Thursday, July 29, 2010

Parts Availability, Lost Sales, Purchase Loyalty, CSI and the Choices Customers Make … And the Magnificent 7

Our industry really focuses on a few precious metrics to gauge how well we are doing in the area of parts sales. Facing fill tells us if the stuff is available at the shipping warehouse. System fill tells us if the stuff is available in the network for the dealer order. Repair Order Fill is all about how much stuff is available at the dealer for the repair order. Lost sales rates tell us how much we didn’t sell when we coulda. Dealer purchase loyalty measures how much stuff dealers buy from the OEM. CSI tells us if customers are satisfied with their dealer service experience “stuff.” All this gets rolled up into service retention rates that measure parts and service market share.

OK, enough of that.

What really happens? There are two main groups of cars, those still in warranty, and those out of warranty. New car owners and lessees shuttle their vehicles back and forth to dealers for warranty repair work, none of which costs them a dime. Upscale new car owners get everything for free for 3-4 years – even the basic maintenance stuff.

Then, there are at least seven “situations” that are material to understanding the dealer service market for those out of warranty repairs:
  1. Younger car owners use personal recommendations, Yelp, and other social media to get trustworthy reviews for services, restaurants, and vehicle repair. Dealers get hammered (or not even reviewed) on Yelp, so these younger car owners go to independents.
    If these independents don’t have the parts they need, then they (the independents) go to dealers.

    Time out from two Twenty-somethings: “While I might go on Yelp to find a good place to eat before a Red Sox game, I’d rather ask a friend who lives downtown for a recommendation. Same thing for a plumber, electrician, doctor, and auto repairer – I’ll check reviews to avoid the truly awful, but I’d prefer to take the advice of a friend or neighbor. These are the “formative years” for my age group; the experiences we have with dealers and independents will shape our purchase decisions for the next 40+ years. I’m just waiting to be wowed. I had generally positive experiences with the NH dealer who sold and occasionally serviced my 2005 sedan, so recently I decided to try a MA dealer for an A/C repair. This dealer flunked my mystery shop – two transfers and 10 minutes on hold just to schedule an appointment. I hardly have a warm fuzzy feeling, but this dealer is close to my apartment so I drop off the car on Wednesday to be picked up on Thursday. When I call late afternoon on Thursday (I thought they said they would call me?), it takes me another 10 minutes for someone to get on the line and tell me that it won’t be ready for another day. Based on the level of service I received, it seemed like the dealer didn’t need my business. This makes me question whether I got a good price and whether the repair was completed with sufficient care. Another bad experience at a dealership and I am on my way to becoming a ‘Mainstream middle-aged out-of-warranty car owner who has been conditioned that dealers are high cost and untrustworthy.’”

    “Last December I had a repair experience at my dealer (European). One of my heated side view mirrors managed to crack (apparently a common problem), so I called up the dealer and arranged an appointment to come in and have it looked at on a Monday. That weekend however, I had some time on Saturday and decided to bring the car in early, in order to avoid a snowstorm that was coming on Sunday night. Usually this would have been a bad idea. As expected, it was very busy that day and the dealer hadn’t had time to get in the new side view mirror since I wasn’t due until Monday afternoon. Everything went flawlessly though – the service adviser had a tech take a mirror off a new car to replace mine and my sales consultant even came over after seeing me to ensure that everything was going OK. All of the dealer employees were clearly doing their job to guarantee that customers returned when they were in the market for a new vehicle.”
  2. Younger car owners are also likely to just take their car to wherever their parents went.
    This could be the dealership or the independent.
  3. Younger car owners are also looking for convenience and the lowest price.
    If they are looking for the cheapest service, they go to the independents.
  4. Mainstream middle-aged car owners have been conditioned that dealers are high cost and untrustworthy and use independents.
    If these independents don’t have the parts they need, then they (the independents) go to dealers.

    Time out: We’ve said time and time again that dealers and OEMs need to exhibit trust, value, cost, and convenience. If customers perceive your dealers as high cost and untrustworthy, how does that reflect on the OEM? The dealers have several advantages over the independents that they should be taking advantage of. The dealer should have the resources to fix the problem correctly the first time (and if they don’t, they will (hopefully) at least correct it for free). Plus, if the customer thinks the dealer is ripping them off, they have a higher entity (the OEM customer care center) to appeal to. If an independent rips them off, who are they going to complain to – their friends on Yelp
  5. Dealer-loyal middle-aged car owners also know that dealers are high cost, so they split-service. Stuff that smells like they need a dealer goes to a dealer. Stuff that they have heard about (brakes, shocks, stuff like that) goes to independents.
    If these independents don’t have the parts they need, then they (the independents) go to dealers.
  6. Dealer-loyal middle-aged high-mileage car owners are getting smarter about the choices they have. So, if it smells like a dealer kind-of-thing, they will request aftermarket parts to be used. They don’t place a lot of value on lifetime warranties for parts; they are looking at just another year or so – 10K -20K miles.
  7. A lot of old farts go to dealers, don’t use the internet, and don’t drive much.
That’s pretty much the market.

