Anatomy of a Sale

Ten years ago warranty work accounted for as much as 70 percent of an auto dealership’s service load, but that number will drop to about 30 percent nationwide by the year 2000. Now, dealership service departments must proactively target service retention and loyalty among new car buyers. That’s where Reynolds & Reynolds comes in.

Bob Sherman, a Minneapolis-area sales associate with the company’s Automotive Products Group, explains: “Reynolds helps dealerships become more effective at retaining new car buyers as service customers and building loyalty among those customers so they keep coming back. We help dealers better understand their customer base, determine who their most profitable prospects are and then target them with focused incentives to get customers back into the dealerships for service. We help car dealers focus their efforts to develop the most profitable and productive marketing program possible.”

The Opportunity
Sherman met with new parts and service director Carol Bemis and service manager Brad Greenberg at Ben Frothingham’s American Ford dealership.

They talked about a new initiative from Ford called Quality Care Maintenance (QCM), how the dealership planned to comply with Ford’s mandates for service reminder mailings and telephone calls and how they came to select a Reynolds competitor to run the service reminder program. “It was one of those calls where you just establish contact,” says Sherman.

The next call was more promising. “That day we talked some more about how QCM was going,” Sherman recalls, “and they made some negative comments about the service they were getting, so I inquired more closely into the situation and mentioned that my boss, Tim O’Neill, who has a strong background in service reminders and knows the program, was coming into town from his office in Chicago. Two days later Carol called to say she was eager to talk with him, and I knew the prospect was hot.”

At the close of the third meeting with Sherman and O’Neill, Bemis agreed to let Sherman run two reports: Benchmark Retention, which tracks all the new cars sold at the dealership and determines by Vehicle Identification Number (VIN) what percentage the dealership continues to service; and the Database Analysis, which breaks down service customers into inactive and active groups and determines where those customers are coming from by area code and zip code.

Speaking before the closing call at the dealership, Tim O’Neill explained that in addition to closing on the customer marketing services business (service reminders) he, Bob and Chuck Wiltgen, the Reynolds marketing specialist, would also discuss other Reynolds products and services, a typical process strategy at Reynolds.

Pre-Call Planning
Before the call, Sherman, O’Neill and Wiltgen discussed details of the opportunity, roles each would play during the call and any possible concerns they anticipated from Bemis and Greenberg.

“During the pre-call planning we went over what we hoped to accomplish in the meeting,” Sherman explains, “and the set of expectations we developed based on the last meeting, and the information we received from the benchmark retention report and database analysis. We also decided that I would go over the reports with the customer; Chuck, as the implementation guy, would support the data; and Tim would be there for backup. But we’ve all been working together with this line for so long that we understand how to present the information and what to bring up, and we have developed a good sense of timing.”

Sherman and O’Neill jokingly mentioned an upper-level Reynolds management request that they work a certain industry buzzword into the conversation: “Be sure to make a note of it whenever we talk about ‘data hygiene,'” O’Neill requested. “to make our VP of sales Mike Wines happy.”

The Sales Call
Stage 1: Report Sherman opened the meeting by recapping the set of mutual expectations and handing out copies of the results of the Benchmark Retention report, which showed that of 1,549 new vehicles sold from June 1997 to May 1998, 519 had returned for cash service, representing a 33 percent retention rate. He explained that 19 percent had come in only once, 8 percent twice and 6 percent three times or more.

Bemis asked if the services could be sorted by the type of labor performed. Sherman clarified that if a service was labeled “cash” in the American Ford database, then the Reynolds report merely reflected that designation, warrantee or otherwise. O’Neill asked why that was of interest to her.

Bemis said that while such customers as those with rental cars, fleet deals or prepaid corporate maintenance packages, appear in the database as cash customers, they aren’t necessarily paying for the services. This difference, she said, would be important in understanding the report’s data.

Returning to the report, Sherman noted that the 519 vehicles serviced during the year averaged $103 worth of work each. Of the 1,549 vehicles the dealership sold that year, 1,030 had never returned for service, he said. If they all had, and if they also averaged the same $103 worth of work, then the dealership would have earned an additional $106,000. This figure he called the “lost opportunity” for that year’s new cars sold.

Moving to the next line on the report, Sherman went over the same data for the previous year, showing a lost opportunity of $144,000. Cutting to the report’s bottom line, Sherman explained that if American Ford had done business with every one of its new car customers from the past five years, the service department would have brought in an additional $1.3 million.

O’Neill then confirmed with the customers that the figures made sense. Verifying that they did, Greenberg commented that the report raised as many questions as it answered. O’Neill responded that Reynolds generally recommends running such a report every 90 days or so. “As a diagnostic tool,” Greenberg added. “Exactly,” O’Neill agreed.

