Case Solution ~ Sullivan Ford Auto World

BA 235 Services Marketing Group 7: Case Solution ~ Sullivan Ford Auto World Feb. 2012

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Case Background Walter Sullivan the founder of Sullivan Ford Auto World died and his eldest daughter Carol Sullivan-Diaz, a health care manager by profession took over the business and found out that the family business is in financial trouble based on current financial performance and market outlook. In addition, CSAT results from car buyers show that the company has problems with their service quality. -

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Sullivan Ford Auto World Facts: Average sales of 1,100 cars per year Posted Revenues: $26.6 M – car sales (from last year’s $30.5 M) $ 2.8 M – service & parts sales (from last year’s $ 3.6 M) Margins on car sales are low (5.5% of sales revenue & 25% for service). Auto World’s financial situation had been deteriorating for the past 18 months and running at a loss for the past 6 months. Past 12 months’ financials show that gross sales figures are not enough to cover fixed expenses Margins had been squeezed by promotions and other marketing efforts. Market: Due to rising fuel prices, industry and in-house forecasts for future sales were discouraging. Trend is shifting towards vehicle service transactions. 30-day Purchasers CSAT Survey Results Auto world achieved better than average ratings 90% of customers said that Auto world informed them of what to do if they needed service Less than 33% of respondents said that they have been introduced to someone in the service department (which is a sales protocol) 90-day Purchasers CSAT Survey Results - Overall satisfaction with Auto World Service Department was consistently low placing it in the bottom 25% of all Ford dealers - More than 50% of respondents said they would rather use another Ford dealer for future service

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Major Concerns: • Promptness of writing up orders • Convenience of service hours • Appearance of the service department • Interpersonal variables such as attitude of personnel, politeness, understanding of customer problems and explanation of work performed

Problem Statement Should Carol Sullivan-Diaz sell Sullivan Ford Auto World to prevent future losses or try to turn it around? If she chose the latter, what changes & improvements should she implement to improve service quality in Auto World?

Case Analysis Flower of Service Core Service: Car dealership Supplementary Service: Vehicle servicing Facilitating Elements •

Information

Along Wilson Avenue, the Sullivan Ford Auto World rotating signage can be easily seen. A vast display of cars and trucks fronts the showroom. It also has banners saying “Let’s Make A Deal. The service facility is at the back and is not visibly seen along the highway. •

Order-taking

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The front end of the dealership employs salespeople who are tasked to transact with possible customers. The dealership offers brand new and preowned vehicles. Some customers who are initially looking at buying brand new vehicles sometimes realize that they cannot afford one and just settles for refurbished cars. Similarly, there are customers looking at pre-owned cars and are sometimes convinced to buy brand new cars. At the back end, service writers schedule appointments for repairs and maintenance. For repairs, estimates are given to the client after the vehicle is diagnosed by a mechanic. •

Billing

For car sales, it is not specified in the case but this usually differs per customer transaction. For vehicle servicing, customers are usually billed after the service is done. •

Payment

For car sales, it is not specified in the case but this usually differs per customer transaction. It can be paid with outright cash, in-house loan or thru an auto loan from a bank. Sullivan Ford Auto World also allows trading in of the purchaser’s existing vehicle for the new one. For vehicle servicing, customers pay after the service is done. Enhancing Elements •

Consultation

At the front end, car salespersons are there to assist and answer queries of possible customers that are looking for brand new or pre-owned vehicles.

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For the back end, service writers and mechanics assist customers by coming up with estimates or quotations for services that need to be done on the vehicles. •

Hospitality

The front end is a high-ceilinged showroom where four new models of cars, polished to a high sheen, are displayed for customers to check out. The back end is quite the opposite with its cramped room and walls with peeling paint. There was no mention of chairs or waiting lounge, customers stood while waiting for their work orders. •

Security (None mentioned in the case)

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Exceptions (None mentioned in the case)

7 P’s Analysis •

PRODUCT

Sullivan ford Auto World Product Mix

Front–End: Car Sales Sullivan Ford Auto World sells brand new Ford vehicles and pre-owned or traded vehicles that they refurbish in the service department. Ford is a

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known brand for its quality. Refurbished vehicles are also of good quality given the expertise of Auto World mechanics and service personnel. Back–end: Service Dep’t The Service Department offers servicing for cars that broke-down and/or need parts replacement (Possession Processing). •

PLACE & TIME

Sullivan Ford Auto World has a very good location in a suburban highway intersection, in an area of the city where housing developments are constructed. This location gives Auto world visibility and accessibility to two major markets: the motorists and the residents. Service department is located at the back of the sales area which gives opportunity for salespeople to refer the company’s service area to buyers. Sales operation hours are assumed to take place on normal office hours, same goes with the servicing of the vehicle. It can be inconvenient for customers to follow the window period of checking in vehicles for repair before 8:30AM and pick-up by 6:00PM when service is completed. In addition, the service writing process is not efficient and has lot of bottlenecks and is not convenient for customers. •

PRICE

No detail on pricing was mentioned in the case but it was implied that Sullivan Ford Auto World has low margins for selling brand new vehicles. Walter Sullivan was even aggressive on giving discounts and deals to attract high volume of buyers. The company’s pricing strategy is to offer lower the price to stimulate demand or attract buyers. On the contrary, aggressive discounts and low prices may convey poor quality of service to customers.

