Thursday, April 25, 2013

Customer Sentiment Survey – Why Are Customers Switching?

This week we’re taking an in-depth look at the switching issue. We’ve already analyzed switching trends by demographic segment, but it’s important to focus on the reasons. A customer who “switches” to a service chain because her car broke down nearby is different from a customer who switches because he felt his dealer was dishonest.

Carlisle’s Consumer Sentiment Survey identified six main categories of reasons for switching:
  1. Location: Going to a closer/more conveniently located provider
  2. New/Unforeseen Circumstance: Vehicle broke down, was on vacation, etc.
  3. Price: Found a cheaper provider or used a coupon
  4. Service Quality: Unsatisfied with quality of service, technician’s attitude, perceived up-selling, store schedule, etc.
  5. Availability of Parts and Expertise: Service provider did not have the part or was unable to perform the job
  6. Trust/Word of Mouth: Followed recommendation of friends/family, perception that another provider is more trustworthy
The chart below shows the percentage of customers who cited each of these six reasons in the combined 2012 and 2013 surveys.

Of these six categories, two (Location, Circumstances) should be classified as “unavoidable,” since they are out of the provider’s control. If your car breaks down while you are vacationing or if you move away from your provider, chances are that you will have to pick a new provider. For the last two years, 33% of customers who switched fell in these categories. Since these “unavoidable” reasons are unpredictable, we would expect this figure to change year-on-year.

The remaining 67% are customers who switched for reasons of Price, Service Quality, Availability of Parts/Expertise, and Trust. These “controllable”reasons are related to a provider’s performance (whether in marketing, quality of service, schedule, etc.). This 67% is our focus.

Analyzing the “controllable” reasons will illustrate the dealers’ problems. Overall, 22% of all customers who switched providers, ended up switching to the dealer. However, if we look only at those who switched for “controllable” reasons, then the percentage of customers switching to the dealer drops to 19%. Why is this happening?

As you might expect, customer perceptions of price drag down the numbers. 38% of customers switched based on pricing, and in 2013 only 5% of these customers switched to a dealer. This was a four point drop from 2012, meaning the situation is getting worse.

The numbers might appear better when we look at the other “controllable” reasons. In 2013, we see a two point improvement in the number of switchers choosing the dealer for these reasons. Yet, it’s troubling that dealers only attract 36% of switchers in categories that are more likely to be considered dealer strengths.

Bottom Line: Dealers attract only 19% of customers who switch for a “controllable” reason. Customers looking for lower prices will rarely switch to a dealer. Finally, dealers have not been able to capitalize on their areas of perceived strength, such as service quality and availability of parts/expertise. Why is this happening?

Friday, April 19, 2013

Bits Instead of Atoms

Objects, like car parts, are made out of atoms. So are warehouses, trucks, and the fuel that powers them. Reactionary repositioning of these atoms could be costing the motor vehicle service industry the better part of $300M / year – more about that in a moment. Information is composed of “bits” – those little ones and zeroes that can describe numbers, words, pictures, music, and movies.

A couple of years ago, Marc Andreessen, the guy who helped build the first web browser (Netscape) and is now a notable venture capitalist, wrote a WSJ op-ed called “Software Is Eating the World.” Unfortunately, that article now lives behind the Journal’s pay wall, but Wired editor Chris Anderson sums up the idea: “Software eating the world is dematerialization, in some sense: … sectors of the economy get transformed into coding problems.” In short, our increasing ability to obtain and analyze information (bits) is changing how we interact with the physical world (atoms).

This can happen in a few different ways. Software can help us use resources more efficiently. One example of this is the growing sharing economy. For example, ZipCar’s founder claims that every car it puts into service replaces 15 vehicles.

Software (plus a little hardware) can also reduce our need for physical objects. The obvious example is the smartphone. My phone has replaced my need for: an alarm clock, a camera, a video camera, a music tuner, a GPS device, a Walkman (did I just age myself?), a newspaper, an address book, a calendar… and that list is not complete. Not convinced? How about the fact that since 2011, Amazon has been selling more Kindle books than physical books? Or that today’s 16 year olds aren’t so concerned about getting driver’s licenses because they conduct their social lives through their phones? "The Internet has made the freedom that comes with a license anticlimactic."

So, bits are replacing atoms in our economy and our lives. What does this mean for motor vehicle aftersales (beyond leading to a possible long-term decline in vehicle sales)?

