Aftermarket Forum: Brands Rule the Aftermarket, Set the Stage for Future Success

Kathleen Schmatz, executive vice-president of the U.S. Auto-motive Aftermarket Industry Associ-ation and veteran of automotive aftermarket publishing in the U.S., says that branding is of tremendous importance to the aftermarket, and has played a more important role than many think.

“The automotive aftermarket history is really the history of brands. There are four things that have to occur before a brand is successful,” she told the 300 attendees of the 7th Annual Canadian Automotive After-market Forum, hosted by the Auto-motive Industries Association of Canada in Toronto, Ont.

“A brand is a promise,” said Schmatz. “It warrants that a product or service carrying a brand will live up to its ‘Name.’ It is not a trademark, a slogan, an ad program, or a logo. Brands are highly compressed communicators,” she says. They ease, speed, and reduce the cost of transactions; and manufacturers do not make the brand, the customers do.

“These expectations influence buying decisions. A brand strategy is at the core of every successful sales effort. It sets the tone for internal and external interactions at every level.

“Branding works because it gives the mind something to hang on to. The fact is that most of the products that are offered to us are good enough, but in an uncertain consumer world, we value consistency over quality–perhaps too much. A brand is a promise of reliability.”

Schmatz did caution that brands are not built overnight. Marketers cannot expect that attractive packaging, good marketing, or even quality products will translate into brand loyalty in short order. Brand equity, she said, is built over time–a long time. (Brands are often more long-lived and resilient than the companies that own them. A number of brands that appeared in the very first issue of Jobber News Magazine, back in 1931, are still in existence, even though in many cases the companies that own them have changed.)

Schmatz said that there is a lesson to be learned about branding and marketing in the aftermarket from the recent past. In the U.S., as consumers shifted their focus from do-it-yourself (DIY) to having professional installers do more work, the so-called do-it-for-me (DIFM) market, marketing did not make this same transition.

“What happened in the aftermarket is that marketers didn’t recognize who the real customer was. It wasn’t the real consumer, you or I; as the shift occurred from the DIY to the DIFM, the real customers became other members of the aftermarket.”

From her experience in publishing, she says that important things were learned about how decisions, with brands in mind, are made in the aftermarket.

“Does branding work? You bet it does. Some 95% of the buyers in the U.S. aftermarket say that they use trade publication ads to make decisions to purchase a product and stimulate purchases; 96% of all the repair shop owners say that brand plays a role when they purchase a tool. The promise is what makes their decision. And 97% of all business decision-makers have taken some type of buying action because of an ad. Now an ad is not the brand, but it is part of the program.”

“Successful brands today focus on the customer. It is not the consumer who specifies the brand. It is the buyer at the store, the counterperson, and very importantly the technician.”

She says that research shows that, in the U.S., some 90% of service providers specify brands when they buy.

What happens when they can’t find the brand? Using a heavy-duty market example, Schmatz says that two-thirds of customers will wait for the part or, in the majority of cases, go to another supplier to find that brand. “They won’t settle.”

A similar outcome is found in the automotive aftermarket. Service providers and jobber personnel make the decisions on brand, though. “The fact of the matter is that in 70% of cases, the consumer doesn’t care. They rely on the expertise of the repair shop.”

As the lead speaker in the day’s events, she set the tone for further economic discussions, cautioning all to pay attention to demographic trends.

This applies to both marketing approaches and in the future, management trends. “Who will run the businesses in the future? In the U.S., 40% of managers are going to retire in the next eight years. Who will replace them?

“There is also a change in employment from agricultural-based industry and manufacturing industries to service-based industries. The biggest growth is professional, construction, healthcare, transportation and warehousing, and the service producing sector. That changes your customers. That changes your customers’ customers. That change has already happened in the U.S. The fact of the matter is that the Canadian population growth exceeds that of the U.S. This is a growth market.

“The demographic realities of tomorrow are that we are going to an older population base and a younger population base. In order to thrive, companies must find new segments to target–like ethnic customers–and attract new market leaders. In the next century, retaining customers will make the most sense. Marketing programs need to be shifted to retaining the customers you have.”

