Music Trade Review -- © mbsi.org, arcade-museum.com -- digitized with support from namm.org
30, 1924
THE
MUSIC TRADE
REVIEW
11
Cutting Allowances on the Trade-in
A Plan Which Enlists the Co-operation of the Retail Salesman in Giving the Lowest Possible Allowance in
Closing a Sale Where a Trade-in Is Involved—Dividing the Profit and Loss on Each
Trade-in Transaction With the Actual Division of the Responsibility
T
HKRK can be no general solution of
the problem of the trade-in in the
piano business. In spite of this, how-
ever, there are a number of factors pri-
marily responsible for the injurious effects
of this problem which can be considerably
ameliorated through proper study and handling.
The question of the over-allowance, which is
the nub of the entire problem, is particularly
adapted, not to an entire solution, but to reme-
dies which should go far in eliminating the
losses which too many retail piano merchants
consider almost inevitable in regard to the
trade-in problem.
The Salesman's Tendencies
The tendency of the salesman in handling a
sale wherein a trade-in is involved is consist-
ently to shift positions with the buyer. In other
words, either through fear of competition or
through an overanxiety to close the sale, the
salesman will too often allow himself to be
forced into a position whereby, instead of sell-
ing the prospect a new piano or player-piano,
he ends by buying the used piano at a price
in no relation with the ultimate amount that
the piano merchant can hope to receive for it.
This has been checked in a good many houses
by a system' of expert appraisals strictly to
limit the allowance which the salesman is per-
mitted to offer, but this system, efficient as it
may be, has the disadvantage of rarely enlist-
ing the salesman's full co-operation and, as a
consequence, is detrimental to the morale of
the selling force.
Whatever plan may be adopted in effecting
at least a partial solution of the trade-in prob-
lem, it is essential that some incentive be pro-
vided for the salesman so that he himself may
be an active force, in carrying it out and so that
his full co-operation may be enlisted. Men who
have studied this problem thoroughly and who
have realized the powers of this factor almost
conclusively agree that the most direct means
of achieving this end is to make the salesman's
ultimate compensation be closely connected
with his activities along this line. In other
words, it is necessary, these men agree, that
if the salesman is to be made to realize the
necessity of giving no more than the actual
value for the trade-in, and if all his capabilities
are to be enlisted to this end, he must profit
or lose according to what he accomplishes and
according to the profit or loss of the house on
the resale of the trade-in.
The Trade-in Sinking Fund
A plan which has worked successfully for
some years in retail automobile merchandising
and which is susceptible, with few modifications,
of adaptation to the retail piano trade, is
worked out as follows: It first of all involves
• the primary necessity of having the salesman
profit or lose with the house on the resale of
the trade-in. Basic in it is the fact that the
payment of a part of the salesman's commis-
sions depends to some extent upon the resale
of the used instrument. This immediately
makes the latter extremely cautious as to the
allowance which is involved in the sale of a
new piano or player and makes him use every
power at his command to swing the sale at as
low an allowance as is possible.
The Three Heads
The net profit brought in by every sale of
a new piano, in which a trade-in is involved,
according to this plan is distributed under three
heads: the first of these and by far thejargest,
of course, goes to the house immediately. The
salesman's commission is charged according to
the ordinary formula to his commission account,
a third sum, which a dealer must arrive at by
a scrutiny of his books on trade-in sales in the
past, is charged to what is termed a sinking
fund under the head of the salesman.
The accumulation of this sinking fund is
used in the following manner: All losses in-
curred in selling the trade-in are charged against
it and if these amount to a greater sum than
the accumulation of the fund, the salesman's
commission account is debited with the losses
in excess of that sum. If, however, a sales-
man's sinking fund has a balance on the right
side of the ledger at the end of a certain period,
usually a year, the salesman accordingly is
credited with 50 per cent of the balance, he
.sharing equally with the house in the distribu-
tion of this surplus.
How It Works
Here is an example of the way this works out
in actual figures, the latter, of course, being
purely arbitrary. A salesman has gross sales
of $50,000 with trade-ins involved in one year.
On this, if his commission be 5 per cent, his
commission account is credited with $2,500. If
the house decides that the trade-in sinking fund
is sufficient at 5 per cent, his account under
that head is credited with $2,500. If the trade-
ins which he takes in during the course of this
gross business of $50,000 are resold at $15,000,
and there are losses involved of $1,500 upon
the gross sales in used pianos, the sinking fund
is accordingly charged with $1,500, leaving a
surplus of $1,000 at the end of the year. Con-
sequently, the salesman would receive $500 of
this added to his gross commissions and the
house" would profit to the same amount.
If, on the contrary, losses on the resale of
this $1,500 worth of used instruments were to
run above $2,500, say they amounted to $3,000,
the salesman would have to carry this additional
expense, this being charged back to him and
deducted in the course of his regular settle-
ments with the house. The above figures, as
has been pointed out, are entirely arbitrary and
bear no approximation to conditions as they
exist in retail piano selling. However, the main
outlines of the plan are given in sufficient clarity
for the piano merchant to grasp them and to
modify them according to his own conditions.
As has been stated often, there is no blanket
solution to the trade-in problem, each individual
merchant having to take action according to
the individual conditions existing in his store.
Yet the above plan properly modified would
almost be sure to eliminate, or at least decrease,
losses on trade-ins to a very small sum.
The Salesman's Responsibility
It is only proper that, since the salesman's
responsibility in every trade-in transaction is
large, he in turn should participate in the
profit or loss of that transaction. The above
plan fairly divides this responsibility and gives
an incentive to the salesman to hold the used
instrument at its true valuation rather than at
the often outrageous figures, inflated in a vast
majority of cases, at which so many trade-ins
are valued at the present day. True valuations
on trade-ins are no detriment to closing a sale
even under competitive conditions, providing
that the salesman is convinced of the fairness
of the offer and that he bases his activities upon
salesmanship, quality and value rather than
upon the wild race with a competitor to give
as much as is possible for a decrepit instrument
that, in many instances, has practically no re-
sale value at all.
Margins of profit are not any too great in
the retail piano trade at the present time. Over-
head has advanced at a much more rapid ratio
than have gross margins of profit. As a con-
sequence the retail piano merchant cannot
afford to disregard a factor which will prevent
losses of any character. In nine out of ten
retail piano warerooms the trade-in is a con-
stant source of leakage. Some retail merchants
may not know this; their accounting systems
are not properly worked out to show the losses.
If they were, they would be astonished at the
conditions as they exist. Rut whether they
do or not it is unquestionably necessary that
this leakage be checked to as great a degree
as is possible.
The Advantages
A rigid system, one that is entirely inflexible,
imposed on an organization by the head of the
house, is likely to check sales enthusiasm and
to have an immediate effect, detrimental always,
upon the gross volume of business. On th>
contrary, a system which vitally affects every
man in the selling organization, which enlists
his interest because he gains or loses according
to his work under it, exercises a proper influence
on the problem and, at the same time, has
none of the detrimental effects which result in
a loss of sales. These two factors are essential
in any remedy designed to ameliorate condi-
tions as they exist to-day affecting the trade-in
problem in the retail piano warerooms.
Pratt Read
Products
Piano Ivory
P i a n o Keys
Piano Actions
Player Actions
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at Deep River, Conn.
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