Tuesday, January 6, 2009

What About Service Retention? - First, the Facts

Automotive dealer service market share is in the high-20% range, with Asians well above this level. Construction and agricultural companies generally have much higher service retention. Heavy truck’s retention is difficult to gauge because it has such a different business model. If you want to know all possible retention pitfalls, study the automotive industry, because there are so many moving parts to its business enterprise. Before talking about fixing the problem (next week), let’s first define it.

You start your ownership experience with buying a car or truck, and most of your dealings are with a car salesman, … who works with the used car manager to disappoint you with your trade-in value, the F&I manger to arrange financing and scare the bejezus out of you about the need for a security system, and the general manager to disapprove the deal and squeeze more money out of you. Happy times. You wait or come back to take delivery and are asked if you want to see the service department manager way out back. The salesman is checking-the-box and, more often than not, you pass on this opportunity to meet another smiling dealer manager. More progressive dealers arrange a delivery festival for you, where all those folks are waving and smiling as you drive away. Pretty much all the time they ask for “all 5’s” in satisfaction and tell you if there is any reason why they can’t get these top scores you should fess up now. When they ask this pictures of Norman Bates typically come to mind asking how you enjoyed your stay at the Bates Motel. Dealers are checking-the-box. The Psycho shower scene replays in your mind and you give them all those 5’s, because you are sure
Norman will pay you a visit for anything less. The OEMs rack up these numbers and feel good about how well customers are treated when they buy their brand new cars and trucks. JD Power works for many of the OEMs providing their Bates Motel customer satisfaction surveys, and independently rolls out their own CSI survey. They pay you a dollar to fill out a couple of hundred questions that should take about 45 minutes to figure out and check the boxes. So, they get American car buyers making $100,000 a year to whistle while they work for a buck and a quarter an hour (yeah, right … they probably pocket the dollar and zoom through the survey in 10 minutes). OEM CSI standings move up and down each year based on well, err, ah, what must be plate tectonics. Maybe that explains Porsche’s movement from 2007 to 2008. Well, that’s it in a nutshell. The automotive customer now moves into the ownership, “aftersales”, phase well prepared for battle.

It is very different for HE. Nearly everything is different. Let’s just focus on agricultural products. Traditionally, the Ag customer is either a cost buyer, a brand buyer, or a dealer buyer. Cost buyers are motivated by cost of ownership issues and make a balanced buying decision. They are like automotive-fleet customers, so let’s take them off the table for discussion. A brand buyer resembles a 1960’s vintage Chevy, Ford, or Chrysler buyer. They have a brand affinity and will stick with it. Dealer buyers are usually brand buyers and they buy from a specific dealer who takes care of them and gives them personalized treatment. Again, this buyer resembles a 1960’s relationship between rural folks and their local car dealer. Corporate agriculture and corporate construction are the big strategic issues here and are rendering traditional relationships as obsolete. Our lean production economy (thank you Toyota) and the current recession are making small corporate customers act more like the big ones. Heavy Truck is already where the other HE segments are heading.

It is important to think of customer “retention” from the perspective of failures. Why do customers fail to use their dealer for servicing their vehicles? It is mostly due to a mix of three things: (1) common knowledge, (2) residual perceptions from their vehicle buying experience (3) a multitude of choices. It is common knowledge that dealers are more expensive than independent repair facilities - untrue, but common knowledge. The buying experience is corrosive to relationship- building, trust, and a perception of value. Finally, automotive customers have a wide array of choices due to the sheer volume of vehicles on the road requiring service – approximately 200 million vehicles in operation in the US alone. With that volume, parts suppliers can make the investments to justify competing with genuine OE parts. Parts franchises like NAPA, Pep Boys, and LKQ can be formed, bought, and sold. There is plenty of volume for service specialists like Jiffy Lube, Midas, Goodyear, Firestone, and others. Furthermore, there is ample opportunity for gear-heads to grow up and own their own business where they grew up and feed off the swarm of vehicles needing repair, care, and attention. All this fattens off the same market that the 15,000 or so franchised US motor vehicle dealers feed from. Choices abound, and this (along with relationship corrosion and “common knowledge” of dealers being the high cost spread) explains most of the ~70% lost service market share for the automotive OEMs.

Let’s contrast this to agriculture. When you go buy a tractor from a dealer, you typically enter the facility through the parts counter and display area. Your dealer contact is typically your advocate for the whole goods, the accessories and implements, and what ever service you need during the lifetime of the product. Volumes are not high enough to attract the same sort of aftermarket competition as automotive, and labor prices are in-line with IRFs due to less warranty pay squabbling between dealers and OEMs. Lack of product mobility dictates that repairs are done by the dealer or at the equipment’s domicile by yourself, the dealer, or a travelling specialist. Overall, the choices are an order of magnitude smaller, the “corrosion” is actually a bond, and the common knowledge not nearly as crippling.

In thinking about how to improve customer service retention it is important to think of David and Goliath. Remember, David was with the army of Saul and the Israelites when Goliath, the Philistine, came out with supreme confidence and challenged the Israelites to send their champion to settle the battle in single combat. To Goliath it was a sure thing. This tale has lasted several millennia because we just love the underdog, David, coming out and knocking out Goliath with a slingshot, then killing him with his own sword. Vegas would have given him a million-to-one on that. Bad odds.

In fixing service retention, OEMs seem to go for the slingshots, willingly do battle with the Goliaths out there, and hope for the lucky shots.

  • The Goliaths are also all those non-dealer choices that customers have in buying parts and getting service. Jiffy Lube is a Goliath. NAPA and Carquest are Goliaths. LKQ is a Goliath. These “Goliaths” are seen to represent “convenience”, and so OEMs take their slingshots and load them with dealer “convenience” bullets like extended hours, loaner cars, satellite service outlets, weekend hours, nice waiting rooms, and on-line appointment scheduling. Stuff like that that costs a lot of money and are not sustainable.
  • The Goliaths out there include those folks poisoning the water selling cars and trucks like hair treatment at a carney sideshow. F&I is a Goliath. Used car is a Goliath. Look above at Saturn’s CSI numbers and understand that the new car salesman is still a Goliath. So, OEMs measure CSI with vigor and turn a blind eye to the gaming. They pay for performance in a change environment that resembles how Monopoly is played in Sing Sing. There’s a lot of money being wasted here.
  • The Goliaths out there are dealership pay plans, service labor rates, naive dealer management systems, and service advisors (who nobody seems to organizationally own). But, nobody seems to throw any stones at these … they are seen as second order influences and battle here has none of the romance that the other Goliaths embrace.

Deep REM sleep dreams are curious phenomena. We can imagine things very differently and it makes complete sense. We wake up, shake our heads, and return to the real world that sometimes makes no sense at all. In the awakening mist separating dreams and reality we are sometimes given the gift of critical examination. Who knows, but tomorrow morning for a short spell we might:

  • Be confused why dealers would ever willingly spend their own money on a part of the business that has the least respect, for a goal that nobody believes in. Techs working on Saturday? Satellite service outlet? Yeah.

  • Be astounded that OEMs pay homage (and a lot of cash!) to CSI numbers that reflect how much Monopoly money you can steal … and not be very clever in doing so.

  • Be dazed and confused why OEM executives don’t understand that proudly charging a dealer customer $80 - $120 an hour to turn a wrench ticks people off. Especially in a recession.

We need to use this recession for achieving clarity and critical examination. We need to stop wasting money on slaying Goliaths who simply won’t go down, and we need to aim our slingshots at some Goliaths who are vulnerable to change.

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