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Product Support: An Expert's View

An Interview with Ron Slee

PFW Password - Winter 2003 Ron Slee is the President of R.J. Slee & Associates, which was established in 1983 in Denver, Colorado, and "manages and participates in consulting engagements for the accomplishment of management goals." Slee taught for several years at McGill University in Montreal, Quebec, and subsequently worked at management and executive positions in parts, service, sales, and information management systems at two of North America's largest dealerships.

In light of this depth of experience and knowledge, we thought it would be interesting and informative for you, the reader, to gain some additional product support insight, courtesy of an industry expert. To that end, we spoke with Ron and asked him the following questions:

PFW Password: In order to provide a context for our readers, your definition of product support is: "a dealership's expertise regarding the features and benefits of its products and services, as well as being an integral part of the sales effort." Is this still a valid assessment, or do you have any new, additional insights?

Ron Slee: This definition is still valid, but there are more specific goals for a product support initiative. The main ones are to reduce operating costs for owners, protect the residual value of equipment, provide a safe and clean working environment for employees, and provide an adequate return on the product support investment.

PFW: Can you comment on the importance of selling product support, and the offering of value through effective after-sale product support?

RS: The word 'value' is a code for increased prices, so be careful how you couch that term. We're after the proper operation of equipment. We need to have the proper equipment and parts availability and services performed by an authorized dealer-if not, the equipment will not function properly as designed. The support when trouble arises is what customers lose if they go elsewhere. Remember that there is nothing that can't be made cheaper by somebody else. For instance, maintenance is not just changing filters and dropping fluids, there is much more to it than that-it's not the same as a car or truck, which are bulletproof and operate in a finite environment. We have to have trained PSSRs (Product Support Sales Representatives) so that we can assist the customer in getting the most out of the machine. Don't forget, the authorized equipment dealer is the only one who has the responsibility to support the whole machine, and a lack of continuity hurts the dealership.

PFW: What are your recommendations on how to prepare and present product support for sale in the best way possible?

RS: The analogy here is with a car, and therefore we should sell both an extended warranty and a maintenance contract. There is a certain peace of mind that comes with these. Lee Iacocca's 5-year or 50,000 mile extended warranty impacted the car business greatly in that the dealerships then recouped more of the labor hours, and the life of an automobile was extended.

Note: In 1963 Chrysler offered the industry's first 5-year or 50,000 mile warranty on drivetrain components, and under Iacocca, an industry-first, 5-year or 50,000 mile corrosion warranty.

PFW: How can dealerships identify if their product support effort is not as successful as it could be? Are there accurate "acid tests?"

RS: Yes. Calculate the potential for parts and labor by comparing the potential versus the actual purchase volume. It sounds perverse when you say to a customer that they can save money by always buying from me, and possibly even at a higher price. And not just the PSSR, but everyone who deals with customers should know about them through proper market segmentation and customer profile information.

PFW: What are the biggest challenges dealerships are currently facing in terms of realizing their product support potential?

RS: One is recruiting, attracting, training and retaining the best employees possible, not just the parts and service counter, but in all aspects of product support from management through mechanics and warehouse employees-everyone! Another is system support, which is a series of delivery systems we give to the customer. Examples are scanning and voice recognition systems, touch screens, in-store displays, and self-service islands. We need to train customers on these delivery systems. And, like banking, we will need to take a "fee for service" stance.

PFW: What information does a dealership's management system database need to provide in order to support a product support initiative?

RS: The database needs to give us purchasing patterns and history, meaningful customer retention statistics, a customer profile that is pertinent, machine population data, and information on who the customer is buying from. You need to be able to see things like buying habits by week, month, and quarter so you can determine if there is change in a customer's buying habits. Equipment make, model, attachments and special-modification information is essential, and the customer profile should give you name and address, as well as the customer's preference regarding the use of purchase orders, and demographic and psychographic information, so the personality of the customer can be determined. If a customer has stopped buying, we need to know when they stopped.

PFW: You talk about segmenting customers by similar characteristics in order to effect good "territory management" and help with market penetration. You also mention the importance of managing customer relationships in order to retain customers, as well as retaining a goal of creating and maintaining customer loyalty through solid customer service fundamentals. Are all of these examples of where a dealership management system can be instrumental in product support, assuming the appropriate functionalities exist?

