A common misconception about entrepreneurship is that you have to come up with some crazy new idea. The reality is that there is money to be made by taking an existing business and improving it. Take Carmax for example.
Granted, this is a very brief article from Business 2.0, but it is an interesting overview of Carmax.
When shopping for our last car, I looked at the Carmax website. It is quite comprehensive and they have a lot of inventory.
What I didnt know was that Carmax was started by Circuit City or that they were applying the retail concept to used cars to create a better customer experience.
To improve the customer experience they replaced haggling with a fixed price, like retail. To prevent salespeople from steering you to lemons, they use fixed sales commissions with no incentive to sell you specific cars.
They also improved the supply side with process improvements. They used modern technology to track cars and logistics. They use database technology and advanced statistical models to set prices.
The customer gets a wide selection. They feel safe that they wont be ripped off and that the company is taking a modest profit from each car (which borrows from Costco). And it is easy to research via the internet to find what you want.
I will definitely be considering Carmax on my next used car purchase.
The Wal-Mart of Used Cars
Unlikely big-box chain CarMax has transformed the world of auto retailing.
Business 2.0 Magazine
October 2 2006
It hasn't always been a smooth ride - CarMax bled money for its first seven years-but today the company stands as an unlikely American success story: Its supercenters, which now number 71 and are concentrated in the Sun Belt, sold 290,000 used cars in the last fiscal year, ringing up $6.3 billion in sales and $148 million in profit.
Through a blend of technology and an inspired reimagination of how to treat customers, CarMax (Charts) has managed to outsmart any credible competitors. Now it has Hummer-size ambitions, with plans to build at least 300 more stores in the next 12 years.
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But it's the operation's high-tech backbone that truly differentiates it from competitors. In the same way that Wal-Mart revolutionized the logistics of retailing, CarMax set out to nail the perfect mix of inventory and pricing through exhaustive analysis of sales data. Its homegrown software helps CarMax determine which models to sell and when consumer demand is shifting.
Each car is fitted with an RFID tag to track how long it sits and when a test-drive occurs. Showroom computers give customers access to CarMax's nationwide catalog of 20,000 cars, so if a customer in Tampa, Fla., is set on a green 1999 Camry sitting on a lot in Los Angeles, CarMax can transfer the car cross-country for a fee. "The analytical strength has led to its success," says Sharon Zackfia, an analyst with Chicago-based firm William Blair.
Without the data, stocking CarMax lots would be a logistical nightmare. Each store carries 300 to 500 cars at any given time, and unlike Wal-Mart (Charts), the company has no vendors to stock its "shelves." Instead, CarMax depends on 800 car buyers, who draw on the company's reams of data to appraise vehicles. Trade-ins represent half of CarMax's inventory; the rest arrives via wholesale auctions.
