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A new discussion on market share

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.
 

 

 

 

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Customer Retention

In the 1990’s, three professors, Sasser, Hesketh and Schlesinger from Harvard Business School wrote a book called “The Service Profit Chain.” It was for me the definitive book on customer retention.

They posited that in the Industrial Distribution world if you increased customer retention by 5% you would increase the profitability of the business by 45%. That is very impressive.

With that said everyone in America should be trying to increase customer retention. In fact the Japanese taught us that with their – Customers for Life philosophy. Carl Sewell the renowned “automotive dealer” in Dallas, TX wrote a famous book with a Yale co-author called Customers for Life which still holds a lot of sway in the customer service world, and rightfully so.

The trick is it isn’t that easy to increase customer retention. We should be using the traditional tools of an “exit” interview as we do with employees. Talk to customers who have defected from you and find out where they went and what they like about that supplier. That will tell you what you need to do. Don’t ask them what you did wrong they will never tell you. Ask them what they like about doing business with the new supplier and they will gladly tell you that.

One last hint – don’t start asking questions like this unless you intend to start changing things. Better not to raise expectations that you have no intention of meeting. The time is now.

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Market Share

If you had to choose between customer satisfaction and profitability, what would be your choice? I would take customer satisfaction as without satisfied customers the ability to make profit is going to have a short life.

 

How to measure customer satisfaction becomes the challenge. Some people define it as repeat business; others measure the change in sales from one period to another; still others use surveys. What is your choice? How satisfied are your customers? One of my favorite indicators of customer satisfaction is the market capture rate. How much of the parts and service business that is available do you in fact receive on the machines that you sell and service? What is your parts market capture rate? What is your service market capture rate? I will put parts at around 35% – 40% and service in the range of 15% – 25%, which by nearly any measure is not very good. The interesting thing about the parts and service business is that management has been held harmless as there is no precise authoritative measurement by which this is reported. It is an opinion. That means that we don’t have a high standard of market capture rate against which we are measuring the performance of the parts and service departments. That is about to change. With the advent of machine telematics some years ago we can now track the hours of each machine and start to evaluate parts and service consumption rates across machine models and applications. This will be a great advance as we will finally know on which machines we are losing the product support business and on which type of products and services. This will be a tremendous change and opportunity for everyone in the parts and service business. I look forward to his type of challenge, shouldn’t you? The time is now.

 

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Lead Times in Inventory Management

With JIT (Just in Time) supply chains we really have come to a point where customer service is in jeopardy. The problem is our cavalier approach to the lead time component of order points.

The lead time is the total elapsed time between when a part reaches the order point in the warehouse location and on the computer and when the warehouse location and the computer system have been updated with the receipt. This time is broken down into several component parts.

  1. Order Lag Time
  2. Order Review Time
  3. Placing the Order
  4. Supplier Processing Time
  5. Shipping and Transportation Time
  6. Physical Receiving Time
  7. Record Updating Time

Each of these elements has a discrete time consumed in their execution. Yet even with good information on each of these elements we still have a problem with the lead time.

We use ONLY one lead time for each vendor in our business systems. You might be saying to yourself “so what.” Well we can have parts that are regularly available and have a stock replenishment time that is consistently within a week. At the same time we will have parts that are in short supply, for whatever reason, and the replenishment time can be a month or two. With only one lead time per vendor we will either have too much of the readily available parts or too little of the parts that have supply irregularities. There is, however, a simple solution.

Calculate the lead time for each and every part not just for the vendor. This means that you will match the supply chain performance with your performance and can accommodate variations of delivery so that you can supply good availability to your customers. Think about it.

There have been substantial changes in inventory management software and tools yet we have lagged behind with this one simple item. Calculate the lead time for EACH part and not just for each vendor. You will be pleasantly surprised by the results. The time is now…

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Service Technicians

The complaints are still out there- “I can’t find any experienced equipment technicians.” Isn’t it obvious by now that anyone worth anything that has experience is going to be working already? If there is a technician available and they apply for work I am sure that you will give them a very thorough interview and background check.

We need to develop our own technicians. As obvious as that seems to be we continue to be in denial.

Hire willing young men and women (yes women) who have a mechanical aptitude and get them into a development program. Start as we did in the old days with one “help/trainee” for every two technicians. Set up a training program. Work with local technical schools and unions and customers who offer technical training. Establish a “career path” training program. It will take roughly three years to create a market ready technician.

There are wonderful programs at Oklahoma State University in Okmulgee for one which works with dealers and manufacturers to offer specific brand training programs. Caterpillar, John Deere, Toyota and Ditch Witch to name a few work with schools around the country on these programs. Check out your local area to find the schools that you can partner with in this area.

Caring about your employees, providing training and a safety aware work place will go a long way to retaining your employees. Some dealers, and extremely success dealers, have never had a layoff of technical employees. Imagine what that says to the employee.

The time to complain has long since passed – don’t you think we should start developing our own? The time is now…..

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Can we make a difference

The transition to team management while still encouraging curiosity is struggling as management doesn’t know how to encourage risk taking without contradicting the work of the team.

The story of the ages is that people will take risks when they have less to lose and be risk averse when they have a lot to lose. How to break through this paradigm will be a challenge.

To lower parts inventories while improving customer availability.

To guarantee completion dates on repairs while embracing employee satisfaction.

To retain customers while payment patterns change.

All of these challenges exist because we have been rather timid over the past years to tackle changes necessary in a meaningful manner. Now is the time.

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Here we are…

Welcome to our blog. We will be involved in discussions and debates on all subjects relating to the operational aspects of equipment dealers and distributors in the Capital Goods Industries. Parts, Service, Product Support Selling, Marketing and Customer Service will be our focus here. But we don’t want to limit your repsonses or thinking to those topics alone. We hope you enjoy and will learn without having to incur the scars on various parts of your body or mind.

Keep involved and participate as we communicate with you on a weekly basis. Thanks for your interest.

The time is now…