Issue link: http://read.dmtmag.com/i/134956
Aftermarket Customer Stratification and Retention Slicing and dicing can expose interesting facts. By Ron Slee The opportunity that you have when you are in the product support business is huge. The shame is that we don't capture more of it. There are some opinions about where the dealer's market capture rates should be, running from 20 to 40 percent for parts and from 5 to 20 percent for service. I don't know where your thinking takes you on these numbers, but no matter what the thinking arrives at it is clear we can do much better. I challenge you to look at your labor market capture and tell me that you have more than 25 percent of the total. Think about the fact that maintenance is roughly 50 percent of that market. So if you are like most dealers with a very low penetration on maintenance, caused by any number of reasons, you will have to have around 50 percent share of the repair side to get to 25 percent of the total labor recovery pie. Let's go a little further and consider the nontechnical labor in your territory, and I will assume you get very little of the tooth changes, or cutting edge changes, or even the lamps or gauges. So my 25 percent proposed market capture is not too far off the real number. Maybe it is even too high. But while that is going on, I want you to also consider that the only technicians who are for sure going to buy your parts are your employees – now you can start to understand why I get a little cranky with low labor market capture rates. But it goes deeper than simple market capture rates. Run a report in descending sales sequence of all your parts business. Run another for your service business. Then slice the report up into 5 percent increments. Draw a line through the report with each 5 percent of the customers in the total report. If you have 2,500 customers, then the first 125 are the top 5 percent and so on. Now calculate the sales for each 5 percent block and you have the makings of a stratification report. And what does this tell you? For starters, an extremely high percentage of each of your parts business and service business is coming from an extremely small number of your customers. It is not unusual to find a ratio that is very different from the old normal 80:20 rules that suggested 80 percent of your business came from 20 percent of your customers. When you are finished with this report for your business don't be surprised if 90 percent of the business is coming from 10 percent of your customers. Let me take a step back here for a moment. If you still have a COD or cash customer, you have trouble. In the old days – when computer disc storage was $100,000 for 44 MB there might have been a reason not to have an account for each and every customer, but when 5 GB costs $20 or less there is no reason at all. Each day that there is a cash sale for a customer who does not have an account, create an account for them with the credit terms being cash. It seems rather a waste of an opportunity to have someone buy from you, walk out the door, and you don't know anything about them. I have heard all kinds of reasons why we can't do this, however none of them makes sense in the current world of business. So now, one of your largest customers for either parts or service is the cash customer. Part of the reason for the shift to 90:10 is due to customer defections. You all know who your larger customers are, and you are very sensitive to their needs and wants. How that translates down through the ranks to the smaller customers, however, changes. In the last AED Product Support Opportunities Handbook, 15 percent of surveyed customers told us that every year they chose to do maintenance and repair work with someone other than an OEM dealer. That means that 48 percent of your customers leave you for a competitor over a five-year span. This is a serious issue no matter whether you believe the survey data or not. Too many customers are defecting on an annual basis. So there is the second step. Now it is your turn. Run the reports and do the stratification. Do your own calculation on defections next. I will go a little further with this process next month. The time is now. Ron Slee (ron@rjslee.com) is the founder of R.J. Slee & Associates, Rancho Mirage, Calif., celebrating more than 30 years in business in the United States, a consulting firm that specializes in dealership operations. Ron also operates Quest Learning Centers, a company that provides training services specializing in product support, and Insight (M&R) Institute, a company that operates and facilitates "Dealer Twenty" Groups. Follow Ron on Twitter: @RonSlee; and read his blog at learningwithoutscars.com. June 2013 | Construction Equipment Distribution | www.cedmag.com | 49 49_aftermarket_KP.indd 49 5/31/13 1:06 PM