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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.
PROGRAM
BASICS
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.
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