Thursday, February 24, 2011

Just What Are They Thinking About? 2011 Carlisle Annual Service Customer Sentiment Survey

The 2010 Carlisle Service Customer Sentiment Survey probed into the attitudes and behaviors of Digital Service Customers (DSCs). In the process, we confirmed some suspicions and surfaced more than a few surprising facts. We always thought that younger vehicle owners were more e-Adept and less likely to use dealers for maintenance and repair. Well, we confirmed that. However, what was surprising was the magnitude of the consumer service research metamorphosis – fully one third of customers surveyed were DSCs, and the impact of internet research on service provider switching behavior was huge. Once folks go to the web for service information, they listen and act.

We are still processing this survey and will peel the onion even more at the Denver North America Parts Benchmark (NAPB) meeting in May (this is the 19th parts conference – we changed the name from North American Service Parts Conference – NASPC – to North America Parts Benchmark – NAPB). The first cut of the 2010 survey was input to the Cleveland Digital Summit that was held late in 2010. Of course, questions beget more questions. This next set of questions will be asked in our 2011 survey and answered in the next few weeks. Here’s where we are heading. What do you think?

Getting back to basics, we need to understand what influences customers to seek service in the first place?
  • Did they become aware of the need for service based on a mailing from a service provider? Millions of dollars are spent annually on these age-old postal mailers. Are we getting a bang for the buck here?
  • Did they receive a discount coupon in the mail or via the internet? Couponing is making a media transformation from paper cut-outs to web-based. Are we seeing a lot of action in this area? Are coupons effective?
  • Did they simply look at the odometer and miles since the last service and figure it out all on their own?
  • Was it from the really simple and basic stuff, like looking at a sticker applied to the inside of their windshield?
  • Or, did they get a service reminder call from their dealer?
  • Customers of GM products receive “OnStar” emails reminding them of service. Did this work?
  • Or, did the vehicle owner simply make a decision based on how well the vehicle was performing?
  • Completing the loop, maybe a friend, relative, or someone they trust told them they needed service.
Understanding how service decisions are made is pretty fundamental and easy to overlook. Common sense tells us that, hey, it just happens. Well, there are strategies at play here that cost hundreds of millions of dollars, and there are strategies that cost pretty much nothing.

Five years ago, in 2006, our Service Customer Sentiment Survey proved what customers really want – it came back to trust, value, cost, and convenience. Have things changed in the past five years? What do service customers want from their service provider? And, how well do dealers stack up? We’ve updated the lists that we use to probe with, pared them down, and will pose digital offerings that reflect evaluation behaviors of digitally savvy service customers.

How important are second lines of parts? What are the parts choices and are service customers made aware of them at the point they decide who’s going to service their vehicle? And, once they are aware of choices, what’s their expectation of savings on the repair order? This is pretty important. Dealers have a bad rap for being the high cost spread; they might be more competitive with more parts choices that can ratchet down costs and cost perceptions. I have been an advocate of second line parts for years now; fundamental to GM’s new Certified Service program is parts choices. It will be interesting to see how this plays out and if customer expectations of savings are realistic. By the way, this program really sings to me (take a look at the website – just Google “GM Certified Service”); it programmatically touches on many of the problems with repair cost that have been the bane of a dealer parts manager’s life in the increasingly customer pay world. Congratulations and good luck.

We all live by and off of “Genuine”, but how does it play in the market? Do customers understand what “Genuine” means? Do dealers explain it? More importantly, do dealers sell “Genuine”? We are going to ask service customers what they know and what they think.

