Research Paper: CarMax Essay Sample

Research Paper: CarMax

Executive Summary

CarMax is the biggest used car retailer in America. The organization was established in 1993, as a subsidiary of electronics retailer Circuit City (“CarMax - Browse used cars and new cars online,” n.d.). It distinguishes itself from the rivals in the used automotive industry with its comprehensive assortment of high-quality vehicles and a client-oriented sales procedure that does not entail haggle pricing. Even though the firm focusses in late-model used cars, 90% of the sales obtained by the company in 2012 are comprised of cars that were between zeros to six years old (“CarMax - Browse used cars and new cars online,” n.d.). The operational processes of the organization entail selling older used cars a retail and lower-quality used cars at wholesale. Furthermore, the company also offers complementary products and amenities, encompassing auto finances and vehicle repairs. Since 2007, the firm has managed to increase its revenues by approximately 34% (“CarMax - Browse used cars and new cars online,” n.d.). The rapid expansion and original business model have been the principal elements of the firm’s success.

Logistics (IT) Management System

CarMax is a pioneer in the embracement of technology, as it developed a mobile application that will enable clients to access the entire services of the company from their smartphones, and other gadgets that have Internet connection (Richards, 2013). To realize the above concept, several distinct attributes were employed in altering the mobile site of the company. Advances in web structure technology have been attracting interest for many years now. This scenario is caused by the numerous welfares they bring to commercial institutions. Several trends were employed in the organization to attain an efficient IT management system. CarMax developed a responsive plan for their website. Today, web sites can be accessed from several devices and not just the conventional desktop computers. An efficient, responsive design permits the company to assess and alter the font on the device it is accessed from, minus the necessity of developing separate sites.

Secondly, the company places an emphasis on a content-focused site. There exists a strong positive relationship amid a primary emphasis on material and the increased use of friendly websites. The content-focused sites offer an excellent web session for its clients (Richards, 2013).

The third attribute, utilized by the company, is increased custom typography. The typography scheme has been in existence over the recent years. The design focuses on the type of mobile web design. Also, a modest level design is used. This design inclines to utilize less color and avoids surfaces, gradients, and shades. Since the Internet is becoming responsive, CarMax opts for simple designs with flat layout aspects. The company employs the use of Solitary page scrolling. This tendency allows clients to locate all the products they require on the same page. Additionally, the management system is mainly focused on video usage. The organization has upsurge the broadband web speeds and utilizes novel web outlines, like HTML5 audio-visual. These two actions have increased online video usage. Clients have the preference to send and view videos that will be accessible from the mobile phone application (“CarMax - Browse used cars and new cars online,” n.d.).

Huge layout, photography, video material, and schemes have been growing over the recent years. These distinct attributes help the firm to exploit the real screen aspects on big screens and intensify the usability on smaller displays. The management system uses scalable vector visuals and extra vector graphics. This is because the organization requires graphics that are sufficiently large to seem decent on smaller displays. Nevertheless, the company does not intend to delay upload times for clients, opening the website content on smartphones. However, vector graphics do not offer scalability of photographs. Therefore, the company engages in constant research to produce the vector images that permit the vector images to provide scalable pictures.

The mobile application of CarMax serves as a platform for the organization to meet with the clients directly. Intermediaries are avoided in this approach. Consequently, it has to offer a suitable platform to get the feedback from its clients. The appropriate mobile web design of the business attracts more clients (Richards, 2013). Therefore, the increase in revenues of the organization is partly attributed to this management system. Since customers can provide their feedback and obtain prompt responses from the business, customer satisfaction can be enhanced this way. This is because the clients find the process to be expedient and time-saving, and, thus, choose to perform all their transactions through the mobile application. The overall result is that the products become cheaper, as compared to rivals’ products. The mobile application enables faster transfer of information amid the clients and the business. Consumers make their claims, and they get the feedback quicker. The services available on the mobile application are not constrained. As a result, clients can access all the services with huge efficiency that translates to a higher level of satisfaction.

