RETENTION/MARKET PENETRATION

[paulmillar1]

CAR ANYONE GIVE ME AN ACCURATE DEFINITION OF RETENTION AND ALSO MARKET PENETRATION. WHAT CRITERIA (FORMULA) IS USED TO ESTABLISH THIS? ARE THERE ANY INDUSTRY BENCHMARKS?
THANKS IN ADVANCE
PAUL MILLAR

[This message has been edited by paulmillar1 (edited 04-23-2003).]

[robc]

Plenty of benchmarks - no standards

This topic has always been one I hated because everyone measures things differently. While retention is easier than penetration it is still like nailing jello to the wall. With retention the key is when is a customer considered "lost". Is it if the don't do one LOF at your store, or don't come back for a year.

The number I hear most often is that dealerships lose 65% of the service business. But I have "no clue" how they determine this other than to say something like $100 billion was spent on service and dealerships got $35 billion of it (I am just making those numbers up).

Here's an example. I leased a vehicle and had the first two LOFs done at the dealership (the first one was free). Then at 41,000 and three years later I had my last LOF done there as I was getting my next vehicle. Did this dealership retain me? As a new-vehicle customer yes - as a service customer no. But some places might measure me as retained when I came back for that 41,000 LOF. (BTW, I do all this work myself so they never were going to see me much.)

What I use is our sales three years ago (say we sold 800 new) and how many of those are still in my service reminder program as "active" customers (which I define as having been in the dealership in the past nine months). If you're over 50% I think you're doing better than most. Maybe some of our CRM people can give a better benchmark than that.



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** Rob, Editor WD&S **
Help is only a message post away!
robc@dealersedge.com

[Ronc925]

Here is how I do one analysis and get results at the same time:

I run an report of "how many vins have a last service date less than 24 months", and lets say that is 3806 VINs. I then run the same report for 23 months and find the number is 3698 Vins, then, 22 months.... down to 4 months (that's 3 visits a year-Benchmark)where there are 1163 VINs.

I graph the results with Excel and look at the trend. Around 13-15 month the graph starts spiking, or declining, depending on how you plot.

I then average the 24 to 7 month period and find that the average dealer looses 3-4% of thier customers per month. For my example dealer, that is 119 customers per month.

What is left on VIN count at month 4 is the "active" customers (based on NADA's 3 visit per year). And in my example dealer this was 1163 customer. Or 31% of his original market.

It's pretty consistent with manufacturer's statements of 30% market retension.

Then I ask what I'm really after: Why don't you make the customer's next maintenance appointment every time they come in for 90 days out from that day. And develop a process to follow-up and change the appointment based on the customer's time restrictions; rather than waiting for the customer to want to come in--or worst, stop at the Express Lube in their neighborhood.

In other words, manage your customers (CRM) and not let them manage you. You will eventually flat line your monthly RO counts and seasonality goes away, except when they occassionally break down. Then you can get to 3 visits per year and you might become their preferred service provider-because you asked to be their service department.

I haven't seen dealer doing this long enough to see the results after 3 years; but I have seen RO counts increase 22-28% during the first & second years and while other dealerships without a process declined in RO counts.

[Ronc925]

Here is the Industry and NADA Calculation for Market Share, also called Market Penetration:

First calculate your market's Potenial:
5 Yr UIO x 3 visits/yr x2.5hrs/RO x CP Labor Rate = Labor Potenial

Labor Potential x .85 Parts to Labor Ratio = parts Potential.

Labor Potential + Parts Potential = Total Market Potential.

Actual Annulized Service Parts & Labor Sales / Total Market Potential = Market Share Percentage.

Industry and NADA guide for Martket Share is 65% to 100%. Guide for hours per RO is 2.5 (including oil changes) Guide is 3-4 service visits per year. Guide of parts to labor ratio veries by manufacturer line. Industry & NADA says 90%, some manuf. are as low as 80%.

Some people use effective labor rate rather than posted labor rate for calculating. But with variable labor rates, a large number of consultants feel effective labor rate should equal or excede posted labor rate for 1.0 hour of repair labor, and I agree with that one.

Most dealer's that I have seen are in the 20-35% range. What does it take to get to 65%? Excellent CSI, an excellent service sales process and a customer retension process that keeps them coming back.

[robc]

Wow, I couldn't think of a more depressing calculation standard - a 100% capture - but it makes sense if you do the math.

Ok, ASA (aftermarket) said before the senate committee last year their total sales were $123 billion (labor and parts), and the NADA said total dealership sales were $81 billion and I am going to subtract out the $12 billion in wholesale parts. That means $192 billion in total service RO sales last year. So about 36% of the whole pie going to dealers (I am not even going to count DIYers and part store sales, which why I took out wholesale).