I can think of a few things.
  • Remember how Amazon drove Borders out of business? Amazon’s interface for ordering car parts has improved in recent months. It’s still not an amazing buying experience, but it’s getting better. And a lot of parts are available on Amazon Prime- next day delivery for $4 a part, or 2nd day for free. We’ll talk about this at our next Digital Summit.
  • We fly a lot of parts around in planes, burning a lot of fuel along the way; a lot of atoms, and a lot of cost. Our NAPB members collectively pay over $300M a year for air shipments. In many cases, if we had one or two more day’s notice, we could ship these parts on the ground. Currently, the rule we use for stocking parts at dealers and warehouses are fairly crude: we stock based on forecasts that are driven by what happened last month or last year. If Target can figure out if a girl is pregnant before her family did, and Obama can use predictive persuasion to win an election, maybe we can start forecasting demand using methods other than looking in the rear view mirror?
  • Closer to home, the next version of Optricity’s OptiSlot slotting software will allow stock managers to identify which parts are often purchased in the same order (like rotors and pads), and stock these parts closer together in the warehouse, while also obeying a host of other optimization rules. The benefit is increased warehouse productivity. We’ll be learning more about state of the art slotting software at the NAPB Warehouse Technology Roundtable in late April.
  • Progressive has collected data for over five billion miles driven through its SnapShot program, and used this information to construct improved automotive insurance risk models. This data has value; Progressive offers discounts of up to 35% to drivers that it has identified as low-risk. Says Progressive, “The predictive power associated with driving behavior is more than twice as powerful as the second most powerful variable, which is driving record points.” Most other automotive insurers have similar programs, called Usage Based Insurance (UBI). The leading UBI provider in the United Kingdom measures whether you “Drive Like A Girl.” And State Farm’s In-Drive service takes matters further – the device it uses to monitor driving behavior can also provide emergency assistance, remote monitoring of vehicle location (“Stop losing sleep worrying when your teen is out with the car”), and even “monitor safety and performance with diagnostics.” It’s a plug-in telematics system.
  • Along the same lines, the U.S. Dept. of Energy (DOE) recently ran an “Apps for Vehicles” contest, the goal of which was to “demonstrate how the open data available on most vehicles can be used to improve vehicle safety, fuel efficiency and comfort.” Winners included: Dash, myCarma, Green Button Gamer, and Fuel Economy Coach. All of these apps rely on the same basic idea: Combining a smart phone with a wireless OBD-II plug-in provides a stream of actionable data that can help people drive safer and more efficiently. Of the start-ups listed, only Dash talks about using the data stream for vehicle diagnostics, but that’s the next logical step.
My question for the reader is: why are we letting insurance companies and start-ups capture all this great on-the-road vehicle information? I can understand letting the start-ups figure this stuff out, and then buying one of the winners, but that wait-and-watch approach is less effective with insurance companies.

After we sell a vehicle, we want to stay engaged with the customer. But, if their cars are reliable (and we sure hope they are), we’ll only see them once or twice a year. Meanwhile, we know they don’t visit the Owner Center portion of our websites very frequently; they just don’t have the need. Similarly, the only automotive-related phone apps that have any traction today are gas price references like GasBuddy. But, when you pair an OBD-II reader with a smart phone, you have a rich, dynamic stream of information that vehicle owners can take action upon. Others see the value in this data, and are racing to acquire it; why aren’t we?

The bottom line: Software is eating the world; bits are becoming more important than atoms. This trend poses threats (read: AMAZON) and opportunities (read: CUSTOMER ENGAGEMENT) for our business. The consequences of not reacting to this trend are obvious; just ask the management at Borders.

Thursday, April 11, 2013

Mustard & Mayonnaise

Accessories are a tough nut to crack – selling them effectively in a dealership requires coordination between Parts, Service, and Sales. Easier said than done. So when an aftermarket company offers to take all of the hassle out of managing this part of a dealer’s business, it’s a pretty compelling proposition.

I’m talking about Vogue Tyre, an aftermarket wheel, tire, and accessories company. Vogue currently targets select luxury brands such Cadillac, Infiniti, Lexus, and Mercedes.

You can find Vogue products at tire retailers such as Discount Tire, NTB, and Belle Tire, and also at select new car dealers. These new car dealers are called “Custom Centers,” where the dealer essentially outsources management of his accessories business to Vogue.

Here’s the Custom Center business model:
  • A dedicated, on-site Vogue Tyre sales manager directs the Vogue business within the dealership.
  • Inventory is owned by Vogue – some is stocked at the dealership, and some is off-site nearby.
  • Vogue technicians perform accessory installations, repairs, and replacements.
  • Some accessories are pre-installed – OEM pre-installed accessories may be removed and credited.
  • Dealers receive a margin on each sale (typically higher than the margin they earn on OEM accessories) as well as an additional rebate; dealer staff are also spiffed for sales of Vogue products.
  • Returns and warranty claims are seamlessly handled by Vogue.
Essentially, no one at the dealership has to lift a finger as far as accessories go, and they still see a payout.

