Tuesday, February 3, 2009

”It Hurts To Be In Love” - Revisited
- Thomas Neumann

*** This blog investigates the link between perceptions of product quality and service retention (i.e. the owner’s service behavior): we believe that customer service satisfaction only partially explains the owner’s service behavior, while brand and product quality may be more important determinants than previously thought. While we are using an example from the automotive sphere (Toyota), the lessons learned equally apply to all segments of our industry, from heavy trucks and machinery to golf carts and other recreational vehicles. ***

Last week, David posed an interesting question: “How can Toyota consistently be mid-pack in CSI performance and still be the richest car company in the market with enviable service retention rates?” Seems like a contradiction – but maybe it’s not.

It seems like a contradiction, because the “rational” process would seem to be: you buy a vehicle that you think is high quality, then you go to the dealer for (what you hope will be) a high quality service experience. If that service experience is high quality then you would (presumably) be more inclined to both return for service (service retention) and buy the product again (vehicle retention).

But in Toyota’s case, customers buy a high quality product, then they get a low quality service experience – yet they STILL both return for service and buy the product again! Seems irrational. Why do they do it?

I would argue that CSI does not tell the whole story here, and the missing part of the story comes back to David’s “it hurts to be in love” analogy. Or maybe, more appropriately – “love is blind.”

If you are in love, you will tend to overlook those minor flaws that we all have. There is a huge “halo effect” based on that love. We will overlook the bad clothes, questionable financial state, crazy mother. Who cares – I’m in LOVE.

Toyota owners (and owners of other strong brands, luxury and non-luxury – Honda, Porsche, others) are in LOVE. They just know that they bought the best vehicle out there and that they are incredibly smart for having done so. Since they love their vehicle, they want to take it to the best service provider. Since they think they are so smart for buying the vehicle, they have to assume that the dealers will give good service. And when they don’t – it gets overlooked because of several reasons;
  1. Once again, the owner is in LOVE, so they just do not see the faults – because of the overall halo that the high vehicle quality provides.

  2. Because the vehicles are high quality (and hence do not break down frequently) they don’t have to be subjected to that poor service experience very often. You can put up with that crazy mother as long as you don’t have to see her very often.

  3. No one wants to admit they made a mistake. The thinking is something along the lines of –“I bought this great car. So what if there are now more recalls than I thought. So what if some aspects of the dealer service are not great. If I admit those things, then maybe I did not make such a good decision in the first place. So I will just ignore those things.”
Of course we are oversimplifying. But I think this is a big part of it. Historically, Toyota dealers didn’t have to really focus on the aftersales business to make money. Their high quality vehicles sold well and it was easier to make the bucks in sales than in the more difficult aftersales area. If you don’t focus on something and don’t put your heart into it and you don’t have to anyway, are you likely to be good at it? Not very likely.

So, why are Toyota customers willing to overlook a not-so-good dealer service experience? Why don’t they defect in droves to the independent aftermarket? The theory of “Cognitive Dissonance” explains this seemingly irrational behavior. (After all, isn’t all true love irrational?)

The theory states that people strive for consistency and harmony in how they view themselves and the world and try to avoid or reduce “dissonance” (i.e. conflicting views). Toyota owners love their “high quality” vehicle, but they have good reason to dislike the dealer that is supposedly most qualified to service it and that treats them poorly. There is a “dissonance” here and there are two alternatives to bring about harmony:
  • Start disliking your vehicle
  • Stop disliking your dealer
Given this choice, “Stop disliking your dealer” is much easier (you don’t even need to go as far as loving him). Maintenance visits are maybe once a quarter and if our vehicle is, in fact, high quality, then repairs occur even less frequently. Conversely, most of us pay our leases or loan installments every month and drive our vehicles every day – do we really want to admit to ourselves every day that we made a mistake in buying the vehicle we are sitting in? “Disliking your vehicle” is not an attractive option.

