Integrating Service as a Competitive Weapon
in Heavy Duty Truck Parts and Equipment Distribution
By Bill Wade
For distributors, especially those in the fleet trailer leasing and construction / farming equipment areas, service is a vital source of revenue, customer satisfaction and competitive differentiation. Finally, heavy truck parts distributors are recognizing the value of becoming service-led organizations and are re-aligning their service operations with their overall business strategies.
HD distributor managers are looking to new customers for growth. Surprisingly, an increasing proportion of the general managers we’ve recently contacted view new customers as their most important source of revenue growth.
This is a very surprising and non-traditional direction, since driving new business traditionally falls behind growing with current customers and increasing penetration by the distributors.
According to research from The Loyalty Effect, repeat customers spend, on average, 67 percent more than new customers. It can cost 5–10 times more to acquire a new customer than retain an existing one; and 20 percent of customers account for 80 percent of total revenues.
1 to 5 percent of “elite” customers account for up to 40 percent or more of a company’s revenue mix. Yet very few companies even know who their top customers are, let alone treat them differently. (Contact the author about WayPoint Analytics to address this problem).
Placing equal importance on opening new accounts with generating revenue from the existing customer base could be a reflection of the current economic cycle. When customers are growing, it is easy to grow with them. When customers are struggling with business uncertainties and increasing costs of fuel, logistics and employee benefits, growth becomes difficult for everyone.
Getting the Whole Organization Involved
Increasing the role of service technicians in the sales process is a growth strategy that is gaining momentum. The importance of empowering service engineers with information to allow them to cross-sell and up-sell in the field is reaching a new peak.
Information technology... especially featuring mobile access... removes growth barriers by helping managers to monitor the supply chain more effectively and improve sales tracking capabilities in order to win new customers.
New Service Strategies
Aligning service initiatives with product distribution strategy is becoming core to heavy duty success. The top three strategies are:
- Increasing the proportion of service revenue in the service/product mix;
- Increasing preventive maintenance services
- Growing the sales role of service technicians
- Increasing fee-for-diagnostics
- Increasing revenue from preventive maintenance;
- Using information technology to help analyze the common needs of customers.
An often cited strategy for revenue growth can be summarized as, “Taking the services we have and selling them aggressively.”
Several distributors reported they are hoping to increase revenue from services they already offer rather than expanding new services or packaging them in customer dictated bundles. In this scenario, opening new accounts takes on a new urgency.
Adding new services as a price-fighting alternative should be carefully considered. Fleet supply differentiation can center on carefully designed service menu additions and alterations, with an analysis of levels of service being the key planning component:
- Bench Service... especially hydraulics, driveline, u-bolt bending, friction (clutch or brake) and other machine shop specialties.
- 40 / 80 / 120 Shop Hours…weekly schedule may be determined by available workforce as much as by customer preference.
- 24-7… Weekend Hours... great for overhead absorption, but may not be in demand in certain areas.
- Mobile / Tow-Recovery... mobile service is a domiciled fleet favorite, but tow/recovery may be better suited for a partnership with existing specialists.
- On-Vehicle Service... This is ‘big boy territory’, since getting in to this could easily be a $1 million/bay investment.
An important growth tactic here is increasing the role of service technicians in the sales process. Service technicians are the eyes and ears of the marketplace, yet increasing their sales role has become a lost opportunity for decades.
Involving service technicians in the ‘sales’ effort is a concept that is being implemented more frequently. Increasing their sales roles will sometimes feel like “squeezing a square peg into a round hole.” However, the most effective business-to-business sales people are usually the people who customers see as the most insightful and effective problem-solving partners.
Analysis of services used in the field and how they are ‘naturally packaged’ will help keep service technicians in a comfortable environment as they learn the skills required to both solve customer problems and grow sales revenues. Making the “paperwork” of sales easy and immediate for field-service technicians will pay off quickly.
Making GP Increases into ROI or EBITDA Increases
Growing profitability is a challenge requiring thorough understanding of distributor and customer costs in the supply chain... cost of equipment ownership, employee costs and others. Cost-cutting – or changing cost-to-income ratio – is also complex.