RS: Definitely. If you need proof, see the Harvard Business Review stats regarding retention rates.

Note: In a 1990 study conducted by Frederick F. Reichheld and W. Earl Sasser, it was found that with a reduction of just 5% in customer defections in the industrial distribution business sector, the increase in customer value was 45%.

Once you see your customer defection rate and the impact that it has on your business, you will want to take some form of positive action to retain all of your customers all of the time. (In the same study by Reichheld and Sasser they suggest that "companies can boost profits by up to 95% by retaining just 5% more of their customers"). The AED (Associated Equipment Distributors) stats show that the number of customers that generate 80% of your sales will be closer to 10% than 20%. This low number of high-sales-generating customers is due, in part, to the defection rate of your customers growing at a higher rate over the years than the rate at which you were generating new customers. The Japanese believe in the idea that your customers are lifelong. Conversely if you ask people in North America about customer service, the common answer is that it sucks.

Also, as John Naisbitt says, employees are critical, and therefore if they aren't trained, they won't contact customers regularly-and I'm not talking about just through mail.
Note: In his 1982 bestseller, MegaTrends, John Naisbitt observed, "Whenever new technology is introduced into society, there must be a counterbalancing human response-that is, high touch-or the technology is rejected."

PFW: From a product support perspective, can you comment on the importance of dealership management software functionalities such as work order management, service scheduling, service agreement management, traffic control, and equipment and service quoting?

RS: Work order management is critical, as we must be able to schedule labor on the floor. From one-half hour to eight hours are the work order scheduling limits, and we must maintain the schedule integrity. We must also know the technicians in order to effectively segment the labor and we must see the causes-not the symptoms-of problems. The technology should allow us-with a simple touch pen-to make comments on these causes. Service scheduling is ditto as for work order management, where the system should make it easy for us to maintain a service schedule, for example the start and stop dates. Service agreement management is critical, in that it's easy to sign a customer up for an agreement, but the hard part is that every condition and term of the agreement needs to be met. We can use a GPS (Global Positioning System) to maintain the hours on a machine, but the customer walks away due to lack of response. Only 2% of service maintenance is done by the Original Equipment Manufacturer (OEM) dealer. Regarding parts service, the parts people should not go home until every part the customers are looking for has been found. Also, shipping transportation methods are important and more complex now, and most dealerships have a tendency to overlook this. Equipment and service quoting is a prerequisite in the system, and should provide quote totals, not just prices for items. We need to be able to move easily from quote to order status, and if not, we need to be able to quickly get back to a customer to find out what happened. (See "Product Support: Towards 100% Absorption")

PFW: In your experience and dialogue with dealers, is there a tendency on their part to underutilize or overlook aspects of effective dealership management software, even if the system is already in place and is helping run the business?

RS: Yes. The best illustration is in parts inventory turnover.
Note: Parts inventory turnover is calculated by taking the sales for the last 12 months, at cost, and dividing that value by the average inventory on hand over the same 12-month period, while also factoring in back-order sales. The AED-surveyed average is approximately 2.5.

The pressure is not currently there in dealerships, but it should turn six or eight times. When I say this, dealers think I'm crazy. The systems and tools are there to attain these turnover rates, but they should be used by matching them to people and their skills. These systems assist with asset management, which is a critical thing.

PFW: What do you see as future product support "hot issues"?

RS: Electronic control units that are satellite driven and transmit to an LCD display (in addition to providing the location on the unit, now data regarding operational information can be gathered via sensors. Dealerships can now know where a machine is, how many hours are on the machine, and engine conditions like oil pressure and coolant temperatures, which affect product support). Also, dealers need to drive absorption not just by net income, but by curtailing administration and accounting costs, and through a better recognition of the parts and services departments' role. Better market coverage should be like a doctor's annual checkup, not triage in the emergency room. As well, attention must be paid to service profit channels, where employee and customer loyalties are related.

Note: According to the book The Loyalty Effect by Frederick F. Reichheld, there is a clear link between the level of employee satisfaction and the overall level of customer satisfaction, both of which affect profitability.