CarMax 2007 Annual Report Download - page 16

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or arrange customer financing on competitive terms and the comprehensiveness and cost of the extended service
plans we offer. We believe that we are competitive in all of these areas and that we enjoy advantages over
competitors that employ traditional high-pressure, negotiation-oriented sales techniques.
Our sales consultants play a significant role in ensuring a customer-friendly sales process. A sales consultant is paid
a commission based on a fixed dollars-per-unit standard, thereby earning the same dollar sales commission
regardless of the price or gross margin on the vehicle being sold. The sales consultant receives no commission on
the finance process. This ensures that the sales consultant’ s primary objective is helping customers find the right
vehicles for their needs at prices they can afford. In contrast, sales and finance personnel at traditional dealerships
often receive higher commissions for negotiating higher prices and for steering customers toward vehicles with
higher gross margins.
In the new vehicle market, we compete with other franchised dealers offering vehicles produced by the same or
other manufacturers. Historically, the new vehicle market has been served primarily by dealerships employing
traditional automotive selling methods. We believe our customer-friendly, low-pressure sales methods are points of
competitive differentiation.
Marketing and Advertising. Our marketing strategies are focused on developing awareness of the advantages of
shopping at our stores and on attracting customers who are already considering buying or selling a vehicle. We use
market awareness and customer satisfaction surveys to help tailor our marketing efforts to the purchasing habits and
preferences of customers in each market area. Our marketing strategies are implemented primarily through
television and radio broadcasts, carmax.com, the Internet, and newspaper advertising. Television and radio
broadcast advertisements are designed to build consumer awareness of the CarMax name, carmax.com, and key
components of the CarMax offer. Newspaper advertisements promote our broad selection of vehicles and price
competitiveness, targeting consumers with immediate purchase intentions. Broadcast, Internet, and newspaper
advertisements are designed to drive customers to our stores and to carmax.com.
The media landscape is changing rapidly and we are changing our marketing programs in response. We are
customizing our marketing program based on awareness levels in each market. In selected markets, we have
expanded our use of Internet-based advertising while curtailing our use of newspaper advertising. We are building
awareness and driving traffic to our stores and carmax.com by listing every retail vehicle on both AutoTrader.com
and cars.com. Through their syndicated networks, AutoTrader.com and cars.com vehicle listings appear on sites
that we believe are visited by a majority of late model used vehicle buyers who use the Internet in their shopping
process. Our advertising on the Internet also includes banner and key-word advertisements on search engines, such
as Google and Yahoo!
Our website, carmax.com, is a marketing tool for communicating the CarMax consumer offer in detail, a
sophisticated search engine for finding the right vehicle, and a sales channel for customers who prefer to complete a
part of the shopping and sales process online. The website offers complete inventory and pricing search capabilities.
Information on the more than 25,000 cars available in our nationwide inventory is updated daily. Carmax.com
includes detailed information, such as vehicle photos, prices, features, specifications, and store locations, as well as
sorting and comparison features that allow consumers to easily compare vehicles. The site also includes features
such as detailed vehicle reviews, payment calculators, and an option to estimate trade-in values via a link with
Kelley Blue Book. Customers can contact sales consultants online via carmax.com, by telephone, or by fax.
Customers can work with these sales consultants from the comfort of home, including applying for financing, and
need to visit the store only to sign the paperwork and pick up their vehicle.
Suppliers for Used Vehicles. We acquire our used vehicle inventory directly from consumers through our unique
in-store appraisal process and through other sources, including local and regional auctions, wholesalers, franchised
and independent dealers, and fleet owners, such as leasing companies and rental companies. In calendar 2006,
approximately 22 million used vehicles were remarketed in the U.S., of which nearly 10 million were sold at
wholesale auction.
The majority of our used vehicle inventory is acquired directly from consumers through our appraisal process. The
most popular makes and models are more readily available directly from consumers than from other sources. This
buying strategy also helps provide an inventory of makes and models that reflects the tastes of each market. In May
2006, we began testing a stand-alone car buying center in the Atlanta market. Our goal for the car buying center is