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April 2014

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Don't Compete. Change the Game. For too long now, we have been continuing to do what we have always done. For as long as I have been involved in this industry the parts department has been in the "parts number business" not the "parts business." We have become a parts processing factory not a parts sales and service group. And our parts departments look and function exactly as they have for decades. As Einstein is noted for saying, doing the same thing over and over again and expecting different results is insanity. It seems we have fallen into that realm of insanity. Our market capture rates continue to fall, which is the ulti- mate measure of customer acceptance; our customer defection rates continue to rise; our ability to attract and hire bright young employees continues to be challenged; the Internet competi- tors continue to take away more and more of our business because we've been slow to get an online interac- tive delivery system. In general, things don't look that optimistic. Isn't it time we made some changes? I was struck in the last month by an article I read – and a recent spate of books on competition – that stated what I believe might be the rallying cry that we need right now. Don't compete, change the game. We have been competing in the same manner for the past 45 years and more. Greet a customer who comes to your dealership, not your store – your dealership. We have been pleasantly answering the telephone when it rings. Granted, we have gotten considerably better at the supply of parts, and our availability numbers are much better today. And the supply chain and expe- diting have each gotten more effec- tive, so the wait on backorders is much shorter today. But, we have been predictably competing in our markets the same way. We have inadequate numbers of field salesmen. Few dealers have implemented a telephone selling sales function. So your market coverage continues to be in the range of 50 percent, meaning that 50 percent of your customers have the "privilege" of a sales person contacting them and helping them with their parts needs. The other 50 percent of your customers are left on their own. No, that isn't true – they are left to your competition. Is it any wonder that the market capture rates continue to decline and are now, at best, in the high 30 percent range? I think it is high time we changed the game. What we need to do is completely change how we cover the market. Start with a simple calculation. Find out what the defection rate is for your parts department. Get a listing of your customer parts purchases for 2012 in alphabetic order. Get another one for 2013. Get a green felt pen and a red felt pen. (Or do this in Excel and use red and green highlighting.) Any customer who bought parts from you in 2012 but did not buy in 2013 gets a red line through his name on the 2012 list. Customers who bought parts from you in 2013 but did not buy any parts in 2012 get a green line through their name on the 2013 list. Now add up the red lines and the green lines and do some math – the red lines divided by the total parts customers in 2012 is your defection rate. The green lines divided by the total customers on the 2012 list is your acquisition rate. I have seen defection rates in the high 40 percents but rarely less than 10 percent. In the old days, there was an 80:20 rule – 20 percent of your customers generated 80 percent of your busi- ness. Today that is more like 90:10, and I have seen it as bad as 93:7. This is for your parts department. I believe that you are becoming more and more vulnerable to a smaller and smaller number of your largest customers. (E-mail me for the formula to do your own calculation.) In the 1980s, when interest rates skyrocketed, we changed all opera- tional metrics and reduced head counts dramatically to survive. After all, personnel costs are the single largest expense in the dealership, aren't they? Well, that is true at one level but personnel are your single most impor- tant and most valuable assets, as well. Today, we have too much work being done by too few people in processing orders and providing customer service with hardly any people in the field covering your customers – either growing your busi- ness or protecting it from further decline. We are way overdue to change the game. 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. Fol- low Ron on Twitter: @RonSlee; and read his blog at learningwithoutscars.com. By Ron Slee Aftermarket April 2014 | Construction Equipment Distribution | www.cedmag.com | 43 43_aftermarket_KP.indd 43 3/27/14 4:40 PM

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