I would argue that “Stop disliking your dealer” is also much easier, because Toyota owners are not so much after the service “experience”, but after service “quality” - the quality of the work performed, consistent with what they value in their vehicle. Of all the things that vehicle owners dislike about the dealer, “lack of quality” is not one of them, and not accidentally Toyota CSI scores are relatively higher in the area of “service quality”. This may also be more perception than reality, but, again, very consistent with reducing dissonance. To use a different analogy: you don’t like standing in line in your favorite sandwich shop waiting for their renowned signature sub, but that’s not what you came for. There’s all that anger and frustration standing in line, but doesn’t the sandwich taste much better after such an ordeal?

In summary, it does simply not make sense for Toyota owners to buy a vehicle renowned for its high quality and have it serviced and repaired by a low quality provider. Thus, though they may have been treated poorly, Toyota owners are willing to overlook that fact and continue going to the dealer - because that’s where they get the service quality they want.

Getting complex isn’t it? Have a look at the diagram below. I think this illustrates the other factors that explain the supposed contradiction of high service retention despite poor service quality.




So, what can you do with this? The diagram above shows a route to success, but it is not an easy one:

“Build the brand: (Communicating) Quality is Job #1”: It really comes back to the holy grail of brand building. Create a strong brand, that is known for high quality, and you will reap the benefits not just in sales, but also in service and parts. Both manufacturer and dealer need to be on the same page here, communicating the same consistent message, from manufacturer media advertising to the customers’ introduction to the service department at the dealership. There are obvious quality advantages from using the dealer that is equipped with all the knowledge from the people who built the car. In turn, using the dealer allows the owner to better maintain the quality of his vehicle and to keep it longer at better resale values. Sound familiar? Yes, this is from Toyota’s playbook. Will this message resonate in today’s economic climate? No doubt!

“Sell the brand: rethink incentives”: Building the brand is essential, but it needs to be sold effectively. Not only do incentives hurt vehicle sales profits, they also convey a “low quality” brand image that can negatively impact service retention and profits from service and parts. So, incentives may cost you twice. Deals attract people that are focused on deals and whose repurchase loyalty is low. Why would they behave any differently when purchasing maintenance and repairs?

“Target the right segments”:
Few consumers don’t value quality, but some value quality more than others. One interesting segment could be the customers who buy pre-owned vehicles at the dealership. Clearly, these buyers have a choice about where to buy a used vehicle, but they came to the dealership because they value “peace of mind” and the quality level of a dealer-inspected used vehicle. A CPO-program can reinforce this message, and there are indications that the owners of certified pre-owned vehicles are even more loyal than the new vehicle buyer (who has no choice but the dealer and is attracted by deals) – and when they come back, it is for customer-pay, not for warranty work. Offering pre-owned maintenance plans and extended warranties should be standard fare.

“Build the relationship”:
“Love” is strong, but it needs to be nurtured as the initial “craziness” fades away and gives way (hopefully) to something deeper. Communication, as in a real relationship, is key to make the owner “care” about his vehicle. This can be the “touch of luxury” through the sales person calling the customer to follow-up. Not accidentally, luxury brands have higher service retention. To some degree, this is driven by the perception of higher vehicle quality, but the personal touch you receive as the owner of a luxury vehicle is also important. Communication can also be the owner event or the diagnostic report received from the vehicle’s telematics system. Telematics makes the vehicle “talk” to its owner and offers new opportunities. Be sure to keep the service on as a vehicle changes owners, either as part of a pre-owned package or as an attractively priced transferable extension plan. The diagnostics may well hit a nerve with a quality-conscious CPO-customer.

“Bust the price myth”: Building on what David said a few weeks back, I think the battle is really ultimately between (dealer) quality and (independent garage) price. While even incremental improvements in service retention will yield substantial profit increases for manufacturer and dealer, substantial improvements in service retention will not be possible without winning this battle. Yes, the dealer may, in fact, be price competitive even today while offering better quality, but myths are pretty resilient and perceptions driving the customer away from the dealer have been shaped over the past 100 years. Changes in those perceptions are likely to occur at the pace of tectonic shifts – manufacturers need to enter that battle today!

“Execute, execute, execute!”: Lastly, focus on execution - implementing the in-dealership programs that Jay and David talked about a few weeks back. If Toyota can have good service retention based mainly on a strong brand, think what a strong brand and good dealer service capabilities can do!

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