Costs that appear to be “low-hanging fruit” can be cut with ill effects. Solutions to harder to find problems – interoperable information systems, ruthless restriction of data and ineffective consolidation of processes – are more likely to have longer lasting effects.
We’ve found that in counseling distributors on cost-to-income ratio improvements, most think first of reducing costs. Revenue enhancing strategies, however, are the more immediately profitable part of this equation. The most effective ways to increase revenues must be well-targeted to bring the organization together in the selling effort.
Timely tracking of sales opportunities and precise understanding of an organization’s sales efforts will lead to more confident decisions and better business outcomes. It also provides a skeleton for appropriate cost and investment build-up.
Simply raising prices on parts and services can obviously have a negative impact on volume. Finding more work through bundling of services can be effective and lead to increased sales of seldom-used services... if customers sense a new efficiency.
Technology that helps segment customers is helpful in knowing where bundled services might be well received. Effective packaging requires knowing which services “lead” customers’ decision making process. To deliver optimized packages, the following questions must be answered:
- Necessity...which services will the customer refuse to live without?
- Consistency... which services have long sales cycles, but have proven to be valued by customers who benefited from them... How can we spread the word??
- Efficiency...which services are expensive to deliver when delivered alone, but delivery costs drop dramatically when bundled with other services?
Unfortunately, the sales logic here can remain hidden. Many distributors gather parts sales and service tie-in data for internal use but fail to report the information to customers or act upon it themselves.
Effective sales tracking will be especially useful to organizations that believe it is important to increase the sales role of their service technicians.
Service skills and sales skills are often not aligned. An organization that tracks sales opportunities and supports people in closing will be more likely to help technicians adapt to this new role.
Integration of sales processes with an organization’s back office is key to increasing the volume of business an organization can handle. It will also position sales or customer service professionals to respond to customers much more quickly and accurately, helping companies overcome barriers their competitors will find difficult to get past.
Measuring Success for Service Customers
In a recent survey of fleet maintenance execs, respondents were asked whether they gathered information on six characteristics of their operations:
• Uptime and equipment availability;
• Cost of down time (including cost of drivers, etc.);
• Time for service provider to ‘respond’;
• Customer satisfaction with solution.
• Mean time between failures;
• Mean time to repair;
Approximately half of survey respondents said they measure only customer satisfaction with the quality of a solution. The most commonly measured activities are the time it takes to respond to a need and overall equipment uptime and availability.
A vast majority said they do not gather data on the mean time to repair (MTTR) nor on mean time to failure (MTBF). While these two ‘mean-time’ measurements are far more popular with static mounted industrial plant equipment, the stats and science behind this maintenance technique have been thoroughly proven. Distributors introducing these concepts to customers will certainly move to the head of the ‘trusted supplier’ line.
Companies that do not measure these things do not know them. Fleets that do not know these things cannot talk specifically with their distributors or other service providers about the effect that repairs have had on their cash flows and revenues. Truck operators that do know these things can. It is that simple.
One of the most frequently missed opportunities to generate loyalty among customers is to report service and satisfaction metrics back to them. Many organizations fear sharing their report cards because they are not living up to what they think are the fleets’ standards.
Customers are people first... and many value dialogue more than the achievement of certain standards. It is ultimately the dialogue between a provider and a customer that grows profits and revenues. Sharing report cards makes that dialogue more open and meaningful and draws the supplier and the customer into a partnership.
Best-in-class distribution and service providers realize the value of integrating their service engineers with their traditional sales and back office functionality. They are empowering their service personnel with up-to-the-minute information that allows them to successfully cross-sell and up-sell in the field.
Rush Enterprises (the most successful franchised truck dealer in the world) recently revealed a major part of their industry-pacing growth. Their October, 2012 report said that aftermarket services accounted for more than 65 percent of the company’s total gross profits for the third quarter of 2012.
Third quarter parts, service and body shop revenues increased by 15 percent compared to previous year. This resulted in another record aftermarket revenue quarter despite fewer working days during the period. Third quarter absorption ratio was 113%
Rusty Rush, CEO was pretty clear about the success of their integrated parts and service strategy. “We remain committed to expanding our service solutions, to meet the evolving needs our customers, whatever they may be.”
Apparently this is no longer deep strategic thinking... it is more like common sense.