Stage 2: analysis Next Sherman shared the database information with Bemis and Greenberg: Of the 17,642 VINs in the American Ford system, 5,305 were considered active, meaning they had been in for service in the previous six months, and 12,337 inactive. The report also showed where those customers had come from, broken down into area codes and the top nine nearby zip codes. Sherman explained that this was just one of the diagnostic tools American Ford could use to target very specific customer segments with the type of service reminders, coupon-based mailers and follow-up phone calls they had discussed during the previous sales call.

Looking over the list of “actives,” Bemis raised a concern about integrating the database reports from her current supplier with the Reynolds reports. Specifically, she was concerned that customers in the database who had been identified as unprofitable might be lost in the transition and would therefore have to be reidentified, a time-consuming proposition.

“When I look over the names in our database,” Greenberg explained, “I look not only at frequency of visits but also what the visit’s for. We’ve put a lot of effort into our database, and I’d like to keep what we have.”

After Sherman addressed this concern, Bemis and Greenberg shared other challenges with their existing program. “If we sell a vehicle to Joe Blow Plumbing,” Bemis said, “and he’s purchased from us in the past, he’s in the database more than once. Will this happen with you?””Yes,” Wiltgen replied, “because we track the information by VIN. So there are repeats.”

Greenberg also expressed a concern about lists he receives from the current vendor, which he has to go through and cross off by hand the names of customers he doesn’t want receiving service reminders. How would the process be different with Reynolds, he wanted to know.

“Essentially,” Wiltgen answered, “you’re doing it the same way. The difference is that I make an appearance here every month and hand deliver the list to you. That list will reflect everyone who received a letter. And before I come you can preprint a list of your own with asterisks identifying less profitable customers, and we can go over it together. That way you and I address those concerns before we start mailing out service reminders.”

Bemis and Greenberg asked some additional questions that highlighted their unhappiness with their existing database marketing program. Bemis said, “We just haven’t been getting a bang for the buck with the reminders we’ve had. We’ve been spending money on people we don’t want to spend money on.”

This comment led to further discussions after which O’Neill offered a tentative trial close.

“We’ve addressed the database analysis,” he said, “we’ve looked at the retention analysis. Based on what we’ve talked about today and what we covered last time, we know we need the service reminders. Is that a correct assessment?”

“Yes,” Bemis responded.

The conversation shifted to the specifics of the service reminder program. In response to specific questions from Greenberg, the Reynolds sales team explained that (1) with more than 100 different coupons, mailers could be easily customized to suit changing needs; (2) mailings to customers could be sorted by area code, American Ford service advisor or zip code; (3) the American Ford logo could be placed on the new mailers; and (4) copies of all the coupons available for use could be made available for Bemis and Greenberg to review.

“My concern is that I want to keep it fresh,” Greenberg explained. “Even if I want to start with a particular air conditioning coupon in there, for example, I may want to make changes to that as well.”

“Just so you know,” O’Neill answered, “for these types of things you will have an account rep who is solely responsible for that, and that’s all their focus is. If we see things that are working in other areas, or we get ideas for improvement – maybe at other dealerships – we’re eager to share those things with you.”

Stage 3: program Greenberg brought up the Preferred Customer Card program, something they had discussed on a previous call. Although interested, Greenberg expressed a concern about implementing such a program to an entire database of customers: “The hard part is who and how we target.”

“QCM says you’ve got to set the appointment,” O’Neill acknowledged. “Beyond that you’re looking for something to give you a competitive advantage. Instead of looking at the whole universe right now, if we just take baby steps and look at only the new car delivery process, it will complement what you’re doing and what QCM is doing.”

“In other dealerships that have the preferred customer card,” Sherman added, “they generally have the service advisors ask the customers up front, ‘Do you have your preferred customer card?’ Then, when the customer says ‘Yeah, I have it,’ the advisor knows the customer is in the database. The biggest thing we’re doing is to ‘data hygiene’ everything. We want to help you cleanse your database so that your service reminder program is really hitting the mark.”

Stage 4: returns To broach the next topic – Reynolds’ Direct Drive program – Sherman simply asked Greenberg and Bemis, “Do you think you need to communicate differently to your inactive customers than to your actives?” Receiving the expected “yes” answer, he continued.

“So do we,” Sherman said. “We believe you need a reliable method to tell your active customers, ‘We want to help you take good care of your car. We know your mileage, and this is what you need to have done.’ Inactive customers, on the other hand, haven’t been in for so long that we don’t know what they need. That’s why we break them down by vehicle and send mailers with coupons targeting that model year.”

“Traditionally dealers send the same mailers out to ’94 owners as to ’98 owners,” he said. “Now that’s better than doing nothing, but we’ve taken it 10 steps further. With this program you send less mail but it’s more targeted. And we’ve found that once you give customers such targeted good treatment the retention rates jump dramatically.”

