Thursday, August 27, 2009

Understanding Satisfaction

Each year we – Carlisle & Company – receive tens of thousands of satisfaction surveys. When we look at survey data we tend to ask two questions: (1) What good is it?, and (2) What can each company do to improve? Survey results should show relative positions in specific areas that generally reflect process competencies. If you plot them out, they should look like positions on a map, stretching from origins to destinations. Positions closer to destinations should reflect OEMs that are more evolved. When we look at the 2009 NASPC Auto Service Manager Survey results, we largely see “map positions” that reflect evolution – it mostly makes sense to us. So, we conclude it is “good.”

However, how each company can improve is a different matter; OEMs don’t spend enough time thinking this through. Many look at summary metrics without delving below the surface. Dealers are not homogenous and shouldn’t be treated as such. What makes a dealer dissatisfied? Neutral? Satisfied? Is it always the same thing or lack thereof? This issue is important, so we will be devoting several up-coming blogs on some of the ways – both conventional and unconventional – that best-in-class OEMs are utilizing their survey data to “evolve.”

Today, let’s focus on a somewhat more unconventional approach that has its roots in what we can call “human nature.” Fundamentally, we all want to be liked, so we naturally gravitate toward anything that helps measure our likeability. Therefore, we typically focus on survey scores that reflect “satisfaction” with us and what we do. If we are at the top of the pack we feel good. If we are not at the top of the pack, we: (1) blame it on the survey, (2) blame it on the survey timing, (3) blame it on our customers, (4) rationalize/minimize our results, or (5) we try to get better. Those who gravitate toward (5) are the only ones who can march to the top of the pack. But how? Very simply – and maybe against our nature – by focusing on survey scores that reflect “DISsatisfaction.”

How is the “DISsatisfaction” approach different from the conventional “satisfaction” approach? The conventional approach to getting better involves identifying the areas that have the biggest influence (statistical or otherwise) on Overall Satisfaction. Since most survey respondents typically are in the “satisfied” categories (around 80%), they dictate the “drivers”. This approach has been very successful for some; we will document this in future blogs.

In contrast, the “DISsatisfaction” approach claims that the most important results coming from satisfaction surveys is the feedback you receive from those that are the least satisfied. Human nature throws us a curve ball in that it incorrectly points our common sense towards matters of the heart (How liked am I?) vs. matters of the mind (Why don’t people like me?).

However, we must fight the urge to dismiss the complainers and, instead, focus on their criticisms. Dissatisfied customers are a totally different animal and should be looked at individually. The actions that we most often think of as increasing satisfaction are typically effective in converting “satisfied’s” into “very satisfied’s”, but can be less effective in positively impacting the “dissatisfied’s.” For them, we may need a different approach.

Let’s look at some real survey data. We isolated scores for one participating OEM in our 2009 NASPC Parts Manager Survey and segmented the results into two groups: (1) the “satisfied’s” (“Very” or “Somewhat satisfied” in terms of Overall Satisfaction) and (2) the “dissatisfied’s” (”Neutral”, “Somewhat” or “Very dissatisfied” in terms of Overall Satisfaction). For both groups, we calculated the drivers of satisfaction and then ranked them from high to low. Looking at the results, we see that the groups have some very different issues impacting Overall Satisfaction:

We are not trying to make a statistical point here – there are many ways to look at survey data. In some cases, simply reading the verbatims may be most effective. The bottom line is, “Do you understand what makes your dissatisfied customers unique?” And, “Is there benefit from focusing exclusively on your dissatisfied customers?”

The chart below provides a different way of looking at dealer satisfaction across the industry (from the 2009 NASPC Service Manager Survey).

Group 1 OEMs all have highly satisfied customers. Over 90% of all service managers fall in the “satisfied” category. For this group the number of neutrals or discontents is so small that there is little to learn from them. So, other than feeling really good once a year about the high scores, what should this group do? Conventional wisdom says focus on converting “satisfied’s” into “very satisfied’s”. Unconventional wisdom says look across the industry to understand the unique nature of the “dissatisfied’s” and make sure your strategy is designed to avoid those issues. We are often asked to do the former analysis, but never the latter.

Group 2 OEMs are satisfaction “middling’s.” Looking at this group, the size of the “neutrals” is larger than the two “dissatisfied” groups (4th and 5th boxes). This group is at their tipping point and can go either way – we should understand the characteristics of these respondents. In addition, the small size of their “dissatisfied’s” put them in a similar situation to Group 1. Again, we are never asked to probe beyond basic drivers here either.

