Management: Loss Leader, Lost Cause? – UnderhoodService

Management: Loss Leader, Lost Cause?

It seems like there are always certain services that are routinely performed by repair facilities at a loss. Sure, they might generate enough revenue to pay for the direct expenses of doing the job, such as parts and technician labor, however, they often fail to make their needed contribution to the overhead expenses of owning the shop to begin with. It’s that failure to contribute to the bottom line profits that make the service a "loss" to the company.

By Glen Beanard
Technical Contributor

It seems like there are always certain services that are routinely performed by repair facilities at a loss. Sure, they might generate enough revenue to pay for the direct expenses of doing the job, such as parts and technician labor, however, they often fail to make their needed contribution to the overhead expenses of owning the shop to begin with. It’s that failure to contribute to the bottom line profits that make the service a “loss” to the company.

Why would a business be willing to operate that way? Especially in a field like ours where we carry such heavy liabilities after the customer leaves. It really doesn’t make good sense when you think about it. After all, the money the customer hands you over the counter covers the various parts, salaries and overhead expenses. Why take a loss on that transaction? Is it to attract business? What good is it to attract even more business that is performed at a loss to the company?

Services that are “loss leaders” have become such not because of the service itself, but because the shops’ owners and managers chose to make them that. I believe that poor management has created these loss leaders, and good management and marketing skills can reverse them.

The way I see it, the average person is driven by some sort of tangible reason to seek auto repair services. I am willing to bet that no matter how good your shop is, no customer has come to you just because they were bored.

Did you create the desire to get a service performed because of a “special” you are running? No. Did you attract one or two more people who were already shopping for that service with your special? Maybe, but was it worth it? Ask yourself this: How many of a particular service would you have done if they were not on special? How much money do you think you might have spent in advertising that specially-priced service? Was discounting every customer who got that service worth the two or three extra jobs that month?

Running an advertisement for an extra low-priced brake service didn’t cause more people to need brake service that month. What the advertisement mainly did was remind people you are there and made them think of you. I’ll bet you could do approximately the same number of a particular advertised service in a single month by raising the price a dollar or two over the regular price than you would if you advertised a discounted price. Call that a “special.” Who says the word “special” has to mean “discount?” That brings me to the heart of my message. People come to you simply because they thought of you I know it sounds oversimplified, but getting people to think of you is the key.

I believe repair shops can accomplish this without the use of loss leaders and price marketing that produce a flow of one-time customers at a discounted rate. If a repair shop is repeatedly marketing to one-time bargain-hunting customers, then they are actually losing customers as fast as they gain them. What’s worse, the shop is losing money on both ends of this deal. They spend lots of money to advertise a negative-profit job.

The reasons why people think of your shop vary from person to person and from situation to situation. You can’t control were they break down at and you can’t control what they hear in your competitors’ advertisements. However, you can influence how they perceive you versus your competition. I’m not talking about “mud slinging,” as that will often actually backfire on you. I’m talking about upstaging them.

How do you do this? First, deliver top quality service. Second, be different. Ok, so maybe you already do the first one, but do you really do the second one? Also, can the first one be improved any?

Take a look at your competition What are they doing? Simply open the paper, read some billboards, listen to the radio and television for a minute. Everyone is screaming the same messages. They all say “we’re the best,” and they all push some kind of special price on a service. So if you sound exactly like them, how can you be different in the customer’s eyes?

Do you have to claim that you’re “the best” in advertisements? Sounds like good common sense, doesn’t it? The problem is, when customers go into a shop that is screaming that they are “the best,” often times there is nothing about the experience that supports those claims. What’s worse, they may experience a very undesirable episode there. So those words don’t carry the same luster in advertisements as they should.

To illustrate, I would like to point out a real life instance of someone who dared to be a little different. This story is borrowed from the webpage of Cromer’s Peanuts in Columbia, SC, with their permission:

Back in 1935, Julian D. Cromer, a truck farmer from Lexington County, opened a one-man operation selling produce and peanuts at the Farmer’s Market because he was fed up with having to eat stale peanuts every time he brought a load of produce into Columbia to sell at the curb market on Assembly Street. He decided to give the peanut business a try. He added peanuts to his produce stand, but he insisted that they always be fresh and roasted a new batch every morning. To ensure that the peanuts would be fresh daily, Cromer discarded any that were left over at the end of each day.

Business was fair to middlin’ until an incident in 1937 launched Cromer’s Peanuts toward legendary status. A competitor bought a small roaster and set up a peanut stand right across from Cromer. Every time a customer would stop at Cromer’s stand, the competitor would yell, “Don’t buy those! Mine are best! Mine are best! Cromer’s are no good!” Finally, Cromer got aggravated, picked up a piece of cardboard, and wrote, “Worst in Town” on it. He placed it next to his stand. A short time later, he boldly “guaranteed” that they were “the worst in town.” Curious to discover how “the worst” peanuts in town tasted, people flocked to Cromer’s stand. The slogan stuck and attracted a lot of attention.