The Reynolds team also wanted to drive home the point that unlike many marketing efforts, their programs could deliver a verifiable return on investment. Sherman showed Bemis and Greenberg a report from another customer who had gone with the Direct Drive program. In one month the dealer had sent out 218 pieces of mail to owners of ’95s, ’96s and ’97s that the database showed were inactive, with 34 responding, for a rate of 15.6 percent. For the second customer segment, owners of ’93s and ’94s, 347 mailers went out resulting in 31 scheduled appointments. Overall, he explained, Reynolds sent out 1,078 pieces of mail for the dealer, which resulted in an 8.9 percent response rate. In terms of return on investment, the dealership spent $733.49, which produced $22,000 worth of business, for a greater than $30 return on each $1 spent.

The conversation soon rolled around to price. After Sherman went over the monthly fees for the Direct Drive program and the costs per mailer and phone call for service reminders, Greenberg and Bemis discussed their budgetary constraints and compared the Reynolds costs to what they were currently spending. They found that for the lackluster results they were getting from the current vendor’s service reminders they were spending roughly the same as Reynolds was proposing to charge.

With the dollar costs on the table, Sherman shifted the focus of attention back to returns. Using the dealership’s own figures for labor and parts costs, numbers of inactive customers and average cost of a service visit, he calculated that with a modest response rate of 5 percent the dealership would gain a whopping $30,750 of additional business in a single month from the Direct Drive program.

Stage 5: close Looking over the figures, Greenberg began showing genuine enthusiasm for the possibilities the Reynolds team had laid out. “I like this,” he said, indicating the sheet with Sherman’s calculations. “It’s clear and simple, and it just shows how much business we’ve been missing because we don’t have the time to go after it. And the preferred customer idea is a really important piece of the puzzle. If we can establish a habit in the first two years of ownership, and if we do everything else right, then we’ll probably hold on to that customer for a long time.”

Shifting gears, O’Neill began closing the opportunity. “Let me ask you this,” he said, “just so I can understand. What we’ve presented here so far is a full package. You’re covering all angles of your customer base – the actives, the inactives, the new customers. Does this make sense to you for your business?”

“Yes,” Bemis replied.

As expected Bemis and Greenberg agreed to move forward with the service reminder program for their entire database of active customers. Additionally, they opted to go with the Direct Drive program, targeting the dealership’s inactive customers. This was more progress with the account than the Reynolds team had anticipated. The meeting closed with Wiltgen and Greenberg hammering out the agreement’s fine print while O’Neill, Sherman and Bemis set up a timetable for the next step in the process.

Post-Call Perspectives from the sales team
“All our expectations were met or exceeded,” Sherman said. “I’m absolutely delighted.”

Asked if they were surprised by anything that happened during the call, Sherman responded, “I didn’t expect Brad to ask so many questions,” he explained, “but I’m glad we could clarify any concerns he might have had.”

Sherman and O’Neill praised the ultimate decision maker, service manager Carol Bemis, for being forthright and a straight shooter.O’Neill did note that the Reynolds sales team was confronted with a number of questions during the call that they could not handle easily at such an early stage in the relationship. But this was a good thing, he added, “We need to look more closely at their operations and get a better understanding of what they want to do, rather than simply saying yes or no to their questions.”

Sherman explained that American Ford may well prove a bellwether for sales opportunities with other dealers across the country. “The first problem that Carol shared with me,” he says, “was that they were having to manage a lot of information and spending a lot of time updating their own reports. But that’s exactly what they were paying our competitor to do. After investigating their systems, we realized that the problem isn’t just that their current supplier has dropped the ball – it’s that the product is faulty and their internal processes are breaking down in the face of QCM. Before this call we knew that this competitor was facing problems, but we didn’t know the specifics. But now that we know the details, we’re approaching a lot of other dealers who are using the same service reminder program, and we’re hearing the same story from the customer Asked why she had agreed to meet with the Reynolds representatives in the first place, Carol Bemis detailed problems she had experienced with the current supplier.

Pleased with Bob Sherman’s professionalism, interest in understanding her concerns and ability to listen, Bemis says, “There were times when I voiced concerns about our current system that he couldn’t answer. So he said he would call in his boss from Chicago to see me. To me that was very comforting because I knew all my questions would be answered. He sent a resounding message saying, ‘We will figure this out.'”

As to her own buying style, Bemis says, “I make decisions based on the type of relationship that’s been established. It’s not price or product, because I can get the same product elsewhere and maybe for less, but that doesn’t include the trust factor, and that counts for a lot.”

Commenting specifically on the June 12 sales call, Bemis described the meeting as very productive. “A lot of people take a cookie cutter approach to marketing plans,” she said. “You have to fit into the program they bring to the table. I didn’t feel that way with the Reynolds solutions. Their plan will let me grow into what we hope to accomplish, rather than having to squeeze into something prefabricated.

“I also didn’t feel pressured or that what I end up going with will be the same as the guy down the street – they went to some effort to help us customize. I didn’t feel they were selling something just for the sake of selling something. I left the meeting with confidence that no matter what we ended up with it would be the best decision made with the most accurate information.”