Would you like to increase your market share?
If you are an equipment dealer, you are probably thinking that this has to be the most stupid question you have ever been asked. Hey, it’s an election year; the media is allowed to ask dumb questions. As an equipment dealer you are accustomed to being told (in sometimes impolite terms) that you had better figure out how to (quickly) increase your dealership’s market share.
Dealers in every industry are being pressured on a regular basis to improve their market share. It has become the nature of the beast. We became familiar with the term market share well over 50 years ago. Its usage has grown to the point where it has become the number one issue between manufacturers and equipment dealers today.
Who benefits from increased market share? Is it equipment dealers? If so, how do they benefit? Dealers are constantly being asked (or told) to reduce their equipment margins. Margins on equipment sales today in most industries have dropped to the low single digits, with no end in sight. If a dealer’s market share drops, then he is given a warning and a time limit for reaching the manufacturers’ arbitrary goal. In some cases, the dealer is given an option: To be either a buyer or seller of the manufacturer’s line of products. If a dealer chooses to become a seller, he will be told to whom he can sell his dealership.
Does the supplier/manufacturer benefit from increased market share? This question is impossible to answer, as the availability of hard number is very limited. I’ve been told it makes stockholders very happy. In many instances, corporate officers and management personnel received bonuses based upon market share. That is one of the reasons market share pressure builds at the end of the manufacturer’s fiscal year.
Herb Kelleher, who successfully started and grew Southwest Airlines, made this comment: “Market share has nothing to do with profitability. Market share says we just want to be big and we don’t care whether we make money doing it!”
On November 29, 2011, American Airlines, one of our country’s largest airlines, filed Chapter 11 bankruptcy. I have a soft spot in my heart for American Airlines. My first airplane flight was with American in August of 1948, on a DC-3 out of Mexico City. It was my beginning of a long relationship with the airlines. Unfortunately I had the opportunity of seeing many, many airlines over my years suffer the same fate as American. I am only glad to see, however that the name American Airlines still flies the skies.
The ultimate goal of not only American but of so many other airlines was to be the leader in market share, even if that goal meant the destruction of their profit margins.
Did all these failures have anything to do with a sagging economy, high fuel prices or unemployment? This is quite likely, but in many experts’ opinions it goes deeper than that. It stems from an overall attitude of indifference from the top down in corporate offices. As reported by numerous news agencies, this indifference results in deteriorating and then destroying customer satisfaction.
Let’s carry this over to the equipment industry. The dealer’s basic function as a customer (a definition we’ve always disputed) of the manufacturer and/or supplier is to both sell and service the products produced by the manufacturer/supplier. These two functions, plus the handling of used equipment, are functions the manufacturer/supplier cannot perform.
Equipment manufactured today is extremely sophisticated and becoming more and more complicated and difficult to service. One thing that has never changed in the market place is the customer’s concern about service after the sale. Customers cannot afford any unscheduled down time. They want to know that after the sale there will be someone there to take care of their service needs and requirements. They continue to want high parts availability and quick service response time.
As mentioned in so many of our articles, most equipment dealers have a low service contribution to sales percentage. In all too many cases, this contribution is below 10 percent, and 10% is mediocre at best. As we mentioned in so many of our articles over the years, it is the dealer’s service department that carries the dealership’s highest margins.
This is why we constantly point out to dealers that if they are going to continue to reduce their margins on high priced equipment, they had better develop a solid marketing plan for selling customers the dealership’s services after the sale. If this does not happen, even the 5-6 percent service contribution will begin to erode as customers: 1) try to do the work themselves, 2) seek out independent shops, 3) give the shade tree technicians an opportunity, or 4) seek out those fleet management companies that are beginning to develop throughout the country. Dealers can ill afford to lose even that meager five percent service contribution. If they lose that, their cash flow will begin to dry up while their absorption rate will drop dramatically.
Most dealers will tell you the one problem or hesitation in increasing service contribution is their inability to find qualified technicians. This is a topic we talked and wrote about more than 25 years ago. The pool of technicians is drying up and the aging workforce is removing many of those in that labor pool. Training technicians is yet another expensive and long-term process. The new tools and computers for working on new and sophisticated equipment is also an enormous expense. It’s a vicious cycle. If the desire for market share continually drains the profitability of selling equipment, how do dealers afford an experienced, quality crew in their service shop with the necessary tools for working on the new equipment? These problems are becoming more and more profound each year, with little light at the end of the tunnel.
You can also add to this scenario the fact for manufacturers all warranty problems start in the field and not on the production line in their plants. This is yet another drain on the equipment dealers’ cash flow.
So what is the answer? Maybe, just maybe, manufacturers/suppliers need to give dealers a bit of leeway on market share. Maybe they should look at helping equipment dealers develop strong customer satisfaction with all the services they have to offer their customers. Customer satisfaction builds something equipment dealers have not had in a long time – customer loyalty. Product lines are basically the same, and there the buying issue becomes little more than price. Customer loyalty brings the customer back the second, third, fourth and even the fifth time to purchase equipment from the dealership. Most equipment dealers have not had this earned luxury in years and it is customer loyalty that drives customer retention.
According to statistics from customer polls, customer retention means that the customer is more than willing to pay a bit more for the product, if the selling dealer markets and provides the after service they expect.
As the customer returns more and more often to the dealership to purchase equipment and service, the dealer’s financial strength increases and sales improve dramatically, satisfying both the dealer and the manufacturer/supplier with increased market share. This is what we describe as the equipment dealer’s self-feeding-product spiral.
Those equipment dealers who have achieved world-class service status have recognized that customer service is not a department. It is everyone from top to bottom within the dealership working together to create a culture that defines true customer satisfaction. Maybe it is time for manufacturers/suppliers to become involved once again in increasing their dealers’ customer satisfaction indexes.
We have been associated with an equipment dealer who has practiced these basics for more than 50 years and has been extremely successful in achieving both the areas of profitability and highly acceptable market share, with, by the way, an excellent absorption rate. This dealer has for years successfully marketed the dealership’s service to his customers: before the sale of the equipment, during the sale of the equipment and yes, after the sale of the equipment. Focus upon truly servicing the customer and you will be successful beyond your expectations. Next month’s article will cover the topic of Buyer’s Remorse.
John R. Walker is president of Aftermarket Services Consulting Co. Inc. E-mail [email protected] to contact John.
