Parts and services marketing in the work truck industry

 By Generation Next Governor at Large
 Ian Simpson, marketing analyst, VMAC

Published in the July 2015 issue of Generation Next Edition.

 “Marketing is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.”
 – Peter Drucker, founder of modern management theory

All too often, managers think of marketing in terms of tactical activities such as sales, advertising, and promotion. This fallacy leads many organizations to believe that marketing is an activity designed to support sales by selling more of the company’s products and services.

The goal of marketing is to create a product that sells, not to sell a product.

Marketing and the balanced scorecard

Using frameworks like the balanced scorecard can allow you to begin to clearly articulate your marketing strategy.

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry worldwide to align business activities to the vision and strategy of the organization, improve internal and external communication, and monitor organization performance against strategic goals.

The balanced scorecard develops a foundation for your marketing strategy by focusing on four specific areas:

  1. Customer
  2. Internal business process
  3. Learning and growth
  4. Financial

Translating vision and strategy: Four perspectives

While the value from intangible assets, like customer loyalty, is indirect – it is known that improvements in intangible assets affect financial outcomes through chains of cause-and-effect relationships:

  • Investments in employee training lead to improvements in service quality
  • Better service quality leads to higher customer satisfaction
  • Higher customer satisfaction leads to increased customer loyalty
  • Increased customer loyalty generates increased revenue and margins.

To achieve internal excellence, you have to ask what business processes you excel at internally to deliver an excellent product. How are you creating customer value?

Customers in your parts department likely tell you what they want and need, and having customer service that goes above and beyond is imperative to succeed in today’s highly competitive market. According to customer feedback, here are the five most critical items to running an effective parts department:

  1. Short lead times
  2. Accurate shipments
  3. Quick and effective communication
  4. Caring and competent staff
  5. Good value for the price

Focusing on these elements fosters internal excellence and will allow you to create customer value.

Market segmentation - growing your business and measuring success

Marketing also involves strategic analysis, which provides the foundation for the success of its tactical elements. You must identify the key source of value for target customers, the company and its collaborators. Without a clearly articulated strategy, tactical decisions are a shot in the dark.

The concept of targeting involves identifying customers for whom the company will optimize its offering. How do you go about setting up segments in your market for parts and services programs?

Customers vary in two main aspects:

  1. Their needs and resources
  2. Their readily observable characteristics

To begin to understand their differences, you need to segment your customers into smaller groups that have similar needs and wants. For the work truck industry, get started by breaking your customers into three basic segments:

  1. Prime product population/ purchases
  2. Parts purchases
  3. Service purchases

Next, evaluate the potential business opportunity available from each customer in your territory. Parts and service is all about the prime product, for us here at VMAC.

Other important information includes:

  • The type of vehicle that they own
  • The application in which the vehicle works
  • The hours/miles that is put on the equipment each year

The better job you can do at determining usage rates, the better job you can do at identifying who should service their equipment. Further, the tougher the application that the vehicle works in, the higher the parts and service consumption becomes (e.g., if you are running a service truck in the Albertan oil sands, your truck is going to take a real beating).

For our vehicle-mounted compressor division, we could look at vehicle population as an important segment:

  • Small (S) – 1-3 vehicles
  • Medium (M) – 4-12 vehicles
  • Large (L) – 13-24 vehicles
  • Fleet (F) – 25+ vehicles

However you split this segment, it is important to try to have these segments of roughly equal percentages. This will allow you to address your customers on a more customized level and address their individual needs.

Next, by looking at the purchase history of each of your customers, you can begin to identify the relationships you currently have with your customers using a simple ABCD approach. For parts purchases:

  • A is $48,000 and up
  • B is $12,000 to $47,999
  • C is $2,400 to $11,999
  • D is $0 to $2,399

 For services purchases:

  • A is $20,000 and up
  • B is $6,000 to $19,999
  • C is $1,000 to $5,999
  • D is $0 to $999

Of course you will want to come up with the sales level segments that make sense for your company. One way of doing this is looking at your sales and determining:

  • A is the top 10%
  • B is the next 15%
  • C is the next 25%
  • D is the bottom 50%

So if you start from the beginning on your own customer list and attach a code for their prime product purchases, a code for their part purchases, and a code for their service purchases - each of your customers will now have a three-digit customer segmentation code attached to them.

For example: using the numbers above, a customer with 15 trucks in their fleet, $5,000 in parts sales, and $1,000 in service sales, would have a segmentation code of LCC.

You can go even further by applying more segmentations that make sense to your business. Other examples may include:

  • Payment pattern
  • Prime product population by product class
  • Loyalty
  • Location/territory

This is a job that will take a tremendous amount of time but will provide tremendous benefit. The data can be hard to come by ,but be persistent and ask for the truck model and serial number every time you process a quote or sale!

Customer retention

Once your segmentation is done, you will have a much deeper understanding of the behavior of your customers. From here you can establish your coverage strategies and tactics whereby these customers are contacted on a regular basis by phone, e-mail, or text.

One of the ultimate measures of customer satisfaction is customer loyalty. It is always a good sign when your customers continue to do business with you. From one year to the next – how many of your customers stopped doing business with you? We will call this the defection rate.

Now we want to use our marketing fundamentals and perform the retention calculation for each customer segment for each salesperson. This information is extremely valuable - and your high retention grouping should be noted just as much as your low retention groupings.

Drill down into your customers’ behavior further by analyzing the following:

  1. By customer, what is the average order size for each product class?
  2. By customer, how much times passes between transactions?

After this leg work is done, make sure to watch it changes to customer behavior – and develop strategies surrounding these customer profiles. What can you do to increase purchasing frequency? Has one of your top customers begun to order less frequently?

Call each customer who has had a change in buying habits and engage them in a discussion about what is going on in their business. Ask them questions – try to probe their reasons for changes.

Finding a way to measure is important for customer retention – you might say that if you have a sales representative covering a territory, then retention should be 100% for all customers in that territory.

A customer defection is a failure on the part of the company – your former customers’ needs and wants have not been satisfied. Ultimately, it is up to you to decide what you consider an acceptable defection rate per segment.

While the work will not be easy, the benefits will be fruitful. In the capital goods industry – if you can improve your customer retention by 5%, from 80% to 85%, then you could potentially improve your company’s profits by 45%.

Now isn’t that reason enough to find your defecting customers before it is too late?

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