Group 3 OEMs have a case of bulging neutrals – third-box satisfaction scores that are disproportionate to where you’d expect a company with top-box scores of this magnitude. This could be the equivalent of early cancer detection – they need to probe into why their neutrals are neutral …or things could get worse in the future. Never been asked about this either.

Group 4 OEMs do get involved in trying to fix things, but most tend to get bogged down in the details. For example, you can call each dealer service manager and ask precisely why they gave you middling to low satisfaction scores. After a hundred or so calls you conclude that (1) there are a hundred or so different stories out there, and (2) just the process of calling the dealers was restorative. True on both counts, but pretty unhelpful. What we need to do is understand (1) the trends in our middling-to-low-scoring dealers, and (2) the trends in this group that transcend our brand – that are common to all middling-to-low-scoring dealers. Never asked.

Over the next few weeks, we will discuss more about how best to leverage your data, covering both conventional and unconventional approaches. But, what’s the bottom line for this week?
  • Remember, we proved that “good to great” really works – that was the message from customer survey work done for NASPC – and “great” customers come back more and buy more.
  • We all need to think more about the needs of various customer constituents – satisfieds, neutrals, and dissatisfieds.
  • It might be that each group has different characteristics and different change-levers.
  • We might have to do things differently to change.

Thursday, August 20, 2009

Reman Picture Book … Or, If Opportunities Were Ships, Many Reman “Ocean Liners” Would Be Called the Titanic

For the past decade we have worked in reman on the auto side and HE side, but have never gotten into the mind of the end-customer. Well, within the past month we concluded a detailed look at the reman business from the customer and dealer/distributor perspectives. This was a joint program with a client and our 2009 summer staff – we did this in 2008 as well and focused on accessories. This most recent effort was interesting and showed some telling program “stress points.” Just looking at the reman opportunity makes many OEMs star struck – it is huge. We have seen reman strategy goals set to increase total parts sales by 20%, but making this happen involves resolving a lot of execution stress points. It is better to start thinking about likely program failures before designing an attack to capitalize on likely opportunities. So, this blog focuses on the fizzle, not the fizz. Ideas are a dime a dozen. Failure avoidance is where the real money is. Enjoy.

In the movie “Contact” Matthew McConaughey’s character, Palmer Joss, talked about Occam’s razor. It is all about explanations – when you have an array of possible explanations for something, usually the simplest one is the best. “Contact” is all about alien exploration, this blog is about alien thinking.

At this past year’s NASPC we talked about accessory sales in the mind of the buyer and we discussed research that explained a double-digit market share shift away from the OEMs to the independents. It was very simple: customers simply were not asked for the sale. The car salesperson did not even try to sell accessories to the customer. Accessories are sold by Auto, Heavy Truck, Ag, and Construction.

OK, let’s talk reman in CE and Ag. Car guys out there – pay attention, the lessons here apply to you, too. Reman is another area of huge opportunity, and a fairly huge frustration for many OEMs. Some OEMs have cracked the code here, others have not. Rather than tell the story with words, let me mostly rely on simple pictures.

First off, when we look from OEM to OEM we see a lot of variability in reman as a percent of sales. Maybe some OEMs are doing things differently.

Our surveys indicate that reman is important to CE and Ag dealers. In fact, 80% of dealers/distributors in this sample said that it is either necessary or very important.
Our most recent end-customer survey indicates that customers have a very good impression of reman – so, they aren’t the problem (the percentages reflect “agree” survey responses). They’ll buy the stuff.

Now this is interesting. A lot of customers decided to buy reman after talking to someone at the dealer or distributor. Hmm. Where have I heard of this before?

Well, this is not surprising – as Yogi Berra would say, it’s Occam’s razor all over again. Overall about 60% of dealers/distributors don’t have a “position” on reman or do not bring it up in the sales process. If you dig under the surface of this, 75% of the customers who don’t buy reman go to “reman-mute” dealers. Certainly this is consistent with what we found with accessories.

Another movie reference works where; “Field of Dreams.” If you don’t build it, they won’t come.

