What if we are wrong? What if our most deeply held beliefs about managing dealerships are at best misguided and at worst a complete waste of time and money?
- More door swings didn’t lead to more sales?
- Commissions didn’t really drive dealership performance?
- Following up with customers made them like you less?
- Dealer training programs would almost always fail?
- The best dealerships didn’t have the best people?
- "Every deal, every dollar" didn’t optimize profitability but rather encouraged customer resentment?
What if for all these years the largest impediment to our success was actually our inability to discover what produces results? What if the obvious isn’t? Instead of using conventional wisdom and flawed models ("That’s how they do it in the car business") resulting in hyper inter-dealer price competition (where the customer ultimately hates the dealership experience), what if we changed course? What if we looked honestly at what works, what doesn’t and what’s best for our business?
Remember when people used to actually believe that you "Win on Sunday, sell on Monday"? There are risks in raising these issues. We can think of at least three dealer principals right now who would run us out of town for suggesting that racing may be a complete waste of money, but if we can dispassionately look at these issues might we just find aspects we can improve? You’ve worked hard. More hours and more effort isn’t the answer. What if we used available resources (right now, today) to work smarter?
Challenge Even Your Most Basic Assumptions
In 1987, moved by Tom Peters’ book "In Search of Excellence," Southland, 7–Eleven’s parent company, launched a huge customer service initiative. The initiative was designed to get every clerk in every store in North America to offer a greeting, a smile, eye contact and a heartfelt "thanks" to every customer. After all, that has to have a positive impact on business, right? Good fun but was the effort worth it?
Afterward, researchers tried to link courtesy to sales in 7–Eleven stores. In a 10–week experiment, greetings at a group of 7-Eleven stores increased from 33 percent to 58 percent, while smiles went from 32 percent to 49 percent. However, sales were actually higher at less courteous stores! Why? Convenience store customers don’t care about fake smiles or perfunctory greetings. Convenience store customers want to get out of the store fast.
Had they taken the time to find and use evidence, Southland could have saved millions of dollars and untold effort. They could’ve taken the time to simply focus on what their customers actually wanted. This is just one of the cases cited in the book "Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management," written by Stanford professors Jeffery Pfeffer and Robert Sutton.
There are examples of this sort of conventional wisdom in the motorcycle industry. Take a metric dealership located in the mid–Atlantic region. The dealer spent untold dollars and effort for years producing direct mail campaigns to support their open house efforts.
On the surface the efforts appear to have paid off. There were customers everywhere. Who wouldn’t think these efforts were worth it? Apparently, this analytics-driven dealer principal didn’t, because one day he decided to evaluate the efforts. He discovered that on these event days, the dealership actually sold less! Sales of major units were down, high dollar accessory sales were off, and to top it all off, the store had to pay for food, entertainment and other event expenditures.
But couldn’t the event have stimulated residual sales? Might customers have come back later as a result of their positive interaction at the promotional event and spent money? Of course, anything is possible, but you have to ask yourself: Is that correlation evidence enough to continue spending time, money and effort on these types of initiatives, or might there be a better return elsewhere?
It is time to smash conventional motorcycle business wisdom; it’s time for new business insights, it’s time to test our assumptions. It’s time to stop doing business by accident. We believe the path to Peak Dealership Performance can be found in the coordinated use of customer intelligence, business intelligence and evidence–based management.
Data and Diapers
Wal–Mart is well known for their use of data. When analyzing purchases, managers noticed a correlation between those who purchased diapers and those who purchased pre–paid calling cards. They discovered young mothers have a strong maternal urge to stay in touch with friends and family during the earliest stages of their children’s lives. So the merchandisers put end cap displays of pre–paid phone cards to make it easier for these shoppers. They tested this in a few stores, received positive results and then rolled it out to other locations. This is our objective, using data correlations and your insight to do better business.
