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Cashing in on Upheaval

Tony Wanless | Image: Antony Hare | Published: September 02, 2009

Innovators find opportunity when the game changes.

Whole industries are being turned upside down today, but disruptive change doesn’t happen overnight; systems are entrenched, and habits built up over years don’t crumble easily. Eventually, however, change does happen, and the successful entrepreneur will pounce on the opportunity.

The car industry is a notable nexus of disruptive change today, and we’ve all read the headlines about a drastic revamping of the dealership system that’s been entrenched for decades. For one serial entrepreneur, it was the opportunity he’d been waiting for.

The Problem

In the late ’80s, Randy Purcell of Richmond disrupted  the traditional real estate system by starting Top Producer Systems, a company that provided marketing and customer-relations management help to real estate agents. Traditional agents eventually accepted  how the new system could help their businesses, and Purcell sold the company in 2000 to the giant Internet real estate portal Move. Now Purcell faced the quandary of many such successful entrepreneurs: coming up with an encore to follow that first act.

The Solution

For half a century, carmakers have sold their products through franchised car dealerships. As car use grew, so did the franchise system, to a point where it became so entrenched it could resist all attempts at change. While there have been down times when the system wobbled, it never cracked because those in it were always able to stand together. The car dealership system remained a sales channel controlled by a select few.

Recently, however, some fissures have appeared in that wall. First, the Internet began offering buyers a new information conduit, and now the recession and the decline of the carmakers’ power have opened those cracks considerably. And Purcell is hoping to chisel those cracks into a big hole.

Purcell discovered that the car sales system, like real estate, delivers “high-involvement” (read, expensive) consumer purchases through intermediaries who hold the keys to most information about the purchase. And the Internet, while transferring some knowledge to buyers, had not yet had any material or disruptive effect on the system.  So last year, Purcell began building Best Price Express,  an online service that takes orders for new cars and negotiates the purchase directly with local dealers for a fee. The service launched in B.C. earlier this year and is now moving into Alberta.

Purcell expected that convincing dealers to move away from their traditions would be a long process, but the current recession advanced his timetable considerably; dealers are holding a lot of inventory while buyers are evaporating. The supply-and-demand equation is out of whack, making new-car sales susceptible to the long-tail economics behind the Best Price system: it’s better to sell more cars for a smaller profit than to sell only a few for larger profits. Since nothing persuades like bringing someone business, dealers are starting to come around to Purcell’s non-traditional methods. 

Purcell is experienced with transformation, however, so he knows that changing traditional thinking won’t come easily – for car buyers or car dealers. But he also knows that the game has begun to change, and he’s prepared to wait.