It is all about execution. You can check the boxes all you want on program design, and create wonderful PowerPoint presentations, but if you don’t get it right at the point(s) of execution, who cares. Reman has huge revenue generation upside for all sectors, but unlike other parts groups, it has some unique challenges. First off, mediocre reman programs ride on the back of warranty cost reduction strategies, i.e., you can save a lot of money by installing a reman engine when the new one fails during the warranty period. These savings are obvious, so you tend to structure reman strategies for engines and transmissions and sub-optimize your ROI. Second, reman involves highly specialized “manufacturing”, and service-parts organizations don’t do much of that. You can farm this out to a third party, but then purchasing gets involved … in something that they really have little experience with. Third, reman involves core management – reverse logistics – to sustain its feedstock and contain competition. This is another area of execution that service-parts organizations would rather stay away from. Fourth – the lynchpin – your dealers and distributors need to actively sell reman. This involves revenue management (dealers/distributors typically can get higher prices and thus more incremental profit dollars on new parts versus reman as the cheaper alternative), field organization contact, training (e.g., need to focus on quality reputations of new quality versus reman quality - while the issue might be moot, many dealers have experienced reman aftermarket substitution that is less expensive but not as good - this can make dealers a bit gun shy), service management (well conditioned dealers typically recommend reman if they have a good service business, e.g., if their service business is strong they want the turnover – they want machines in and out, so they sell the reman and get the installation labor and then move on to the next machine; if they do not, they may try to sell a rebuild to sell the extra labor hours), warranty program management … all those little details.

Two other takeaways:

  • Maybe your reman strategy needs to be remanufactured.
  • Maybe you should look for the simple execution explanations for other program disappointments.

Wednesday, August 12, 2009

I Coulda Been a Contender!

Great movie with a great line, Brando pleads that he “coulda been a contender” just if the fight had not been fixed. I think about this when I look at masses of data (for some OEMs) that just don’t all add up to market success; “success” defined as whole goods sales gains, parts sales growth, high customer retention, high repurchase loyalty … these sorts of successes. These companies should be contenders, just if …

So, I started to look at contenders – there’s a bunch of them – and ask, “What’s preventing them from glory?”

Let’s just talk concepts and numbers and avoid using names, unless I need to make a point (and when I do use names they may or may not be “contenders”). Here’s how I define the group of “contenders.”
  • They are doing well in a subset of a bunch of published surveys – Consumer Reports, JD Power, the usual suspects. So, they have demonstrated to recognized authorities that they are bell-ringers in quality, dependability, reliability, and all that important stuff to inquisitive shoppers who buy Consumer Reports.
  • Overall, they are doing pretty well in the North American Service Parts Conference (NASPC) surveys – parts managers and service managers.
  • When we look deep into their processes, they are leaders in service parts productivity and quality.
  • So, based on leading indicators of success, they all look like contenders. But, when we look at the key metrics that these indicators are leading to, things like sales and service retention ratios, they are not in the leadership group.
We can drown in the data with this exercise, because there are a lot of “contenders” in the group, and the data is not consistent regarding strategic hits and misses. But, here’s what I’ve learned so far.

#1. Consumers have long memories regarding product quality, and one or two years of good news will not cure the disease. Bad brand recognition is like a virus; once it starts to spread it travels far, deep, and fast. Several OEMs have suffered from this and continue to do battle with customer attitudes, fueled by journalists’ poison pens. Simple things work best here. Now that most of the horrendous product quality chasms are behind us, I am not so sure that fighting the engineering battle over diminutive quality gains is better than sloganizing where you want your customers to perceive you to be. “If you can find a better car, buy it.” “Quality is Job Number 1.” Everybody can understand this. It’s all about street fighting, where simple intimidation (call it “messaging”) is more effective than a big knife. Looking at what separates leaders from contenders, I see contenders gravitating towards controllable scientific solutions rather than immersing themselves into the psychology of the buyer. What’s even more interesting is that the psychology of the buyer is all about science – just a different sort of science. It is called Marketing. Marketing is all about differentiating in the minds of the consumer, and it really has little sense of gentlemanly etiquette. When the product can no longer be effectively differentiated by scientists using surveys, tear-downs, and statistics, it’s time for dirty street fighting. Selling 16.5 million units a year of motor vehicles created a marketing civility that resembled Britain’s House of Lords. A market stretching to 10 million units puts us all in the House of Commons, with different rules and conventions.

#2. Investment is a differentiator. Only a mother could love this radar chart. What I did was shade the “contenders” with dark and light blue. This way we can map their personalities … somewhat. The black and gray lines represent other OEMs – big, medium, and small. The dark blue tends to show higher performance in areas of productivity (e.g., high repair orders per technician), and lower performance in areas of investment (e.g., UIOs per service bay). Of course, all this sort of investment is really retailer investment, not OEM investment. But, it is investment to which customers react. All this relates to the inherent strength of the dealer body, and the quality of their OEM “trainers” – market representation, dealer training, sales involvement, … things like this. Importers have tended to show more areas of strength on this chart due to leaner retail networks, and the Big 3 should continue to improve as they lean out their dealer networks. So, there are “forces of change” out there causing a migration toward higher retailer service investment, of higher quality. Don’t know if it is sustainable for all migrators. This migration has a price tag; contenders either don’t ante up or try to finesse the costs of entry.