I am estimating 85.6 million vehicles were sold in the past five years. Using the 3 ROs x 2.5 Hours/per x $65 (ELR) + 85% (parts) I get that equals $902 ($487.50 labor and $414.38 parts rounded).

$902 x 85.6 million vehicles = $77.2 billion

With dealer sales (again minus wholesale parts) at $69 billion that is 90%. So Ill just add that if you are big into the wholesale business not to include those dollars in your calculation.


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** Rob, Editor WD&S **
Help is only a message post away!
robc@dealersedge.com

[paulmillar1]

Thank you all for your responses. I have used Ronc925's market share/penetration calculation in the past. I figure I am sitting around the 30% mark working off the effective labour rate. How does the units in operation in our area vs active customers in our database fit into the equasion. I agree with robc that retention is almost unmeasurable due to there being no definative measurement to when is a customer considered "retained". Am I throwing more fuel on the fire? Hope it gets some great minds thinking. Again I remain,
Paul Millar.
P.S. Have a "TRULY OUTSTANDING" day.

[This message has been edited by paulmillar1 (edited 04-23-2003).]

[les]

Rob: In your calculation: "I am estimating 85.6 million vehicles were sold in the past five years. Using the 3 ROs x 2.5 Hours/per x $65 (ELR) + 85% (parts) I get that equals $902 ($487.50 labor and $414.38 parts rounded).

$902 x 85.6 million vehicles = $77.2 billion" and dealers, according to your figures got 90% because the had $69B. Does this $69B include Warranty, Internal and Extended Service Plan sales? And, are those sales really customer retention?

Did the ASA numbers include parts and labor sales from the dealership industry - especially warranty parts?

Also, with the average age of a vehicle increasing, is five years an accurate measure of retention? And, according to NADA stats, the 85.6M number you used is dwarfed by the total number in operation which should exceed 219M. 60% of all vehicles are over 6 years old according to Polk figures. As such, the dollars spent on this additional 133.4M vehicles (219M-85.6M) have to be at least equivalent to the amount spent on vehicles 5 years old and newer.

It would seem to me that the market just for LOF's per year (calculating a $21 LOF) is in the area of potentially as much as $13.8B alone. Not sure who's numbers to use, but a 90% penetration rate on vehicles 5 years old and newer does not seem realistic based on the dealerships I have been in.

Just an opbservation for consideration!

[robc]

Actually I am not making the point that any of those sales are related to retention - this was a question of market penetration. So yes, it includes everything except wholesale parts that I backed out just by my own decision.

The ASA numbers were their members numbers (the aftermarket service shop on service/parts) not including dealerships - for the $192 total pie ($123 AM + $69 dealers).

oh yes absolutely - we're talking retaining 5 years and newer - not every vehicle since the first Olds rolled off the line. The fact of calling a "customer penetration" calculation is completely make believe anyway - it is a matter of comparison not a matter of saying I have x% of the market.

But on the other side - saying everyone is a customer up for grabs is totally unbelievable too. Some are captured customers (a fleet vehicle that only services at their facilities for example), some are DIY like me who never really steps into a garage, some just don't maintain their vehicles (nobody has ever convinced me that skipping every other LOF will cut my engine life in half and what do I care if I only keep a vehicle 36,000 miles anyway).

We get around a third of the total business available. So I am extrapolating that if you included every vehicle made instead of limiting five years the % would drop from 90% to the 36%.

>>As such, the dollars spent on this additional 133.4M vehicles (219M-85.6M) have to be at least equivalent to the amount spent on vehicles 5 years old and newer.>>

You'd think but maybe not (honestly I don't know, but I am sure someone does) - again your rough estimate that every vehicle on the road will get three $21 LOFs this year for $13.8B is estimating a total potential of the market, but not necessarily what the market bears. My gut, and only my gut, tells me that I would be VERY surprised if even five year and newer vehicles average three LOFs a year.

One example from real life to make a point on this. Most manufacturers sell some sort of pre-paid maintenance service contract. These are EXTREMELY profitable for them. You know why? Because the fulfillment rate (the customers that actually get all the services performed) is somewhere less that 65%. And these are people who are getting the service for FREE and they still dont get it done.

But again, since every number is hypothetical and multiplied out the enth degree they are really lose all meaning but interesting for discussion. I love calculating this stuff out!!!



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** Rob, Editor WD&S **
Help is only a message post away!
robc@dealersedge.com