A huge percentage of your parts and service business is probably generated by a miniscule percentage of customers, customers you can’t afford to lose.
For the past 15 or so years, we, as consumers, have been courted with various types of customer satisfaction programs. From year end-rebates and buy more get more back deals, like the “Discover” card, to other credit card programs where purchases accrue miles toward air travel or credits towards car purchases, we have been inundated with many options designed to keep us coming back.
All of these programs have been aimed at influencing customer decisions for using particular service or product. Unfortunately, we can cite very few illustrations of these types of programs in the equipment industry.
As we examine our customers buying habits closely, we will find that our belief that 20% of our customers purchase 80% of our parts or services is not exactly true. In equipment dealerships where I have performed this type of measure, it has been remarkable to discover that some 5% of the customers purchase 95% of the parts or services. What is your ratio? I strongly recommend that you take some time and calculate this ratio for the parts and service departments.
For instance in the parts department run a descending purchases report and go down the list of customers until you have reached 500. What percentage of your parts sales is covered by these top 500? Go back up the list until you hit 95% of the purchases – what percentage of the customers is that? Keep going until you get to 90% of the purchases – again how many customers is that? Then do 85%, then 80%.
What you will see is that a relatively small number of your parts customers give you a very large proportion of your business. This list of customers will number in the hundreds. The same will be true for the service department.
Benefits Of A Loyalty Program
How can we protect ourselves from the defection of these extremely important customers? Well, one of the ways would be through the introduction of a “loyalty program.” Loyalty programs, which were started at American Airlines by popular consensus, are aimed at performing two distinctly different things with your most important customers: defensive and offensive strategies.
Defensive Strategy. How can we make sure that these customers, our top 5%, continue to be our best customers? Do we have confidence that our systems, procedures and employees put the best the company has to offer in front of these customers each time we communicate with them?
Answering the phone promptly with a smile in your voice, having quick and accurate parts and pricing information available, finding backorders quickly and shipping parts efficiently are all necessary core activities in the dealership. Will this alone continue to be enough to protect you from customers defecting?
Have you run “mystery shopper” calls to find out how your company performs? This is an extremely valuable exercise. There are many independent companies that perform this type of function for business. It is well worth the money to hire one to run a test on your business.
What else do we offer that causes customers to even think about taking their business elsewhere?
Offensive Strategy. The secondary goal of a loyalty program is to provide the customer with an incentive to purchase more now than they have in the past. Once a customer has tasted the rewards of a loyalty program they typically want to experience better benefits until they have achieved the maximum the dealer has to offer.
Many of our customers purchase parts from other vendors. Filters or fluids, hose and fittings are parts purchased from many other sources. Similarly, an OEM dealer rarely has a labor market share that is very strong. With a well designed loyalty program we could influence our customers to return to us as their preferred supplier.
A properly created loyalty program would reward customers for their purchasing activity. The more they purchase the more benefits would accrue to them, and also, the more they would lose if they chose to buy parts elsewhere.
But don’t be misled – it isn’t necessarily lower prices or discounts that they want. Most of your customers want hassle free service. Prompt, courteous, knowledgeable people who fill their needs at a fair price.
You must ask your customers, “What items would you attach a special value to, relative to your parts purchases?”
- Direct order entry access to your computer system?
- No charge for inbound emergency freight?
- Operator training classes?
- Better service warranties?
It will probably surprise you to learn what they value.
Now, let’s review.
Find out how vulnerable you are. Find out how many customers are required to cover 95% of your purchases. Ask them what they value as “recognition” for their loyalty and strong purchases.
Then if you, like me, find it would be beneficial to implement some type of loyalty program, search out different possibilities, and choose one that your customers would appreciate. It will reward you beyond belief.
by Ron Slee
About CED Magazine
Construction Equipment Distribution is published by Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada.
With CED, content is king. No fluff, no advertorials – CED just gives AED members what they want to read: business information, industry and association news, plus fresh, original and useful feature articles that they share with their management teams. Our subjects range from rental, product support, sales strategy and customer service to technology, construction markets and legislation – and much more.