Bottom Line: It is important to design research to test hypotheses – this is all part of the scientific method. Here are my hypotheses that we will test:
  1. I think that service customer needs have evolved during the past 5 years and that we will see more concentration in fewer basic needs.
  2. I think we will see this most dramatically manifested in younger service customers.
  3. I think we will see more customer needs that reflect current internet offerings – positive internet reviews of service providers, on-line estimates, on-line service scheduling.
  4. I think that service customers are generally unaware of the benefits and core differences that Genuine Parts offer.
  5. I think that service customers expect significant parts price reductions from aftermarket and/or second line parts … even though they are fairly naive about why Genuine costs more. (My theory is that they want significant discounts and feel that “non-Genuine” will provide the means for them to get these discounts.)
  6. I think that we will find that customers will not think that second line or aftermarket parts are good for all jobs. I think they will think non-Genuine is just fine for belts, hoses, brakes, and wipers … but not just fine for starting/charging, suspension, emissions, and fuel systems.
What do you think? Send me your hypotheses.

Thursday, February 17, 2011

Oops, Hey That Internet Thing Might Be Important and the State of the Parts Industry

You might think that it is difficult to draw a parallel between Border’s Wednesday bankruptcy notice and parts sales. It’s all about thinking of today and tomorrow. On Tuesday, Borders was a bookseller superstore without an effective Internet strategy – this was probably mentioned in some business books you read on your Kindle. On Wednesday, it was bankrupt. On Thursday, analysts all blamed 40 year-old Borders for not understanding where their product distribution fit in the digital world. Let’s keep that in mind.

We are preparing our first quarter 2011 Collaborative Parts Forecast; we recently finished our web-based meeting and will send out the updated forecast deck on Monday. This is an interesting exercise involving a bunch of planning experts who are willing to think and debate. After the last session we were able to consolidate all of our parts sales drivers into the six buckets shown on the left. At this time, five of the six indicator “buckets” are positive (green) for 2011.

Our forecast for 2011 shows positive YoY results for all partners in our collaboration group, with some OEMs seeing gains of up to 8% - 9%. 2010 was an exceptional year for year-over-year sales growth – the denominator was 2009’s very bleak recessionary collapse, and the numerator was 2010’s recovery and bullwhip. With 2010 as the new denominator and sustained economic recovery, we believe that 2011 parts sales growth will be about half of what we saw in 2010. Accessory sales will grow with increased vehicle sales and will only be tempered by changes in vehicle mix due to rising fuel costs. M&R growth will reflect more economic recovery and less satiation of pent-up, delayed, demand. For the Collision folks, we are indeed in a winter wonderland with all of the snowfall this season. Powertrain is recovering due to program and parts proliferation factors that favor the OEMs.

So, as Cole Porter would say, 2011 will be de-lovely.

But what about 2013? Borders should have looked at February 16, 2011 way back in 2009. Growth factors for auto parts don’t look so good. Higher quality vehicles and improvements in technology will put an ever larger dent in the absolute size of the parts market. 2009’s huge drop in car sales will represent the 4-year old customer pay car parc - Ouch! Parts sales growth will still be positive in 2012, but less so than in 2011 – so, the growth fraction for 2013 will be less attractive. Further compounding this will be a growing customer base that is more digitally focused – like those pesky eBook and Kindle folks who screwed up Border’s market strategy. These Digital Service Customers will search the internet to capture, connect, and close with their internet-accessible maintenance and repair service providers. Right now the OEMs, in this regard, look more like Borders than Barnes & Noble. Unless we see some serious action on the dealer and OEM front, we will start seeing noticeable share shifting to the IAM in 2013 and beyond.

Thursday, February 10, 2011

Looking Out the Window and Seeing the Evolution of All Our Connections

I was in Honduras last week looking at birds. Honduras has a great ecosystem, but a quite miserable economy. It is the poorest Central American country and significantly lags Nicaragua, Guatemala, El Salvador, Columbia, and Panama in per capita GDP. Honduras is at $3,430 per capita vs. the US at $41,890. I expected to see not much there, outside of a lot of birds. Third world. Nothing special. Bad assumption.

The entire country has adequate cell phone coverage, and everybody seems to be talking and texting on a cell. Most of the decent lodgings have free Wi-Fi, so lots of folks are on the internet. Actually, they are addicted to it – for very different reasons than we are.

