What the J.D. Power Report Means for You

Last month, J.D. Power and Associates released their always anticipated Consumer Commitment Index Study for 2006 and the results are important not only for the independent service provider, but for the industry as a whole. Through a reading of the study, one quickly gains a much fuller appreciation of consumer trends, market forecasts and most importantly, a veritable audit on the level of service provided in today’s repair industry. From several different statistical angles, the report gets into the meat of the service business, identifying as it goes some of the major commonalities between the top tier providers, as well as showing the less ideal commonalities of the worst performers. What follows here, then, is a closer look at this crucial report, combined with an attempt to outline some of its key points as they pertain to the independent service provider.

The basis of this particular study is the tracking of service opportunities and dollars, generated by the over 12 million vehicles on Canadian roads that are between two and 12 years old. According to the research, those 12 million vehicle owners are looking to supply the Canadian repair industry with some 12 billion dollars every year, making it one awfully large pie that is always up for grabs.

Stemming the Tide

The major coup for the independent service providers this year, was that they were able to stop the incursion of dealerships into what was primarily the domain of the aftermarket. According to J.D. Power, the last five years have seen the dealerships increase their market share in the overall service business by around one percent a year. While not immediately shocking, one percent of a 12 billion dollar industry equates to $120 million. As a result, the last five years have seen the aftermarket, and independent service providers in particular, bleed in the neighborhood of $120 million each and every year, to the point where the dealerships now hold $600 million worth of service dollars that they would not have otherwise had. Luckily, according to the report, 2006 has seen the aftermarket stop that bleeding, as dealerships were unable to increase their market share for the first time in five years. While it is certainly not the intention to down play this clear success, it should also not be mistaken for a smashing victory. “I wouldn’t break out the champagne just yet,” says Rohan Lobo, research manager with J.D. Power and Associates. “Dealerships are doing a lot of work to retain their customers. This year the aftermarket stopped them, but they are going to fight back. OEMs are worried about an overall decline in sales compared to the golden era of 1999 to 2003, and the dealers are hurting, so the service business is going to be the new battleground,” he says.

In short, the aftermarket fell shy of making gains of their own, and simply stopped a further erosion of their market share, a point that can easily become lost in an overly exuberant interpretation of the data. Suffice to say that there is more than half a billion dollars worth of service opportunities to be taken back, and it remains to be seen if the aftermarket will be able to wrestle it away. Fortunately, the study may have shed a little light on how independents can differentiate themselves from both the dealerships and mass merchandisers, and perhaps begin to chip away at those missing opportunities.

Cost Driven Dilemma

We all know and appreciate the fact that everyone is in this business, or any other for that matter, to make money. However, as has been discussed in previous issues of SSGM, when a service provider is solely focused on cost as the major driver for sales, the business as a whole, and not just customer service can suffer. This is quite clearly demonstrated in the J.D. power report, as the big box service providers, ie. Costco, Wal-mart and Canadian Tire, whose sole motivation is providing repairs on the cheap, finished in the bottom three positions, with scores of over 100 points lower than the top tier providers. Their low scores are not surprising according to Lobo. “When your sales are only predicated on those lines, driven by cost, you don’t invest in customers,” says Lobo. “They will lose that kind of personal touch that many garages have.”

As can be seen in the graph below, “cost” is listed as being a reasonably low number one criterion for facility selection by consumers who use independent shops, meaning that few people listed cost as the most important determining factor in their decision. Coming in at just 16 percent, independent repair facilities, whose costs are usually higher than mass merchants, need to pay keen attention to this fact, as it shows that only a limited number of their customers, (less than one in five) have come through their doors looking for the best deal. In fact, the same graph shows that a much greater number of their customers, some one in three, are there because they were treated well on a previous service opportunity. Furthermore, another one in three independent service users, cite “The mechanic who usually repairs my car.” This second criterion, which actually comes in at only one percentage point behind the leading one mentioned above, further reflects a positive and personal service experience. Coversely, the numbers are essentially inverted when it comes to facilities like Costco and Canadian Tire. By examining the graph, one will note that more than one in three of their customers chose that facility based first and foremost on cost, and only one in five claim a positive experience.