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Transportation and Management Operations

The management operations of the company play an instrumental role in the increased revenues. The company focuses on mid-income mid-sized cities. This focus is due to the excessive demand for cars in this city. Moreover, in the mid-sized cities, the company faces little competition, as compared to large urban locations. Big cities like Los Angeles often have greater competition from dealers that have numerous retail locations. Also, big cities have a neat public transportation system. As a result, many residents in these cities opt to use the public transport system. Consequently, the demand for cars, particularly used cars, is lower in these regions. As of 2012, the company operated a total of fifty-three markets. Out of these, forty-one were mid-sized, eleven were large, and one was small (“CarMax - Browse used cars and new cars online,” n.d.). This mode of operation offers the company an adequate competitive advantage against its rivals.

CarMax has a dual-format retailing method for the used vehicle stores. The firm has its production stores, which conduct reconditioning on-site and non-production stores that do not perform this action. This approach permits the company to sufficiently serve the needs of every market, while sustaining a lean cost profile and spreading the comparatively high overhead production cost stores over a greater number of cars reconditioned (Richards, 2013). When the company enters a novel market with high estimated growth, it may decide to construct a production or non-production store. As of 2012, the company had sixty-three production stores and forty-five non-production stores (“CarMax - Browse used cars and new cars online,” n.d.).

The organization acquires used cars directly from its clients through distinct appraisal process, auctions, and cooperation with independent dealers. The evaluation procedure permits the organization to access the private market. The majority of cars, purchased from clients directly are of high quality, since they have been properly maintained well (Richards, 2013). This mode of acquisition assists one to attain an inventory of car models that depict the market’s preferences. The inventory purchasing role is majorly conducted at the stores and is the responsibility of clients. The firm’s inventory and pricing models aid the clients to get accustomed with the purchasing preferences at every store, recommend pricing adjustments, and optimize inventory turns to help sustain the gross margin dollars per unit.

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Loss of Profits

A definite weakness for the company is the low awareness and receptiveness to its online reputation. Even though the majority of the company’s stores have positive reviews, there still is a significant number of negative reviews. The rivals of the company take the time to address the negative feedbacks on websites like Yelp. Addressing these reviews is crucial in mitigating their effects. Moreover, this practice can help businesses to improve their reputation by providing remedies to customers that have had the negative experience (Richards, 2013).

Also, despite the good mobile site that can be accessed from smartphones, CarMax has posted a few videos on their website (“CarMax - Browse used cars and new cars online,” n.d.). This fact is crucial, since videos on aspects, such as the functioning of engines could aid induce clients. Especially for vehicles that are frequently highly emotional procurements, a video would provide the company with the chance to connect with prospective customers on a more emotional level.

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Furthermore, the listings for vehicles in the company’s database do not comprise adequate information regarding features and specifications. For example, even though features like leather seats are searchable, other aspects like HID xenon headlights are not searchable. This lack of detailed information negatively affects the company’s sales to detail-oriented clients.

Comparison of Used Car Dealers

The company has performed relatively well, as compared to its rivals. Nevertheless, this performance is primary because the company employs an innovative model that offers it a particular target market.

The sphere of automotive retailing is very competitive. Customers have numerous choices when selecting where to buy a new or used car. In this market, the company aims to differentiate itself from conventional dealerships through its clients’ offers, sales tactic, and other innovative operating strategies. Amongst the principal rivals of the company are the states franchised vehicle dealers who sell numerous late-model used cars. The firm also competes with autonomous dealers (“CarMax - Browse used cars and new cars online,” n.d.).

The industry is highly fragmented, since numerous dealerships are not part of a much bigger group. Even franchises of a similar firm and selling the same model may compete against each other due to the commission-based compensation structure that is common to most automotive retailers. There were nearly seventeen thousand of new car dealerships in America as of 2012, and projections for the number of used-car dealerships hover around thirty-five thousand. The top fifty firms in automotive industries yield less than 15% of total revenues.

Market absorption within the used auto sales space lingers to below, as CarMax, the state’s prominent retailer of used vehicles, sold approximately 2% of the total. In spite of its low market share, the company sold twice as many cars as the subsequent biggest retailer of used vehicles, AutoNation. Despite functioning in a highly fragmented industry, the company stands alone as the sole national retailer, whose key trade is selling used cars and which has production and non-production costs. Moreover, the company differentiates itself through a distinct strategy that entails no-haggle, client-oriented experience, as well as transparent pricing.  

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The gross margin profit for the company is slightly lower, as compared to company’s competitors, since administrative costs of opening production and non-productions costs increase.  

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