DO COMPANIES KNOW their market? Do they know their customers?
Ron Slee doesn't think they do. And he doesn't think they give their customer-service employees the tools they need to help them with that process, even though it is “absolutely critical” to their success.
That was the key takeaway he gave his audience during his presentation, “Building a Parts and Service Customer Satisfaction Game Plan,” at the 16th annual National Trailer Dealers Association Convention October 8 in Reno, Nevada.
“The single most important thing for distribution businesses is to retain their customers — almost at any cost,” he said. “The higher the customer retention, the higher the profitability, the higher the market share, the higher the employee satisfaction. Everything works. Our problem is we don't know what our retention is. Out of the people who bought from a dealer in 2004, how many have not bought a thing from that dealer in 2005? We don't typically measure that.”
Slee, president of RJ Slee & Associates, a management consulting firm specializing in the operational aspects of businesses in the capital equipment industries, cited this statement from Fortune magazine: “Whether you sell $100-million planes or 79-cent pens, your buyers have changed enormously in the past few years. Their demands are lengthening; their patience is shrinking. Epochal shifts in the global economy have given them a sultan's power to command exactly what they want, the way they want it, when they want it, at a price that will make you weep. You'll either provide it or vaporize.”
He said the world has changed. Although people think of change as discontinuous, there has been a radical transformation in business. And yet it is still a people business — people serving people.
What do your customers want? Do you ask?
Slee said customers tell him they want price, responsiveness, convenience, and quality.
“And what about our employees?” he said. “Do they know what you want? Do our systems and methods support what you ‘say’ you want to do? If our methods and systems do not support our words, employees become cynical.”
He said the Service Profit Chain includes employee satisfaction and loyalty, service value, customer satisfaction and loyalty, and sales and profit growth. He said there is a direct correlation between employee satisfaction and customer satisfaction. And one of the most critical measures of customer satisfaction is customer retention.
Eye-opening Harvard study
He said Harvard University did a study in the early 1990s showing that in the industrial distribution market sector, if customer retention is increased by 5%, net income goes up 45%.
“So if you're retaining 80% of your customers year by year and you're to get, say, 3% net income pre-taxes as a company, your net income would increase from 3% to 4.5% if you're able to take your retention from that 80% to 85%. The flip side is true, too. If you have 3,000 customers with whom you do business — on trailers, parts and service, financing, whatever it might be — and that 3,000 goes down by 150 customers, half of your profits are at risk.
“Everybody in the country thinks of the 80-20 rule: 80% of your business comes from 20% of your customers. The statistics belie that. They're more like 90% of our business comes from 10% or 11% of our customers. We're extremely vulnerable to a small number of large customers. The small customers really don't get much attention. As a result, they come in and go out, come in and go out. And that's where the bread and butter is.”
He said all companies have systems, they all train people, they all care — and they spend a lot of money doing it.
But how do they rate with customers?
He cited a survey that showed that 67% said they believed the OEM dealer was good or average in technical knowledge; other sources rated at 80%. In responsiveness, the OEM dealer rated at 71%; other sources rated at 70%. In quality of work, the OEM dealer rated at 74%; other sources rated at 80%.
“Price is only important when all other aspects of the transaction are the same,” Slee said. “Yet if the customer perception is that we are ‘just the same,’ then we are all on a price field of play. If that is the case, we will lose. It is then only about your hourly labor rate or the price of the part. I believe this is a problem caused by market coverage. Our message is just not getting out to the customer.”
He said there is ignorance (when a person does not know what to do in a given situation) and stupidity (when a person knows what to do but for whatever reason does not do it).
“So what do we need to do?” he said. “So what is the market share on parts and service? Do we know? How do you set out to cover your marketplace? Is it about improving your market share for parts and service? We need to be much more precise about market coverage on parts and service. How do you go about setting up territories for parts and service sales?”
He said it's all about market segmentation — the process by which marketers divide potential customers into smaller groups that are looking for similar benefits from a product or service. The goal of marketing is to provide the customer with value and do it better than the competition. More specifically, find a differential advantage that satisfies customer needs better than the competition, and make this advantage sustainable over time.
“It's no longer ‘one size fits all,’ ” he said. “It's kind of gotten to become ‘one size fits one.’ It takes us to the Cheers deal: Everybody wants to go to a place where they know your name. If you're a large customer and call into the dealership, in all likelihood they recognize your voice and know who you are. That's good for 20, 30, maybe 50 customers. But the rest of them we treat like dog meat.
“For instance, in a parts-sales transaction or work-order transaction, the first question we ask the customer is, ‘Who are you?’ And we put their name into the computer so we can get a number. And we put in a number so we can see this mass come up on the screen. It shows their billing address and whether they have enough credit to be able to afford this transaction. But that doesn't tell me anything about who that guy is. How many trailers does he have? How many years has he been in business? Does he do any business with us? Is he educated? What are his hobbies? Is he married? Basic things.
“You call up a Pizza Hut and the first thing they ask you is your phone number. They can tell you what you bought the last time. We haven't got a clue. And we sell things that cost a lot more than one pizza. We're so busy doing sophisticated things that we forget the simple things.”
He said customers should be grouped by market opportunity, parts sales history, and service sales history.
Market opportunity is all about trailers — the population of working trailers and the application they are working in, as well as the hours of work they do each year. Trailer population is: the number of trailers that a customer owns; the type of trailer that they own; the application in which the trailer works; and the hours that are put on each trailer per year.
Customer groupings go by trailer ownership: small is one trailer, medium is two to three, large is four to six, and fleet is 12 or more. He said each each of these groups has differing needs and expectations.
Purchase history is the relationship that the dealer has with each customer. Parts purchases should be divided into four groups: $48,000 a year and up; $12,000 to $47,999; $2,400 to $11,999; and $0 to $2,399. Service purchases should be divided into four groups: $20,000 and up; $6,000 to $19,999; $1,000 to $5,999; and $0 to $999.
He said a company needs to determine the strategy for market coverage: defensive, protecting the position that it has (the sales position is a “Hugger”) or offensive, growing the position it has (the sales position is a “Hunter”).
A telephone market coverage should be set up. He called it “teleselling,” not telemarketing, because of the negative connotation telemarketing has.
“I have to find a way to cost effectively cover the marketplace, and I'll do it with a telephone,” he said.
Set up specific objectives for each customer for their purchases. Where and how can the business be grown? What is the competition? Who does what business with which group? What is their competitive advantage? How do we combat it?
“Plan the business for each customer and market sector,” he said. “One other thing to consider: Every person that ‘touches’ a customer should know what the dealership wants done with every customer. How do you do that? Put the market segment code into the name and address record so that it shows each time the record is viewed. Go further. Call each customer three to five days after the customer has had a trailer or component repaired in the shop. Ask how you did: ‘Did we do what we said we would? Did we do it in the time we said? Is the machine working properly now? Is their anything else you need? Is the bill correct?’
“Call each customer three to five days after the customer has received parts that were on backorder for more than three days. Ask how you did: ‘Did we do what we said we would? Did we do it in the time we said? Is the machine working properly now? Is their anything else you need?’
“Parts and service is easy to understand. The trouble is that it is a lot of work and not as exciting for many in dealer management as the equipment side of the business. However, without parts and service success going forward, we will have significant trouble.”