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.”

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