Needless to say, they’ve nailed ease of doing business. For dealers, it’s low risk, high reward. You’d be hard pressed to find a Custom Center dealer who doesn’t have positive things to say about his relationship with Vogue. Contrast this to dealers’ comments about dealing with OEMs on accessory-related issues (if you haven’t already, you may want to take a closer look at the results of our most recent Accessory and Parts Manager Satisfaction Surveys).

OK, so dealers love Vogue. But what about end-customers?

Vogue Tyre checks all of their boxes too, offering the right product styling and variety, promotion, and price. In fact, the signature yellow and white sidewall on Vogue tires – dubbed “Mustard and Mayonnaise” – regularly makes its way into rap song lyrics. And, as we discussed in a previous blog, Vogue’s website provides slick build-your-own functionality that helps customers envision what their vehicle will look like after it has been “Vogued out.” Within Vogue’s target market and current brand focus, many customers actually seek out Vogue accessories—others are easily convinced by the flashy displays.

Bottom Line: Vogue Tyre is fairly small, and focuses only on a few brands. So, the sky’s not falling for OEM accessories, but it could be if a Custom Center-like business model takes off on a larger scale. Vogue has set the bar high, offering top-notch service to dealers and products that customers covet. In deciding how to manage their accessories business, dealers will naturally compare and contrast a Vogue-like company to the OEM – how will you stack up?

Wednesday, April 3, 2013

Service Operations Technology Roundtable: Five Leading Firms Gaze Into The Future

We assembled the “A-Team” a few weeks back to talk about the future. Who participated? The best-of-the-best: seven executives from five leading providers of technology and strategy to OEM dealer service operations.

We spent two hours at dinner and three hours in a separate discussion session. Honestly, we could have gone on much, much longer. However, the picture that emerged was quite simple – I summarized it below in a bit over 1,000 words.

The chains are emerging as the winners with their simple business models, huge media spend, and demographic attraction

 Automotive dealers have now retrenched to a service market share that could be generously posted at 30%. Over time, they have lost most of the maintenance business to independents and chains – most visible is Quick (fill in the blank) operations. The repair business still favors mainstream dealer quality and care versus independent repair facilities (IRFs), but chains, like Firestone and Goodyear, are making huge inroads here.

We’ve been conducting a Customer Sentiment Survey in one form or another since 2006. In 2013, we noticed sizeable satisfaction and “switching” gains by the service chains. A lot more customers were switching into the chains than switching out. The shift to the chains was quite troubling, so we talked about this at the roundtable.

The preponderance of evidence indicates that the biggest threats to dealer service operations are the service chains … like Firestone and Goodyear. They provide McDonald’s-like service to customers that stresses simplicity and repeatability, rather than accuracy. Service customers want trust, value, and convenience. They are spoon-fed this diet from the chains with their huge media budgets, density of locations, and McDonald’s-like service.

Traditional dealers must become more McDonald’s-like and chain-like to survive. Blake Price gives them five years to transform, or become irrelevant. His reasoning is that the auto maintenance market has already been commoditized and is now sustainable at modest margins. Dealers tend not to want to play in low-margin sandboxes. That leaves the no-to-low-win repair market, much of which has also been commoditized. Blake sees this – it is either change or die.

He is right. Firestone, Goodyear, and their brethren spend hundreds of millions in media; just have a look: http://www.youtube.com/user/FirestoneAutoCare http://www.youtube.com/watch?v=6DLFL4EthkE . This is scary. All of this spend is focused on a product that fits all OEMs, versus OEM service spend that is relevant to single OEMs. If you are a GM vehicle owner there’s about a 25% chance that the media you are looking at is relevant – that’s as good as it gets for OEMs.

Further, consider the changing service customer perspective. Dealertrack monitors demographic tastes and has been focusing on the new millennials. When millennials are asked what they desire, owning a car is fairly low down the list; topping the list is social media-enabling technology. Customers are no longer passionate about what they drive. Zipcar gets it – convenient, affordable, shared transportation. Firestone and Goodyear get it too.

 There are several roadblocks in front of the OEMs that might make service maintenance extinction a foregone conclusion.


 Amazon and Zappos have emerged as the relevant benchmarks for buying experience and problem resolution. Why? They understand that the game is all about no-hassle simplicity. Again, the chains get this. But, there are huge roadblocks in front of the OEMs. First, service advisor pay-plans stand out as a kill shot. We recently hosted a focus group of top service managers and discussed this. Service advisor pay typically has a commission component; they are paid to load up repair orders with things like flushes, and to “manage” the customer feedback to make sure they get “all 5s.” There is nothing evil or sinister about this, the dealer just wants high service profits and the OEMs want high satisfaction scores. Thousands of dealer service advisors do this quite independently – make that the lion’s share of all service advisors. OK, good service managers spend a fair amount of time monitoring this feeding frenzy and try to keep it inside respectable boundaries. But, they are swimming against the tide in their own shops. The chains know this, and so do the service customers who admire Amazon and Zappos.