BA 235 Services Marketing Group 7: Case Solution ~ Sullivan Ford Auto World Feb. 2012

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PROMOTION

The company invests heavily on promotions and giving deals to induce buyers. No promos were mentioned in the case regarding its service center. Promotions and generous deals helped the company maintain desired sales volume in the past but records show that revenues have declined in the past few years and forecasts indicate that this decline may continue because of high interest rates. There are minimal promotion activities for the service department. It seems that management has overlooked the shift of sales contribution from car sales to service. They should also launch promotional activities for the service department to help drive service sales up – since the service department is not operating at capacity. •

PROCESS

We have identified processes that Carol Sullivan-Diaz should look into: Writing of Service Orders Process for service writing is out of date and is inconvenient to customers. Bottlenecks and disturbances are not properly managed. Customers relay the problems on their vehicles to the service writers. This gives high probability of incorrect diagnostics, solutions offered and estimates when customers have low technical know-how. This may be the reason why rework is a common occurrence which frustrates customers even more. Sales Process

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Salespeople do not adhere to the sales process standard procedure. Some sales people are hesitant in referring the Auto World service center because they know customers may get turned off and risk losing the sale. Referral of the service center is part of the sales protocol and should be firmly implemented. •

PHYSICAL ENVIRONMENT

Case literature explicitly described discrepancy of the physical appearance of the front-end or the sales area (showroom and office) and the back-end or the service center area (office for service writing & service bays). The front-end is modern and well maintained while the back-end area is the exact opposite. The condition of the back-end area is the main reason why sales people do not refer Auto-World’s service center despite the high skill level that its employees have. •

PEOPLE

Car Sales or the Front–end team is composed of the Sales Manager, 7 Sales People, the Office Manager & the Secretary. The Service Department is composed of the Service Manager, Parts Supervisor, 9 Mechanics and 2 service writers. Survey results show that customers are not happy with the quality of service provided by the Service Department. Lowlights of the CSAT survey results are: promptness of writing up orders; convenience of service hours; physical appearance of the service department personnel; their politeness and way of understanding customer problems and communicating work performed. Service writers are demotivated and have high absenteeism and turnover rate due to high level of stress of the job.

BA 235 Services Marketing Group 7: Case Solution ~ Sullivan Ford Auto World Feb. 2012

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PRODUCTIVITY

The service department is not operating at full capacity as stated in the case. In addition, the service personnel do a lot of rework due to incorrect diagnosis. On the other hand, service writers are fully utilized due to the long and manual process of writing service but customers are not happy with how their service orders are handled. Productivity & efficiency of the personnel is low because of the factors described above.

SWOT ANALYSIS • -

Strengths

Strong brand equity, The Sullivan Ford Auto World is already an established car dealership company in their area as the late Walt Sullivan was a well-known salesman and entrepreneur, appearing in TV and radio commercials as well as community affairs.

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The carrying brand Ford is also a well-established quality car brand.

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Its location on the intersection of Wilson Ave and Route 78 suggests a prime location for a car dealership. The nice façade and showroom will also attract a lot of possible customers. •

Weakness

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The back end office is not well maintained and turns off customers. Work orders take too long to prepare. Service writers are too stressed and most likely experience emotional battery. This results to high employee turnover

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Front end office employees tend to not refer the company’s vehicle servicing department. This results to lost revenues for the back end office

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Poor customer service survey results for the back end office

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Poor management of customer complaints •

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Opportunity

Carol Sullivan has a lot of experience in health service management. Health services are very high contact and her expertise will be a huge help in turning around the quality of service of Sullivan Ford Auto World

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Threats

Bill Froelich, owner of several dealerships, expressed interest in buying out the company in order to achieve economies of scale.

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Poor result of customer survey of the service department showed that clients are more likely to go to another Ford dealer or some other place for their car repair and maintenance needs

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There is no established formal channel for customer complaints as exemplified by the shouting customer towards the end of the case. Other customers who may be at the vicinity at the time of the incident may be turned off or lose interest in purchasing their needs at the dealership.

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Service Quality Gaps (Gaps Model) 1.

Knowledge Gap

For the service department of Auto World, it is clear that there is a difference between the company’s perceived expectations of their customer and the actual customer expectations. -

Management avoids handling and facing customer complaints. This results to management not knowing and not addressing the root cause of the problem.

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Such avoidance results to unpleased customers getting more irate.

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Management puts more focus on vehicle sales rather than keeping buyers happy with their service center. The focus is on acquiring new customers rather than building strong customer relationships.

2. The Policy Gap: Incorrect Perception of Customer Expectations and Quality Standards Set -

Unsystematic service design for writing service orders (frontline), long and slow lines.

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Management’s decision on not investing in technology to make business process efficient because of cost considerations.

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Inability of management to pulse customer requirements and expectations.