Most of the vehicles you see are used, small, and utilitarian. The most common “platform” comes from India – Tuck Tucks. The Class-8 trucks driving down the Pan American highway are huge, powerful, and in great shape – looks like the kind of haulage you see on the Mass Pike. Much of the real traffic consists of subcompact cars, small SUVs, small pickup trucks, and vans, which are pretty much all used – Japanese or Korean – and imported from the United States.

The vehicles come from the US-based auctions that many used cars wind up at when you trade them in. Ever wonder about where they all go? When Polk data shows registration mortality for 5 year old vehicles, some portion represents exports – certainly the big portion represents junking and totals. Alternative sources of demand for auction vehicles prop up resale values and new car leasing. So, little old Honduras is helping you lease your new car with higher residuals and lower lease payments. Look and ask around and you will find that the favorite Honduran OEM is Toyota. Why? Because they hold their value longer in the tertiary third and fourth-hand Honduran markets. Hyundai and Kia are not far behind if you are buying new – seems that everyone knows that their quality is on par with Toyota … and they are less attractive to car thieves.

Where do they get hard-to-find parts? It used to be that you needed a local distribution network in Honduras. Now, everybody who owns a used Toyota, Isuzu, or Dodge Caravan can get plugged into the internet and enjoy the same service levels we all enjoy. It is easy to find US B2C sites (dealers, IAM, etc.) that will provide VIN matched parts catalogs and ship parts next day via FedEx. Costs of this are already in the OK-range. I wonder if our second-tier market strategies have adapted to this? Some global markets are evolving based not so much on what strategies we engineer, but based on the excess infrastructural capacities of other strategies. International FedEx next day is important to a company like Vintage Parts – they ship parts with a 99.999% fill rate, globally, on a daily basis. FedEx fits the bill for them in terms of order response time and cost. It also works for Estefan, a Honduran Dodge Caravan owner.

Our last eco-lodge was 5 hours from Copan and some of the roads were a bit challenging. Shocks must last at least 2,000 miles there. AT&T couldn’t cut it – you needed Verizon or another carrier that integrated with Tigo. No matter. I installed the Skype app on my iPhone and called the kids via the lodge’s satellite Wi-Fi. On Sunday we watched the Super Bowl on the satellite TV in the bar. It was hard to find a station that wasn’t Spanish language. The Chevy Glee-cast commercial blew me away. Where did this come from? Hip Glee cast singing a vintage Chevy jingle on an all-white set that looked more like a clip from a 1950’s Broadway musical extravaganza. White cars all targeted at young buyers. Simultaneous with belting out the Chevy jingle they integrated a clear reference to the Glee website http://www.fox.com/glee for free repeats of the commercial, downloads, and a “documentary” about the making of the commercial. Seamless integration of the commercial into a Glee script. Where did the show end and the commercial begin? More than that, how do you describe the broadcast media on that one? Super Bowl ad? Internet advertising? Geritol-like TV show sponsor? Regardless, it ignored boundaries and redefined marketing. All inside 60 seconds during a Super Bowl timeout. In Honduras.

Our Honduran bartender could care less about all us Green Bay fans. Smiled during the Chevy commercial, took out his iTouch, tapped in the website, and serenaded us with, “See the USA in your Chevrolet” during the next time out. Third-world?

Bottom Line: More than ever we need to look out the window and see how fast our world is evolving. We need to unlearn a whole bunch of stuff. We need to re-think sound strategies that were developed during the cold-war pre-internet years. We need to notice how people, our customers, behave. What’s important to them. How they process information, how they buy stuff. Smart companies right-size their costs and capacities. Smart companies follow rapidly. Smart companies unlearn how the world worked yesterday. We need to look out the window and rethink how everything works, together. Communication. Transportation. Warehousing. Service levels. Advertising. Marketing. We all need to learn how to really and truly see the USA in our Chevrolet.

Wednesday, February 2, 2011

What Are You Looking For?

