The New Reality

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To properly address the New Reality we have to look backwards. From the 1960’s to 1980 management felt pretty good about things. Sales revenues had increased, profits were up, life was good. We thoguht we must be the greatest generation of business managers ever. But it was all inflation.

When Paul Volcker and the Federal Reserve raised interest rates to kill inflation there was a serious adjustment. Businesses reinvented themselves. Operating metrics became all the rage and we developed business models for everything.

Well in a few years we felt pretty good again. With a couple of exceptions sales went up and profits went up and things were good again. But it was all leverage. With George W Bush at the helm we witnessed some of the most severe disruptions in our lifetimes. But we had to lick leverage and he and his Treasury Secretary Hank Paulson started to get it done.

In 1980 for every dollar of US GDP there was $3.70 of debt. By 2005 that debt had grown to $30.00 (The Trillion Dollar Meltdown). I shudder to think what it is today with our deficits and spending seemingly totally out of control. We are clearly in a new era when the Federal Reserve keeps printiing money and the currency continues to be debased. We have to reinvent our businesses again. We have to repair balance sheets and we have seen that happening. For everyone BUT the goverenments, all governments. Don’t forget I live in California and we make Greece look good.

We have seen encouraging signs in the equipment world. Equipment sales have been up dramatically – 30%+ to 40%+ for two years in a row. But we still have a big hill to climb to get back to the previous peak. This is not going to change for a long, long time – that is the new reality. You will survive and perhaps thrive IF your focus is on Parts and Service and for some of you Rentals. If you don’t have that focus….there is a significant risk to you. The time is now.

Huggers or Hunters – that is the question

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So we have identified the High Potential Customers. We know who they are and where they are and what they buy and what they own. Now we can assign them for market coverage. That means we have to select the number of customers that is appropriate for one person to handle from a geographical and number of machines perspective. This becomes somewhat of an art form rather than pure science. I don’t like to have more than one hundred and fifty customers in one territory and depending on the split of machine types no more than 450 machines.

You have 3000 High Potential Customers which would provide for 20 territories. What kind of sales people are required for these customers? Well now it comes down to what they buy and what they don’t buy.  If you have a high market share of the customer’s business then you want someone to protect your business – a hugger. If you have a low market share then you want someone to grow your business – a hunter. With either individual you need to go about setting objectives for all the commodities and services you provide. You have to get a better understanding of the competitive landscape. What does your customer/competitor neighborhood look like?

We are at the beginning of being able to take advantage of Product Support Selling now.  For those of you who already employ Product Support Sales Representatives – does you market coverage look like this? If this is different there is no time like the present to get going. Are you ready? The time is now.

Making Segments that Work

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Alright, you have run the reports, established the different levels of purchases, obtained accurate machine populations for the customers and have put this market segmentation code into the name and address record on your computer. Well now you have 64 market segments. I submit to you that this is too many segments to determine a strategy for each segment and have everyone understand. What next.

How about we take all of the Fleet (F) and Large (L) machine population segments that are also either A or B in either of Parts and Service purchases and make them one marketing segment? And let’s take the Medium (M) machine population and all of the C purchases for either of the Parts and Service and make them another marketing segment. Then we will have three segments. What I will call High Potential, Medium Potential and Low Potential.

The High Potential segment customers are the ones that should have a product support sales representatives call of them. The Medium Potential segment customers should be “touched” but perhaps you don’t have the budget to assign a product support representative. What are you to do? Assign and Instore Sales Representative and touch them on the telephone.

Did you know that in America Corporations fail at implementing their strategy 90% of the time? Typically that is because their employees don’t understand the strategy. In order to be able to lead people to conduct themselves in a manner that will allow successful implementation of strategy they have to first of all understand the strategy. Second they have to accept that the strategy is a good one. Finally then they can commit to making it happen.

  • Understanding
  • Acceptance
  • Commitment

We are at the portal of our market coverage strategy. Are you ready? The time is now.

The Beginning of Marketing

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The starting point for market segmentation is the information necessary to determine the potential of each client in the market place to be covered. To determine that in the equipment world we have to obtain a complete and accurate working machine population. This is the usual starting point for any good marketing information in the equipment world. To expand on that we truly have to state that if you don’t have an accurate and complete working machine population you really don’t know your business.