#3. Program focus. Looking at the NASOF and NASPC data, I see that our contenders are generally extremely logical. Many prefer to pay for headline type of performance – when dealers rack up the right sort of survey scores and achieve other critical performance numbers, they get rewarded. Dealers notice this and generally like it. This is the most confusing differentiator and rings truest with what Brando was getting at in the movie. If that fight hadn’t been fixed, he could have been a contender. Why pay for indirect hits, like high satisfaction scores, when the surveys are gamed and scores don’t mean anything? Why not be creative and reward with co-op investment in the dealership infrastructure, rather than put cash directly into the dealer’s pocket? Why not focus on direct hits, like parts dollar sales growth, customer pay RO growth, high technician retention? Beyond the sales programs, this program focus seems to encompass investment shifts that save money by avoiding the human touch. Less hands-on training, less technical support, long telephone wait times. OEMs adopt programs that save money … but are they really effective in delivering dealer and customer requirements? Is it possible that they are the result of someone checking the box?

In a nutshell, the contenders seem to do most everything right. They embrace good practices and good processes throughout their enterprises. But, they seem to miss the mark on great in some key areas.
Like great marketing that could differentiate their brand in the eyes of the consumer … vs. great merchandising that capitalizes on a tactical opportunity.
Like great retailer enterprises that deliver up what the customer really is looking for … vs. high efficiency little dealer service factories that fit someone’s conception of a pocketbook
And like great support systems that coddle customers … vs. completely logical programs that reflect the genius of merchandising engineers nurtured in an economists’ laboratory
What makes Toyota and Honda “great” (neither are “contenders”)? It’s the little things (with big costs) that we can’t put numbers on. And, with the strategic changes happening at GM and Chrysler (with Ford out in front), there will be a rebirth of competition in the US market like never seen. All you marketing gurus – those who are left – better get those thinking caps on, because the game is about to change again. The street fight is going to get a lot tougher.

Wednesday, August 5, 2009

Portrait of a Customer Service Retention Leader

We talk a lot about service retention as the holy grail of parts and service, but we typically don’t scratch much beneath the surface of winning strategies. Ok, let’s scratch.

First off, it is nearly impossible to take an entire benchmark group and understand all positions within the group in terms of causal variables. Well, not impossible, but pretty much irrelevant. We have a lot of data at our fingertips and it can be hard to make sense of some numbers by using other numbers. For instance, consider JD Power CSI scores. One would think that OEMs with the higher ranking CSI scores would also be very good in other areas we tend to correlate with higher customer satisfaction. However, in 2009, out of a group of 37 OEMs, Toyota had the 10th lowest CSI score. So, their customers must be much less satisfied than, say, Hummer’s (they had the 6th highest CSI score)? I guess Toyota’s low CSI explains their dismal failure in this market and low customer retention rates? Maybe not. Hence the frustration with linking one number to another. Rather than rack up a bunch of numbers, let’s draw out a portrait of a winner with a more verbal discussion and try to interpret the causal relationships.

Those of you who participate in Carlisle & Company’s North American Service Operations Forum (NASOF) have access to the data and can let the numbers point to the leader. Unfortunately, all of that data is confidential to forum members – so, I can’t name names. But, I can describe the attributes of the company with the highest service retention (defined as percent of 0-7 year old VINs that had one or more dealer service visits in 2008 – all numbers come from OEM detailed dealer data, vehicle registration data, and other internal OEM data sources.)

The range of service retention as measured (see chart) for non-luxury OEMs spans from a low of 28% to a high of 66%. Let’s talk about the leader of the non-luxury group.

First off we interpret high service retention to mean vehicle owners are coming back more often to dealers for servicing their cars and trucks - that’s what the metric represents. The next leap of faith is that we’d think customers who return are ones who are satisfied – and that higher service retention must mean higher customer satisfaction. JD Power CSI scores do not support this. In fact, the leader in service retention (based on pretty much perfect data, not surveys) is seriously below average in JD Power CSI. Hmmm.

So, we have OEMs with relatively high service retention and relatively low CSI scores. This can mean only one of three things. Either (1) customers who are less satisfied tend to return for more of the same from their dealer, or, (2) our math skills stink and we can’t count stuff like how many cars we sold and how many unique VINs were serviced by the dealers, or (3) JD Power CSI stinks at measuring satisfaction that translates into repurchase behaviors. I pick #3.

