Dealers: Give the Kawi/Costco deal a chance

Publish Date: 
Jul 28, 2011
By Mike Vaughan

I’m always amazed when new products or concepts are introduced in the motorcycle industry. Unlike for instance, Apple, whose customers actually encourage and embrace innovation, our business’ first commentators usually provide nothing but negative feedback.

At Triumph when the first photos of the Bonneville were released, comments on online motorcycle forums ranged from, “That seam underneath the tank is ugly. It will never sell” to, “The pipes shouldn’t have that kink in them. It will never sell.” And so it went. But of course, the Bonneville in its many iterations has become one of Triumph’s biggest sellers.

The same attitude seems to be true of Kawasaki’s partnership with Costco. All of the feedback on the Dealernews website so far has been negative, with comments like “This will devalue the premium brand, by discounting it to Costco members it will erode profits…” and “Another attempt by Kawasaki (like their direct accessory fulfillment) to bypass the dealer.”

Let’s look at the deal with some degree of rationality. Our business, in case no one’s noticed, is in the crapper, and has been since 2008. Based on the latest MIC quarterly report, it might have bottomed, but at this point we don’t really know. It merely could be a plateau before a further erosion of sales later in the year — something that no one wants to see happen.

Aside from a national economy on life-support, we’re facing an aging customer base. Our once youthful customer has aged 20-some years, and is not as ready to spend as he was a few years ago. Repeat customers are great — the best kind to have — but they aren’t going to grow the business. For the industry to survive, we need new faces in our stores, and those new faces need to have money, or access to credit so that we can sell them something.

One of the definitions of insanity is to keep doing what you’re doing and expect different results. The same can be said of powersports marketing. We keep talking to the same people. Maybe not so much through traditional media like newspapers, radio or TV, but we’re using the web, Twitter and Facebook, all great stuff, I suppose. But, this new media carries with it the some of the same problems of conventional media. A person who visits your website is likely to have done so intentionally. It’s probably Joe Biker looking to see what’s hot so he can compare it to what’s hot at the dealership down the road or online. You’re likely not attracting somebody looking for shoes who has an unknown latent interest in powersports products.

So as a marketer, you can continue to fish in the same shrinking lake as 10,000 other fishermen, or you can look for a new lake where there are fewer fishermen and more fish, which is what Kawasaki has done.

So just how big is the Costco lake? It’s big: 22.1 million households. At 2.6 persons per household, that’s a bit more than 57 million potential customers. They have an average annual household income of $98.8K vs. the average motorcyclist’s household income of $59.6K, and 41.4 percent have an income in excess of $100K per year. There is an age difference too, as the average Costco member is 53 years old, versus the average motorcyclist’s age of 47.

Costco has developed the Costco Auto Buying Program, and has a 20-year history of successfully selling cars to its members through various dealerships. Notice I said, “through” — you can’t buy a car at a Costco warehouse. So let’s lay that misperception to rest. The fact that the average participating auto dealer has been on board for more than 10 years speaks pretty well to the viability of the program.

As far as brand erosion, some of the automotive brands you can buy through the Costco Auto program includes Cadillac, BMW, Audi, Porsche, Land Rover, Mercedes and Corvette — you can even get a Lamborghini if that’s what you want. The last time I checked, all of these were pretty much premium products, none of which seem to have been significantly damaged by their association with Costco Auto.

Don’t forget that Kawasaki tested this program before committing to it. To follow up on the results of the test, I spoke with Jeff Skeen, CEO of Costco Auto. He said that not one of the early pilot dealers expressed any concern or negative attitude regarding the relationship. In fact, to one degree or another, they praised Kawasaki for making the program possible, and viewed it as “forward-thinking.” While I didn’t discuss actual sales numbers with the dealers, they all mentioned that the program attracted many customers who had never been in a Kawasaki dealership before. They also liked that members had to actually visit their stores in order to get information on the “deal.” None expressed any concern about erosion of brand image, or about the $200 per month they pay to participate.

Skeen told me that the pilot program that began shortly before Thanksgiving had generated more than 600 leads and more than 370 dealer visits, netting in excess of 100 purchases and generating sales of more than $750,000.

Perhaps more to the point, based on survey information collected by Costco, 71.2 percent of the buyers were making their first Kawasaki purchase, many of whom, according to several dealers, had never been in a powersports dealership before.

The Costco program is exclusive to Kawasaki dealers, but most of them sell other brands as well — not everyone wants a Kawasaki. This program is designed to bring fresh, viable, new faces into the dealership and by all evidence so far, it’s doing just that. So let’s see how well it works or doesn’t work before we beat it to death with the club of negativity.

This story originally appeared in the Dealernews August 2011 issue.