- by Brian Crounse and Sang Oh

The trend of people researching products and services online continues to grow, and vehicle maintenance and repair is no exception. We’ve been beating this drum for months. Last week we provided a pretty good example of how people, even the less digitally inclined, are going online to research auto repair, and what the consequences are. This week, we take a broad look at some online trends.

There are many paths that people follow when using their computers, iPads or smartphones to look for information. Google is but one of the places people start, but of course it’s a big one. Further, Google offers some useful tools for tracking what people have been searching. When you have a hammer, everything looks like a nail, so we decided to use Google Insight to get a sense of recent trends in the market. All we’re tracking here is relative search volumes of certain keywords, which provides an index of what people are thinking and doing online. We are not (in this entry) looking at other entry pathways (e.g. Yelp), or what results people find with Google and what their next steps are. The y-axis of this chart is simply an indexed measure of relative search volumes.


First off, we see in Chart 1 that Vehicle Maintenance-related search activity is on an upswing (remember, this is relative to all search activity). The upswing really started in 2008. We also see a strong summer peak here, which mostly confirms that the data is reasonably accurate.


Chart 2 shows search insights for popular auto-related repairs and part categories. The volume and growth here is clear; searches for oil changes and batteries are dominant terms and are on a steady upswing. Are we sufficiently visible with paid and unpaid search results for these terms (answer: no)? Should we be (answer: yes)? However, we also need to keep in mind that search, like the demand distribution for our parts, is a long-tail game. We need to be smart on both ends of the spectrum (the fast and slow movers).


In chart 3, we see search trends for several automotive OEMs. The search terms included all relevant brands (e.g. for Chrysler we did “Chrysler + Dodge + Ram + Jeep + Mopar”). We’d expect that search volumes would roughly track the vehicle fleet size. So Ford, Honda, and VW in particular have strong brand-related volumes. But here’s something interesting- while people search for “Ford” (in the context of vehicle maintenance) a lot, and people search for “oil change” a lot, very few search for “Ford oil change”—see Chart 4. This holds up across the board.


These results suggest that people tend to search either by the brand of their car (and we should own these search results), or repair type, but not both. This highlights the need for targeting those unbranded search terms.


We look at some aftermarket companies in Chart 5. Jiffy Lube has dominant mindshare here, which is consistent with the “oil change” volume. But the others all have web-religion and are growing in terms of search volumes. Autozone, in particular, has separated itself from the pack over the past couple of years.

The next chart (Chart 6) illustrates what’s going on. It’s convenient that the three terms shown, Ford, oil change, and Jiffy Lube all converged in 2007. Prior to that, Ford had the lead. Since then, the generic “oil change” has become dominant. The good news is that Ford, the bellweather OEM search term, has bounced back, and maintains a small gap over the bellweather independent term, Jiffy Lube.


Bottom Line:
  • Search volume for auto maintenance continues to grow- no surprise there.
  • Generic searches like “oil change” and “battery” are high volume and growing; they are a key gateway to capturing customers’ attention.
  • Apart from Jiffy Lube, aftermarket retail brands don’t have dominant mindshare, but they are improving.
  • We’ve said it before and we’ll say it again: OEMs need better visibility for generic and unbranded search terms. This is best done by working together.
Details about the data:
This data was collected from the Google Insights for Search tool, for the U.S. only, for the Vehicle Maintenance category. How exactly Google classifies a search that includes “Ford” as Vehicle Maintenance (vs. Vehicle Shopping) is a bit of a mystery; for the moment we’ll trust that Google has more or less figured this out. The data is heavily normalized; the y-axis on these charts is simply a measure of relative frequency of various search terms. The chart shows trends between the periods of January 2004 to the end of 2010, based on 6-week averages of the data. Follow this link for a sample query with the same filtering that we used. The bottom line is that this data is directionally useful, but must be taken with a grain of salt.

Brian Crounse is a principal at Carlisle & Company. He enjoys finding insights from large, complex datasets. Sang Oh is new to the Carlisle team; his focus in on our benchmarking activities.