Now, let’s get back to those metrics. Facing fill has evolved to be more of an economic efficiency metric and has little to do with true customer satisfaction or buying inclination. System fill is important because it is a surrogate for measuring the level of backorders … but, system fill is only as good as the supporting terms and conditions. Repair order (RO) fill is interesting, but few measure it in a consistent manner. Poor RO fill translates into dismal fix-it-right-first-time (FIRFT) ratios that tick off customers … hey, even my ultra-perfect John Deere dealer blames his service delay screw-ups on incomplete emergency order fulfillment. Lost sales metrics? How do you explain “good” lost sales that really are engineered as a consequence of known pricing elasticities vs. “bad” lost sales as a consequence of the enterprise failing in some way? Dealer purchase loyalty is one of my favorite metrics not to manage. How loyal is a dealer in Situation 6 above? They prepare the original quote with genuine parts, then change the parts BOM to aftermarket based on a customer request. Research tells us this is significant. This does not mean that the parts prices are too high – remember, pricing elasticity can be engineered. It simply means that the customer wants choices. All this gets tracked by CSI, which is useless because of the gaming that goes on in the industry.
Time out: I have 6 vehicles, 3 tractors, and an excavator. I’m not a collector; I just seem to need all 6 due to family and farm needs. My two best car dealers are my Ford dealer and my Chevy dealer. The Ford dealer is perfect. Really. And, I love my Chevy dealer … sometimes I want to hug him … to death. Last week I brought the 2002 ‘Burb in for a state emissions & safety inspection; I expected the worst. First off he sold me a $100 plus comprehensive checklist that included LOF. I said “sure” … we were going to NYC this weekend to help my daughter move and the only vehicle that fit the bill was the Burb. It had 46K miles and was “due.” Got a call saying I would fail the state “safety inspection.” $1900 later I emerged with new brakes, rotors, and other stuff that was on the $100-plus checklist. That was last Thursday. It was parked until Monday when we drove it to the Manchester airport and the “check engine” light went on. Emissions. Hmm. Thought that was covered in the state ”EMISSIONS” inspection last Thursday. Maybe it’s just me. So, on Tuesday I took it back to the dealer. He said he could check it out while I waited – “easy to do”, he said. “By the way”, he said it would cost $92 to get the code out of the system. “That seems like a lot”, I said. He replied that it was fairly time consuming to get the code out of the control system. “See you later” I said and left the Burb with him. I wanted to squeeze him … to death. Later that day he called and said the problem was due to mice (the second time he used this excuse) in the fuse box. Why couldn’t he fix it right the first time? Oh well, another $300 of $92 an hour labor. Oh, on Monday I got an email from the dealer asking me if my last service was OK and asking me to take a dealer survey before the GM survey was mailed to me. They just wanted to check if things were OK. Coulda asked me before I paid the RO … nah, that would be too dangerous. The problem isn’t just that folks don’t trust lousy dealers; the problem is that even good dealers exhibit bad behaviors that undermine trust, value, cost, and convenience.
Bottom Line: The biggest, and most critical metric is service retention. This is the interesting one. You’d want this metric to be a consequence of the above metrics, but it isn’t. Hmm. True lost sales and lost market share – service retention – seem to be most highly correlated with ineffective dealer wholesaling and crummy dealer reputations for cost and trust. We need new building block metrics for service retention, and we need to understand the limitations of the common set of business metrics that we most often reach for. Here’s my short list of what needs to happen:
  1. We need to fully understand the aftersales customer experience … we need a new “gestalt” – our current set of metrics indicates we don’t.
  2. We need to not invite into this gestalt process those who think this is a stupid idea. They are part of the problem.
  3. We need to invite dealers to this gestalt process.
  4. We need to redefine how we view our dealers’ participation in the entire service parts market: their roles in warranty repair, roles in customer pay, roles in DIY, roles in wholesaling …
  5. We need to develop new service retention building block metrics as a part of this process.
  6. We need to develop new dealer and OEM standards of customer service – and standards of behavior – as a part of this process.
  7. We need to re-tune our technology to support these new processes and new metrics.

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