Here’s how one dealer used this process: Harley–Davidson had switched from the cartridge format to a much lower priced computer calibration download, and the dealer had an inventory of cartridge calibration downloads for select models. The manager queried the customer database to pull a list of owners with units that were compatible with the inventory. They created a promotional offer that gave customers a free download with the purchase of a new set of Screamin’ Eagle slip on mufflers and a new Screamin’ Eagle Air Cleaner. The average age of the units was about five years, and the staff didn’t think the promotion would work — 35 customers took them up on the offer, however.
This is a great example of how the process can work. The business intelligence here was the identification of the older, over–inventory position of the calibration cartridges. The performance insight was that they could: A) Throw out the cartridges and write off the inventory, or B) Take some action to recoup the investment. Using its customer intelligence (their customer database), the dealership was able to identify customers the cartridges could benefit. Next, marketing insight was used to come up with a logical promotional offer, and the dealer practiced evidence–based management and took a very reasonable risk and measured the results. In addition to the quantitative findings, he also used qualitative research (in calling 35 customers and asking about purchase motivation) to test if his marketing insight was on target or if something else was driving purchases. The business came away from this process better off financially, customers came out better with new exhaust systems, and this dealer and his staff became better and smarter business people.
To replicate this in your store, the first thing you need is real–time business intelligence. The key to success is, of course, the immediacy and utility of the information.
The team at Retail Systems Research believes actionable information from real–time business intelligence is critical to drive success. Retailers have come to understand this process is important and are moving from a "whatever it takes" mode to something more engineered: a process driven by actionable information. Closing the loop between operational systems and business intelligence is important because the "lag time to action" is getting shorter all the time. Retailers believe the potential of real–time or near–real–time business intelligence is enormous, but they recognize they have a long way to go in realizing that potential. Following are guidelines you can follow to gather and capitalize on this intelligence.
Major Unit Data: Track all major-unit activity at your dealership, both new and used. Typically, you’ll want to view these sales in terms of month-to-date numbers and year-to-date numbers. Also, year-over-year comparisons are helpful. You’ll want to review unit sales, gross dollars and gross profit.
Consider tracking dealer transfers, trade–ins and total number of retail deals, too. Breaking down the margin and dollar information into a per unit expression (for example, $1,811.89 or 10.99%) can be useful.
Next, track the number of days major units spend on your floor. This is helpful in understanding your risk for flooring charges and markdowns. Knowing this can also guide attempts to accelerate sales.
Finance & Insurance: If you’re looking for fun with numbers, look no further than your finance and insurance profit center. Typical measures include finance, ESP, wheel and tire, GAP, LAH and profit-per-unit-retailed penetration. These numbers should be analyzed both month-to-date and year-to-date for a more complete understanding of the business.
Accessories and Riding Gear Metrics: It’s preferable to look at accessory and riding gear business separately and in total. Metrics for these areas could include such things as gross sales/net sales, total dollars discounted, total number of invoices, invoice dollars/profit dollars, number of daily invoices, average daily sales, and the percentages of Internet, wholesale, employee and dealer-to-dealer sales. Also, accessory and riding gear metrics can be compared month-to-date and year-to-date.
Service Metrics: In many dealerships there are few departments as revered and vilified as service. Typical service metrics include both year-to-date and month-to-date figures for labor hours, labor dollars and service parts revenue; also, year-to-date repair order (RO), daily RO, daily labor hours, daily labor dollars and accessory dollars per RO are good metrics to track.
Comparison Composites: Most of the examples we’ve given to this point measure your dealership’s individual performance. A comparative composite can tell you how you are doing relative to other dealers (normative).
Performance to Plan: The crown jewel of business metrics is performance to plan. This assumes A) You have a plan, and B) You are tracking your plan’s progress. If you can predict trends, you will be in an even more informed position.
Unfortunately, tracking these metrics is not easy; designing this information using a DMS is tricky, running the reports is laborious and compiling the reports seems to require a very, very large conference table, and by the time you have it organized the information is old and out of date. Yet, any data is better than no data, and at the same time retailing is about immediacy. We need to understand our current performance today so we can take action tomorrow.
The next piece of the puzzle is customer intelligence, and you’ll have to tune in next month for the second installment of this series. In the meantime, examine the motorcycle business myths you’ve bought into and start crunching numbers to see if they still make sense for your business.