The machine population information required is the make, model, serial number, configuration, year built, annual hours of work, and current hour meter reading. From this information we can make a determination of the market potential for parts and service.

The machine population is normally split up into four categories.

  • Small                       1 – 3 machines
  • Medium                  4 – 12 machines
  • Large                     13 – 24 machines
  • Fleet                      25 + machines

In many cases these categories codes can be split into the same identifiers based on the total machines for all brands owned by the customer as well as the number of machines of the dealer supported brands – this might become an important distinction in some dealerships.

The next levels to consider in market coverage are the relationships that exist between the dealership and the customer. This we can determine by the level of purchases that the customer makes at the dealership for parts and service.

These purchase levels are the old fashioned A, B, C, and D.

  • A             the top 10% of purchases
  • B             the next 15% of purchases
  • C             the next 25% of purchases
  • D             the bottom 50% of purchases

These levels are obtained by providing a descending purchases report for parts and another for service. From these reports you can apply the A, B, C, D categorization to each customer – one for the parts purchases and the other for service purchases. This is the beginning of marketing. This is the starting point for market coverage. Are you ready? The time is now.

Maintenance

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Over the years more and more people have realized that maintenance on a piece of capital equipment is one of the more critical activities to conduct to reduce the owning and operating costs of that piece of equipment. This is true for your vehicle or washing machine just as much as for your machine.

There was a sudden recognition some time ago that the “customer” didn’t really appreciate how important maintenance was in extending the useful life of that machine. They felt, in many cases, that maintenance was simply dropping fluids and changing filters. As most of you know it is far more than that. Along with this recognition the various suppliers started to make it easy for the customer to maintain their machinery. They sold maintenance agreements and extended warranties offering the customer piece of mind and a reasonable price. But there still remained one serious stumbling block – Service Management.

Yes, in many cases, the Service Managers are in the way. You see they are very busy people. They don’t have enough people in their organization to support the current service workload. This service organization is a subject of one of our webinars next week. Check at www.rjslee.com under the learning tab for more information.

I am struck by the fact that everyone knows how to run a parts department or a service department except of course the people that actually do run the parts departments and service departments. This is one of the major challenges facing management in equipment dealers. How do we get professional management into parts and service when we don’t have sufficient respect for the work that is being done in these departments?

A new discussion on market share

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Al Wiley, an executive of Xpectmor, sent us a comment on our recent Market Share post. He says that “market share is the definitive measure of customer satisfaction.” Of course he is right. The measure of market share, however,  is what causes the dilemma for many of us.

In the equipment market it is reasonably easy to define market share. There are a finite number of transactions and everyone knows what everyone got. For instance, we have five different suppliers in the market with sales last month. Supplier #1 got 4 sales, supplier #2 got 1 sale, supplier #3got 2 sales, supplier #4 got 2 sales and supplier #5 got 1 sale. The market share is a simple matter of arithmetic. Supplier #1 got 40% market share and so on.

With the parts and service business it gets more complicated. The various suppliers into the market don’t know what the other suppliers sold during any particular period. So how can we possibly calculate the market share of any particular supplier? That is why there has not been any real definitive publication for market share.

When I first started in the Industry in the late 1960’s some suppliers used to conduct a personal survey with each and every one of their customers worldwide. Can you imagine the time and cost for such a survey? Well they did them and they published the results within their distribution network. It was not precisely accurate but it was a very good indicator of where you stood as a dealer in parts and service market share.

As more and more machines get GPS equipped and the dealers/distributors, manufacturers and customers become more adept at understanding telematics and their use we have a terrific opportunity. We can calculate what the consumption of parts and service “should” be on a machine.

This is the first problem. The customer doesn’t always follow the recommendations of the manufacturer of the machine for the maintenance intervals nor the maintenance items to be dealt with for a particular service. Similarly when it is obvious that a repair should be made with a “new component” sometimes a repair that I call “bubble gum and band aids” will be performed. You might be wondering why this is important. Well it is due to the fact that all we can do is calculate the “potential” consumption of parts and service for a particular machine in a specific application running a specific number of hours. It is this potential that we have to use to calculate our “market capture” rate. See now we change the word. It is no longer market share it is market capture.

The dealer captures the potential business based on their actual sales of parts and service. Once we have these facts nad have them for a sufficient period of time we can make a clear statement about capture rates are the success and/or failure of the particular strategy that a dealer is following. The time is now.