The second set of roadblocks are the initiatives and programs that each OEM launches to fix the service experience. Each OEM’s grab bag of improvements is different. And, each grab bag contains dozens of separate programs, none of which fixes the service advisor pay plan “iceberg.” With dozens of things to do, all having competing high priorities, no single most important thing floats to the top. Worse yet, in a recovering automobile market, the dealer and OEM’s attention typically goes to the glamorous side of the business – the showroom, where they sell vehicles with totally acceptable paper-thin profits.

 In the short term, “MyGuy” (http://www.my-guy.com) service principles can maximize dealers’ current operations with minimal investment. However, the reality is that the tide will eventually push the survivors into chain-like systems with big investments and high technology; it’s already happening. The service advisor will simply be an order taker, selling from a menu. What’s the role of MyGuy in this world? It will be the difference between a 7-Eleven and Trader Joe’s – market share based on personal preference. The key is to lay the foundation now, so that you come out with superior performance and reputation.

So, can dealer service operations become more chain-like?

Yes. In fact, that’s all Blake Price does at SOS. Consider Dealer Tire – they have transformed dealer tire businesses during the past decade and proved that you can regain hopelessly lost share. And, that you can do this out of the current dealer footprint. It is all about people, leadership, and “feet on the street” – real human beings working with dealers to transform their tire business. OK, it’s also about lots of local warehouses and leveraged purchasing agreements with tire manufacturers to support these dealers.

So, yes, it can be done and there is ample proof of this in the market. Dealers can evolve their business models to make them more compatible with service customer expectations and preferences, and, by doing so, become more competitive with the service chains. They can build it.

The trick is getting the customers to come

This should be the easy part, because it involves technology that favors the OEMs. Replacing the traditional service advisor is the de facto role of telematics. This is where companies like Agero and OnStar shine. The vehicle diagnoses what’s wrong, what to do, and where to go. OEMs pay for roadside assistance; Agero’s Cross Country is the market leader here. All the tows should go back to the dealer for maintenance and/or repair. The major limitation here is the handoff to the very human dealer service advisor.

Appointment scheduling? Xtime is the market leader here, but there are others. Service customers can be funneled into web-based dealer service scheduling from a variety of sources – the most prevalent today are the scheduling call centers. Once customers have been funneled into the dealer service line, mobile tablet-based technology can help deliver a more desirable McDonald’s-like experience, stressing simplicity and repeatability versus accuracy. This helps control the adverse effects of avaricious SA pay plans. (Xtime's “ServiceTab” enhances the accuracy of check in and diagnosis by capturing information digitally and imposing discipline on the check-in process. It captures images with its built-in camera and can record strange sounds so the technicians can hear exactly what the customer hears. It's a pure win-win.)

There’s more. Dealer wholesale programs, performance terms and conditions, and RIM. All these programs and technologies support having the service-parts in the market in time to meet demand. All of these must interact with the dealer’s dealer management system (DMS) technology. Historically, DMS providers have been notoriously difficult and expensive to deal with. Not so with Dealertrack’s cloud-based open platform. The dealer’s investment in computing power is now shared with other web-based customers, and integration is like hanging a hammer on a peg board. Dealertrack has ample market share to prove that this is a viable, and desirable, alternative solution to … the others.

The trick here is integration. Nothing’s stopping this from happening. But, little is starting it.

So, what can you do with all this?

To survive in the jungle you have to understand prey and predator principles. Dealer service operations are the prey. The chains are the predators and they are getting stronger and faster. Understand that this is true and represents a call to action – the window of survivability is closing on us. Here’s what you must do:
  1. In the short term, you have to become more MyGuy-like to lay a foundation based on superior service quality and experience.
  2. Understand that the game will be over in a mere flash of time – you need to dream up strategies, develop them, launch them, and harvest them inside of five years.
  3. Make dealer service operations for maintenance and repair more chain-like. This spans from quick-lube to quick-light repair. Ford’s Quick Lane and Dealer Tire should be your examples of future success.
  4. Get onboard telematics technology and use it to actively diagnose what’s wrong, what to do, and where to go. Make it very Amazon-like.
  5. Make sure you funnel all your roadside assistance tows back to capable dealers.
  6. Get a technology provider to funnel service customers into dealer service shops with web-based scheduling and tablet-based service advisor inspection and concierge capabilities.
  7. Support these “build it and they will come” technologies with performance terms and conditions, RIM, and wholesale initiatives that tie into the dealer DMS technology. Use Dealertrack as your benchmark for how easy this should be.
  8. Ultimately, integrate all your technologies to support growth strategies – providers who “get it” are waiting for your calls.
  9. Measure your success by using share-of-wallet metrics, not just gamed service customer satisfaction.