When we look at NASOF data and try to understand the role of satisfaction in service retention, we find that all participants use much simpler internal surveys and that, indeed, the service retention leader was in the leadership group of OEMs with “customers completely satisfied’ with their service experience.” Bottom line, a leader measures their performance against satisfaction and strives to achieve 90%-plus top-two-box service satisfaction. (I am not a fan of top-2-box satisfaction measures and prefer top-box.) Customers tend to return for more when they are highly satisfied. This makes sense and is part of the complete story.

There are some other leadership profiles. In the 2009 NASPC Service Manager Satisfaction Survey the service retention leader was above average in every category but one (dealer satisfaction with how the OEM measures customer satisfaction … hmmmm), and led the non-luxury group in (1) service information, (2) parts supply, and (3) communications systems linking the OEM and the dealer. OK, what does this mean? It seems that customers tend to return to buy more stuff if the dealers are more satisfied with their broadly defined “relationship” with the OEM. This makes sense.

But how does our service retention leader look once we get down in the trenches? The leader is represented by the red line in the radar map of key service key metrics. Let’s look at how we define some of the metrics in the chart.

Service Capacity: These metrics compare how much capacity (techs and bays) OEMs have in the market. We look at techs and bays per 1-7 year UIO to define this. A lower percent here means you have more capacity relative to benchmarks.

Productivity/Efficiency: These metrics show how well dealers utilize their service capacity, repairs orders sold per tech and hours sold per tech are indicators of efficient operations. A higher percentage here means that dealers are more efficient at utilizing their capacity.

Fixed Absorption is a measure of dealer fixed operations profitability to the dealership overall. UIOs per Service Point is an indicator for the density of our retail service channel. For example, more potential service customers per dealer could result in higher fixed absorption (given ample capacity is available).

Given all this, we see things that are expected, unexpected, and just plain interesting.

Expectedly, the leader has very low dealer technician turnover. Its fixed right the first time ratio (“FIRFT”) is very high (very few come-backs). The leader has fewer UIOs per service bay and UIOs per technician; this simply means it has more available service capacity per vehicle on the road. This also means that with more capacity it can service more customer vehicles. All this is logical, fits within a framework of common knowledge (which usually makes me suspicious in and of itself), and makes sense.

Unexpectedly, the service retention leader has very very busy technicians, with the highest in the group in number of UIOs per dealer service point, hours sold per technician, and ROs per tech. The leader has very high fixed absorption rates. Why is all this unexpected? One might think that high dealer service capacity utilization rates might lead to high congestion, longer waits for appointments, and lower quality – all leading to lower customer satisfaction and lower service retention levels. What this may simply mean is that the leader has done a great job of aligning capacity with planned demand and then built strategies to optimize capacity.

Ok, now why is this interesting? It is interesting because it removes many dealer service capacity concerns from the success equation. Further, it is interesting because it validates GM’s and Chrysler’s dealer consolidation efforts – draining their vast retailer swamps of some capacity doesn’t have to negatively impact service retention or service satisfaction – as long as they do it right. Let’s make it simple, after years of declining vehicle sales, improving quality, and more evolved service technology, the domestic OEM dealer “service capacity” requirements have gone out of alignment with actual demand – this has placed a larger burden on the OEM and the dealer to maintain profitability.

Here’s the bottom line on doing it right:
  1. Don’t gauge your customer service strategies by JD Power survey results. Instead, use more commonsense metrics of service satisfaction and focus on simple (non-gamed) internal satisfaction survey “top-box” scores.
  2. Your tether to the end-customer is through your dealer or distributor – measure key aspects of your relationship and strive for above average performance in most of these. Happy dealers can create happy customers – I am pretty sure that unhappy dealers and service staff can’t possibly do this.
  3. Focus on achieving high FIRFT ratios – comebacks create unhappy customers, and they also eat into service capacity, which reduces our ability to retain more customers.
  4. Understand that unhappy customers will stray from the dealer and will try independent repair facilities (IRFs). It’s not that these guys are better than your dealers in making customers happy – it’s all about that there are more of them. An unhappy IRF customer may stray and tryout another IRF – he/she won’t come back to the dealer until they buy another vehicle.
  5. Size your service bays and technician capacity based on your UIOs forecast – develop your strategies around optimizing that capacity – that’s simple. Use creative efficiency concepts in service to get you through the peaks and valleys and to minimize brick and mortar investments.
  6. Don’t place as much emphasis on dealer service capacity utilization rates as a limit; rather, think about how you can achieve ever higher levels of capacity utilization without sacrificing cost or quality. This is the same lesson that Toyota taught us all inside the parts warehouse. Somehow our service retention leader has figured this one out.
In the next few weeks I will be looking at the numbers some more and asking more questions. I see a blog called “I Coulda Been a Contender!” and another called, “Lessons From the Back-Pack.”