She believes that the Canadian market is on the verge of becoming a more active brand marketplace. “You have some tremendous economic growth. That will play a tremendous role in creating more opportunities from growth and branding.

“As your marketplace becomes more sophisticated, consumers will demand more. Everybody in the aftermarket,” she says, “must become a brand marketer and a brand strategist.”

No Substitute for Three-Step Distribution, says Temple Sloan

Temple Sloan, chairman of General Parts Inc., the largest Carquest member and parent company of Carquest Canada, says there is no substitute for three-step distribution.

It is not that it is an easy road ahead, says Sloan, but a better method has yet to be devised for delivering parts and services to the automotive service sector.

“A few years ago, an editor in the U.S. declared that three-step distribution was a dinosaur,” says Sloan, adding that he’d been called worse by others, some of them competitors. “Some of them aren’t around anymore,” he laughs.

Consolidation is likely to continue to put pressure on the entire aftermarket, though its pace is likely to slacken, but there has been some positive fallout.

“[Consolidation at the service level means] that installer customers are larger, more profitable, and more financially stable. This creates a great customer base for us.”

Demographic trends, which will see a rise in the 45 to 64 year old age group, are also positive for the professionally installed market, hence the trend for the traditional distribution chain should also be positive.

“These population trends indicate a tremendous potential and it is a well-known fact that older people are not great DIYers. What a fantastic business opportunity this presents. We’re in a business that is totally driven by availability. The North American vehicle owner has no patience. Our sole responsibility is to see that the vehicle owner can get his car or truck repaired in one day.

“A distribution system that stocks 20,000 part numbers cannot put us all out of business,” he said, referring primarily to auto parts retailers like the U.S. chain AutoZone. “We may get beaten by a competitor with better availability or service, but it will not be because three-step distribution is a dinosaur.”

Impact of September 11 Underestimated, but Economic Outlook Strong

Perennial economic soothsayer Dr. Michael Graham, who last year predicted that the economic upturn was just around the corner, admitted his call was off, but insists the economic upturn is delayed, not denied.

“I was confident of the supercharged U.S. and a cheap and competitive market-driven economy. Then came September 11. Everything was stopped in its tracks and, of course, my economic forecasts were way, way too high,” he told forum attendees.

He said, quoting a Jobber News Magazine report on his talk from a year earlier, “All the ingredients of a recovery are there, if not in 2002, certai
nly in 2003.

“Now, after 40 years, I’ve become a cagey economist. You notice how I worked in 2002 or 2003? I just wasn’t sure how much was going to carry over into 2003. Well here we are and I stand here one full, character-building year later. The moment of truth is at hand. It is not as though I feel badly about my economic forecast for 2002, it is just that my stock market and investment forecast fell way, way short and turned out to be way off target.”

The reason, he said, was the fallout from a succession of corporate and accounting scandals that shattered confidence in the market.

“Trust went out the window. That made all the difference. I must confess I have never known a disconnect like it, between Main Street, your world, and Wall Street, my world. They are connected at the hip, but in 2002 it didn’t seem to happen that way. Logic went out the window.”

In this economic environment, looking forward, Graham once again said that Canada is uniquely well positioned in the world market.

“Low interest rates and lower taxes add up to a potent combination. We are becoming a much more broadly based, value-added economy. In fiscal terms, we also lead the world. What has happened in the last year is that every other country has slipped back into deficit.

“That to me just adds up to a very compelling investment opportunity.” Now, there are risks, he said, referring to the Iraq situation, possible Middle East fall-out, oil prices, mounting deficits elsewhere, a potential U.S. dip back into the recession, as well as risks at home: no political leadership, government inertia, Kyoto, the electricity debacle in Ontario.

On the whole, though, Graham continues to be bullish on Canada. “I just think there is so much to look forward to. When the lights turn green, and I believe that’s going to happen in 2003, we should be there.”