This is an important lesson for the independents. The personal touch and fostering familiarity is what you do best, and your clients appreciate it. What this portion of the study should be telling you, is that your customers are willing to pay a little more for your brand of personal service, because that personal service is worth more to them. What the mass merchants should be realizing, but largely aren’t, is that their focus on price-point is starting to erode not only their reputation but also their bottom line.

“They are doing lots of business, but you can see their market share slipping, so they are getting less and less of a bigger pie,” says Lobo. “Basically, they are doing well, but they really could be doing a lot better,” he says. Or, as the study text itself suggests when it comes to running on cost as your top criterion: “This is not a sustainable long term solution in an industry where advocacy is critical given the large amounts of money at stake. Going forward, the winners of this battle will be the facilities that are able to attract and retain customers based on a strong relationship of trust.”

Based on the numbers discussed above, wherein more than 60 per cent of customers who chose the independents already do so on the basis of familiarity, and dare we suggest trust, the service provider who can take the time to foster that relationship, as opposed to the cattle call approach of the mass merchandisers, will stand to benefit.

The warning here is hopefully self-evident. “Customer handling is the strength on the independent, and their ability to provide that is unparalleled”, says Lobo. However, it is also quite clear that some independents are starting to fall in to the price-war game, which is an arena in which they simply cannot compete. “Marginal independents interested in playing on cost will falter in their work quality, as they won’t be able to keep pace with OBD equipment and other costs of doing business”, says Lobo. “It’s an expensive business, and you may start seeing that effect. The best will make it, and others will stumble.”

Choosing your battles is not the same as picking fights. In direct competition with a Canadian Tire based solely on price, it may not be in your best interest to make that your hill to die on. Instead, sell the intangibles that they simply can’t, or refuse to offer. The numbers in this report seem to suggest that your clients, and any they refer to you, are going to support that.

The Opportunities

Overall, while it would be foolhardy to paint an overly rosy picture for the future, the report does tend to be a positive one for independents and the aftermarket. According to the J.D. Power data, 2002 and 2003 were monstrously good years for vehicle sales in Canada, with sales figures significantly higher than the average for the decade. The wonderful thing about great years for the manufacturers is that it usually means good years to come once that major stockpile of vehicles comes off warrantee. Now, some top makers such as GM, have already begun to try and hold their established client base with programs like extended warrantees, but their heavy penchant for the lease, particularly in Canada could come back to haunt them. Conventional wisdom would seem to suggest that leasing is bad for aftermarket service providers, but many are starting to see it differently. In short, once a vehicle comes off lease, J.D. Power’s numbers suggest that a much smaller portion of them are resold through a manufacturer dealership. The rest, more often than not, are sold through outside agencies, to people who then, by default, have no personal relationship or connection to that manufacturer’s dealer. As the past sections of this report have shown, it is that personal connection that fundamentally drives the service business. As such, by largely divesting themselves of the resale responsibility, manufacturers are literally driving customers into the open arms of the independent service providers. “Leasing creates a demon,” says Lobo. “The implications of leasing is that it creates a huge car-park, and service retention becomes very troublesome for the OEMs”

Conclusions

In the end, it might be best to classify this most recent J.D. Power report as cautiously optimistic in terms of its outlook for the aftermarket and its independent repair shops. Strong showings form Fountain Tire, Autopro and Certiguard shops are encouraging, and the overall score for the independent channel shows that in terms of customer satisfaction, independents simply can’t be touched. What should independent service providers look to learn from this study? Well, quite simply, loyalty has become the new service battleground. As this study has clearly shown, loyalty is something that can’t be bought through twenty-dollar oil changes and cheap brake pads, but rather through personal attention and a focused service culture. Such a focus can only add value to what the independent sector has to offer, and as the numbers unequivocally suggest, customers will pay for that value.