The “Guaranteed Worst in Town” slogan helped establish Cromer’s as one of the leading peanut businesses in the world. By 1939, Cromer’s peanuts were so popular the founder gave up selling.

I’m not suggesting that you start claiming that you are the “worst in town.” That‘s a bit too bold to risk trying. I am, however, trying to point out how it didn’t benefit Cromer’s competition to literally scream at the top of his lungs that he was “the best.” I’m sure that the man had a good product, and probably met his customers’ expectations in what a bag of peanuts should taste like. However, I think it’s safe to assume that when customers left Cromer’s stand, they felt they got something extra.

In Cromer’s case, the extra thing the customer received was simply that the peanuts were fresh. By selling a fresher tasting peanut than what was expected, Mr. Cromer upstaged his competition. So what does a peanut stand in the 30’s have to do with us today?

Let’s say a customer goes into repair shop “A” because he has a coolant leak. The customer parks the vehicle in the parking lot. He walks past the open bay doors. The appearance inside the shop isn’t outstandingly messy and it’s not outstandingly clean, it just looks like a repair shop. With maybe a couple of completely full trash cans and a couple of oil puddles in a bay, the shop just looks like something that anyone would expect a busy repair shop to look like. There is a technician, fairly clean in appearance, working near the open bay. The technician continues working as the customer walks by.The customer walks into the lobby to find the manager on the phone with another client. After the manager is done with a person on the phone, he greets the customer. The customer’s information is taken and a repair order is started.

The customer is invited to have a seat in the lobby. There is a television and current magazines of all types, plus fresh brewed coffee for the customers if they would like.The vehicle is promptly pulled into the shop by a technician of neat and clean appearance. The problem is found to be a leaking water pump. The technician informs the acting service advisor of the need for a new water pump. The estimate is made. The customer is told in the lobby that the water pump is bad and it will cost $XX to repair. The customer authorizes the service.

In a reasonably short time, the vehicle is repaired with top quality parts. The technician road-tested and parked the vehicle. There is a warranty statement on the invoice. The customer pays and leaves with nothing to complain about. There is no problem with the repair, parts or pricing.

So repair shop “A” did a good job right? Well, yes and no. They did exactly what the customer expected of them, and that’s a good thing. The problem is, they did only what was expected of them. He was told what was wrong and how much it was to repair it. It was fixed right for the price he was quoted and no one was directly rude to him. They simply didn’t do anything extra.

OK, let’s back up time a little bit. Let’s say that same customer takes his car into shop “B” for a coolant leak. The customer parks his vehicle in the parking lot and walks past the open bay doors toward the lobby. As he walks by he notices that this shop is especially clean. The lifts are painted in bright colors, the shop is well lit, and the only spill he saw was immediately being mopped up as soon as it happened.

One technician working near an open bay door smiled and said “Hello.” The customer said “hello” back and then asked if the walk-though door at the front was where he was supposed to go. The technician smiled and reassured him that the door he saw was the correct place to go.

The manager is on the phone. As soon as the manager saw the customer he smiled to the customer. The manager then motioned to the customer with his hand, inviting him to come to the counter. After the phone call, the manager then prepared the customer’s work order. “Make yourself at home,” he told the customer as he was shown to the waiting area. The manager also pointed out the coffee, where the remote to the TV is, and told him the shop has wireless internet access available in the lobby area.

The customer is delighted to hear that last one. Since his car unexpectedly disturbed his routine, at least now it won’t be a total loss because he can work with his office via his laptop. His vehicle is pulled into the shop and inspected. It is determined that the water pump has failed. The technician informs the manager.

After the manager created an estimate, he invites the customer out into the repair shop. Then, with the customer present, the manager and the technician pressurize the cooling system to demonstrate the leaking water pump to the customer. After that, the customer is given the price. It is authorized.

After the repairs, the customer is once again escorted into the service bay and the manager shows the old part to the customer and points to the new one on the vehicle. The manager explains that they have retested the cooling system and no other leaks were present. The customer was then escorted back to the lobby.

The technician road-tested and parked the vehicle. As the customer was paying the repair bill, which matched the quote, the manager pointed out the warranty statement on the invoice, pointed out the phone number to the shop on the invoice, and pointed to where the manager’s name can be found on the invoice if he ever needs it. A shop business card was also handed to the customer at that time. The manager asks if the customer would like to receive a free monthly newsletter from the shop. He explains that this newsletter does contain some car care tips and an occasional coupon, but mainly contains other things like lawn care tips, alerts about known computer viruses found in certain emails, and so on. The customer agrees to it.

One week after the repairs, the shop manager calls the customer to make sure that all is well with the vehicle.

Shop “B” didn’t really do anything that stood in the way of production. Nothing there, with exception to the small amount of extra time taken during the “selling” portion, took any more time to do than what shop “A” did. However, shop “B” performed several key points that made them stand out from the rest. (You noticed them all, right?)

