Somehow we lost product support business – because it went to our own customers. Let’s get our pricing act together and make the most of this new reality.

Looking back at 2010 is both rewarding and disappointing for many of us. But the parts and service market seems to be stabilizing, albeit at different levels than in the pre-2007 era. There are interesting developments upon which we need to act.

The equipment in use is getting older. The result of lower equipment sales over the past three years is more machines requiring repairs that are out of warranty than would be the normal case in a normal market. This is both a good news and bad news situation, isn’t it? In the warranty period the dealership gets all the work, while outside warranty we have to compete more for the labor business. This puts into the spotlight the labor rates that we charge.

During each of the past two AED product support market surveys, customers were rapidly moving away from the dealership for repairs and maintenance. First, it was 44 percent moving away from the OEM dealer over a five-year term; then it went to 48 percent defecting on a five-year basis. This is a customer defection rate of 15 percent each year – not a good situation when the equipment world is adapting itself to the new reality in the market. The customers also said they would be prepared to give the dealer the labor business if the price was in line with what they were paying now. This presents several challenges.

Challenge No. 1

First, the market perceptions are not going to the benefit of the OEM. The surveys have shown that customers believe the service competition is equal to or better than the OEM dealer on “technical ability, responsiveness, and quality.” Rather a nasty report card, wouldn’t, you say? But please remember that although we might not agree with these responses, perception is reality.

As we noted last month, we need more market coverage in the form of product support sales personnel – if you thought our message was getting out to the marketplace, please think a little harder about it. It is our competition that is defining our abilities and skills. The customer mechanic, who used to be our employee, does not say good things about us; the independent mechanic doesn’t much like us either – he may well have been among the better mechanics we used to employ, who left to make more money than we were prepared to pay.

Challenge No. 2

Second is our “peanut butter” labor price. You know the drill: You take variable skills in people, variable degrees of difficulty in the work we do, differing specialized tooling required on jobs, and we put all these variables into a blender and come up with one labor rate on an hourly basis. That is just plain wrong-headed. We need to price according to the specific job and apply specific skills and tooling to each job as required. The dream of being able to operate with a workforce of consistent and similar skills is just that – a dream. On a side note, it bears mentioning that the market long ago stopped asking us for a fixed standard flat rate price because we never responded to them. We can’t go forward continuing to ignore the customer’s requirements.

These two problem elements manifest themselves in market capture rates. If we look at maintenance, we capture some 5 to 20 percent of the market for routine and preventive maintenance. We have been so successful at how we operate in this market sector that we have lost between 80 and 95 percent of it. Are there any alarm bells ringing yet? We have lost this business to our own customers, who have acquired their own mechanics. Adding insult to injury, the customer hired these mechanics from us.

If you perform the maintenance work the odds are very high that you will get the repair work as well. And the reverse is true, too. Let me put out a call to action to all of us. Let’s review maintenance operations. Let’s design the maintenance product to be performed by maintenance technicians, who are not journeymen repair technicians – they are maintenance technicians. Price it accordingly, and then go sell it to everyone who owns or operates a machine.

It is clearly the time to act. If you do, you will be surprised at how responsive and supportive the customers will be to you. Good luck, and I hope you all enjoy a safe and happy holiday!

by Ron Slee
December, 2010
CED Magazine

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.