used equipment.

He says that the power of the consumer has become an art. “In the end, the retailer issues its own coupons, loyalty programs and discounts to go along with factory coupons and programs to get the consumer in the store. The factory says, ‘If the retailer wants to double-down on coupons, that’s their own business.’ Between the two of them, a diligent, bargain shopping consumer walks right up the middle and goes home with something for nothing,” says Melnyk.

“When the customer picks the factory program and then plays it off the dealer, and the dealer is concerned about competing with another dealer, the customer is working both ends against the middle,” he says.

They maintain that the engagement process with the customer is breaking down and the only way to fix it is for better coordination between factory, dealer and dealer sales teams.

Factory vs. Dealer. “Farmers have become bigger and empowered by information,” says Melnyk, “and with this, they have more buying power and more intelligence in terms of knowing what’s out there.”

Often times, the breakdown comes when the factory works directly with the dealership’s salespeople, which some say is happening today more than ever. This fragments the enterprise’s ability to optimize pricing. “It’s a classic lack of integration when the salesperson manages the discount with the factory without overall dealer enterprise coordination,” Melnyk says.

“It’s no secret,” he adds, “effective salesmen build strong customer relationships and through this they can inadvertently conspire with customers to erode dealership margins. Dealers must work smarter with real-time information and visibility into deals in progress to keep their sales people focused on profits. Sales managers need to be empowered with information to carefully track the final economic impact to the dealership of these roll programs.”

Sustainable Growth? While manufacturers obsess about market share, the ultimate goal must be gaining share that is sustainable, otherwise it isn’t real growth.

It’s called “channel power,” says Melnyk. This is when there’s a single, coordinated effort to address customer needs without going around the dealer to the factory, and the two work on price optimization and getting the right price to get the deal done. “Everybody knows that it doesn’t always take all the incentive money to get the deal done,” say Melnyk. “But right now, the incentive money often goes straight to the farmer, and it creates this aberration where customers are buying products at unsustainable price points.”

Derksen adds, “You get sustainable growth and margins when you’re focused on the quality of the customer that you’re giving these deals to. We know dealers who believe roll programs are sustainable because they manage them well enough and only make ‘roll’ offers to core customers, those who are the most profitable and loyal. In these cases, margins on whole goods can be tighter when you have a sustainable customer and you’re providing sales of parts and services to keep them running.”

The major concern with equipment rollovers occurs when dealers don’t measure what’s going on, and they can’t manage it to their benefit with their core customers. What happens, says Melnyk, is dealers are teaching or even training their customers to play the game. Melnyk says “I clip coupons and when I check out I hate it when someone in front of me gets something cheaper than I do.”

Measure & Manage. The first thing that must be done is to stop the shopping and consolidate the channel power between the dealers and the factories in a coordinated way where they become one voice and the customer isn’t able to play both ends against the middle.

Melnyk and Derksen point out that the auto industry has recognized how customer engagement has dramatically changed in the past 5 years. Both dealers and the factory have learned to achieve price optimization of their services through coordinated efforts to manage it.

It comes down to the age-old business tenet; you can’t manage what you can’t measure. “Dealers need a system of record for customer information to coordinate these engagement activities and to optimize the programs, margins and the prices that they’re offering,” Melnyk says.

To illustrate the point, the execs ask, do you know if the customer that you’re offering a deal to is a profitable one? “If you want to give away the business in these unprecedented ways, at least be sure that you’re doing it with customers who you know are loyal and profitable.

“What we’re seeing is that loyalty can be bought, leaving the dealer with a low-volume, low-loyalty customer and giving away his margins. So, if a dealer’s going to do this, at the very least they must have a way to measure and manage what they’re doing.”

Low Margins. Not only are dealers finding themselves doing business at margin levels that are not good for their business, but transactions in rollover programs can be extremely complex and time consuming. It’s one thing if these were simple deals going out the door at low margin, but they’re sucking huge amounts of time from the dealers’ sales.

“We’ve done some quantitative analysis that shocks dealers when they realize how much sales team time is wrapped up in selling these deals, especially when you can measure and manage the cost of sales activity against win-loss ratios and deal profitability,” says Derksen.

“It gets back to not being able to manage what you’re not measuring,” Melnyk says. “As customers are empowered with more information, factories and dealers need to retool their systems to empower their teams and coordinate their channel power with systems of record and systems of engagement that can profitably manage the challenges and opportunities in the customer and equipment lifecycle.”