Shop “B” should never need to price-market. In fact, shop “B” can probably be a little higher on services than the average shop. Shop “B” shouldn’t have to scream that they are “the best,” because the customer’s experience there does that for them.

OK, look at what shop “B” did in comparison to shop “A.” Both serviced the vehicle correctly. However, shop “B” not only serviced the vehicle, they also serviced the customer. The problem was explained to the customer better, and the repair was shown to the customer. The customer was greeted and acknowledged, among other key points of his visit.

If you are one who feels threatened by the dealerships, this is the area in which you will need to compete. Maybe they have the factory on their side when it comes to the technological aspect, but they drop the ball in servicing the customer.

Have you ever inspected a vehicle that has just over 30,000 miles to see a fuel filter on it that may still be the original? Of course. You ask the customer about the age of the filter, and they say “I don’t know, I just had it at the dealer for a big service, it cost me $400.00.” Well, as techs and shop managers, we assume from that information that the owner must have just had a 30,000 mile service done at the dealer. The fuel filter then should be new, and doesn’t require attention. But do you understand what just happened?

The customer was so disconnected from what was happening to their vehicle at the dealer that their only recollection of the experience was how much it cost them. Even worse, I’ve had customers jump to accusations in this situation, not against me, but against the other shop. “I’ll bet they ripped me off…. I’ll bet they took my money and didn’t do anything!”

Now, think about it, if you disconnect your customers from the service performed in the same way, doesn’t that put you in the same shoes as that last shop? Unfortunately (or fortunately depending on how you look at it), many shops operate with that same method. “The water pump is bad, it needs a new one, it will cost….” That method is something to avoid. If the customer is waiting, show it to them. If they are on the phone, then at least take a minute to explain what it is about that part that has caused it to fail.

You don’t have to get into a deep technical discussion about it, however, the words “It is bad” is not a sufficient explanation. A thorough explanation not only helps make you standout some from the crowd, it also reinforces the customer’s faith in the competency of the repair shop.

If you attempt a newsletter, then preferably a newsletter should be on good old-fashioned paper sent to their mailbox. Even better, there are companies who do this very thing.

For a low cost alternative, you can email it to them. However, something that they can hold in their hands and can stick to the refrigerator will have a more lasting impact. If you try the newsletter idea, limit the car stuff to one or two tips or topics. After all, who wants a newsletter from a heart surgeon about open-heart surgery sent to them every month? That’s boring. Include things like tips on how to remove a stain, energy conservation, a recipe for low cholesterol French fries… anything like that. The idea is to stay on their minds. That’s all.

Another way to achieve this is a customer clinic held at your shop. Once every quarter you can hold a customer clinic after hours. Serve light snacks and beverages, and give a little speech introducing yourself and staff to everyone. Keep it simple. You aren’t trying to make technicians out of these people. All you need to do is cover some emergency car care basics. Do you know of any shops that do this? Dare to be a little different.

Ok, so what do you have on your sign’s marquis right now? Does it say something like “A/C check $XX?” or “Oil change $XX?” Doesn’t that sound just like everyone else? Want to know a little secret? People don’t read those things unless they first make the effort to look up at them. That stuff is boring and most people don’t really care. They get bombarded with that kind of stuff by every business they drive past. So what makes yours so special for them to read what you put up there? Try being different there, too. Who says you have to put a service and a price up there?

Years ago, when I worked at a national chain tune-up shop, the store manager told me to change the sign. My sign stated, “We tune Rabbits, Colts, Cougars and other animals. Sorry Charlie, we can’t tune a fish.”

When people came in for service, several had things to say about the sign. The message didn’t give anything away and it didn’t discount anything, it just got attention. It was successful. Since then, I have put things on marquis that said things like, “Smile, it’s a natural face lift,” and, “We also service topless models.” Things like that can actually be the subject of talk at work for people. “Hey Bill, did you see what that car repair place down the street has up on their sign? It’s funny, you need to check it out on the way home.”

Cromer’s “guaranteed worst in town” on his sign did exactly that, it made people remember his business and also talk about it. Things like that also get the passing people in the habit of checking to see what is on the sign. Now when you offer a special on something, it will more likely get noticed. That’s right, I mentioned offering a special on something. I’m not against offering an occasional special price on a service. I just don’t think it’s healthy for any shop to live on special after special after special.

I believe that any shop that not only delivers quality service, but also stands out from the crowd can avoid living off of “loss leaders.” Without so many loss leaders, their revenue will be higher. As a result, little accidents like a hubcap that broke during repairs won’t be such an upset. Customers will benefit because the shop can afford to add little pluses like shuttle service to home or work. Higher shop revenue can mean better benefits for employees. Most importantly, higher revenue for reduced loss leaders will result in less stress to the management. I’m sure every manager can enjoy reduced stress.

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