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Servicescape does not motivate employees to give quality service and does not meet customer needs. The office where service customers are first greeted is not well maintained – old building, peeling wall paint, and no seats for waiting customers.

3. Service Performance or Delivery Gap

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Based on the survey results Auto World received poor ratings on the question “Was the problem fixed right?”

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Employees are not motivated to do well in their work and have high absenteeism.

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Poor soft skills of employees.

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Poor employee skills on handling service failure recovery.

4. Communications Gap -

There is very weak internal marketing. Even the sales people are hesitant to market the company’s own service center for the fear or turning-off customers due to the aesthetic of the servicescape.

5. Customer Gap -

A lot of customers are not satisfied because there is a big difference between the qualities of what customers of Auto World expects and what they perceived they received.

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Because of poor soft skills, the service writers do not communicate well what was performed when they assist the customers in picking serviced vehicles.

Alternative Courses of Action ALTERNATIVE 1: Sell the business. PROS 1. They wouldn’t have to look for potential buyer because Bill Froelich is already interested in buying the company. 2. The financial situation of the company is already deteriorating for the past 18 months. If the situation worsens they could be losing more

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money or the sale value of the company will continue to decrease. Selling the company will cut further losses. 3. Fuel prices are increasing and car sales industry forecast looks discouraging. They might be better off selling the dealership. 4. The back end office is in a bad shape, they would need financial investment to improve the physical environment as well as quality of service of the employees. If they sellout, they wouldn’t have to shell out more money. 5. Selling gross is shifting from car sales to vehicle servicing. The company cannot capitalize on this because the vehicle servicing department is not doing well. 6. Neither Carol nor any of the other family members is really interested in making a career of running the dealership. There is no longer a need for Carol to resign from her job where she is successful. CONS 1. The dealership is the legacy of Walter Sullivan. He was able to build up the company to be one of the best known in the metropolitan area. Selling will lose the family’s legacy. 2. Bill Froelich is offering to buy the company at a price represented by a fair valuation of the assets plus goodwill of $250,000, which is lower than what is usually offered. Selling Auto World now means selling at a loss. 3. As per survey results, the front end customers are still quite satisfied with the service of the sales department. The company has competent sales people. 4. Carol can use her expertise in health service management to improve the financial performance of the business. Selling now will lose the opportunity to sell at a higher and fair price in the future.

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5. Selling is an act of giving up. ALTERNATIVE 2: Try to turn the business around. PROS 1. Carol has an MBA degree and a successful marketing career in the health care services. Knowledge, expertise and wisdom that she gained from these experiences can help turn around their family business. 2. Carol is armed with familiarity with the operations of Sullivan Ford Auto World and the data from CSAT Surveys and sales report can help her identify problem areas and find solutions to these problems. 3. Auto World has technically skilled and competent staff. 4. The business has a favorable location and is a well known dealer. 5. Carol is relatively young and can bring fresh blood to the company. Even if she fails, she will not have a hard time finding new work in the health care industry which she prefers. CONS: 1. Carol might need to resign from her current work and dedicate her time for the family business. 2. If her attempts to save the business will be unsuccessful, the company may incur more losses and might be sold at lower price. 3. Carol may lack the influence to the employees of Auto World. To save the business, Carol needs to implement changes on the operations and employees might resist these changes. Alternative 3: Hire an expert in auto sales and auto service to run Auto World. PROS:

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1. There will be no need for Carol to resign from her current job and just oversee how the hired expert will run the business. 2. The expert may be more objective in managing the business and will not be affected by existing relationships and biases. CONS: 1. This will entail additional expense for the company. The company has been in the red for the past months and may not have the budget to hire a new manager. 2. The expert may be unfamiliar with Auto-World’s operations & culture.

Recommendations Carol should take over in running the business and implement some changes to improve the company’s financial position. Carol’s MBA and marketing experience in health service industry has equipped her with scientific approach and methodology in problem solving which was lacking in past management of Auto-World. In addition, Carol has long exposure to the company’s operations that makes her to be in the best position to pinpoint problem areas and come up with solutions. To turn around the company’s situation, we recommend the following action plans: -

Revisit business processes with the purpose identifying & eliminating wastes (LEAN) and implementing continuous improvements (Kaizen). Start on the service writing process, computerize the service writing and billing to decrease turn-around time and avoid long waiting time of customers. To avoid rework, it may be better that customers first speak to mechanics and mechanics will

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forward his diagnosis to service writers who will give the quotations. Mechanics should also be able to explain to customers the diagnosis, especially if there are several possible problems. This is to manage the expectations of the customer that it may take several tries to pinpoint the exact problem. -

Improve the servicescape of the service department. This should be at par with the front-end business. For a start, they could provide a waiting lounge with chairs. If possible a TV and some magazines so that customers may still be entertained while they are waiting. Doing this will improve customer impressions on doing business with Auto World and lift morale of the employees. Salespeople will also be proud to refer the company’s service department with its new look.

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Launch soft-skills training for the service department employees with the objective of instilling customer service culture. The back-end business employees have high technical skills but lacks people-skills. The training will also include proper handling of service failures. Carol can hire an outside consultant to do this.

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Launch a customer care program to encourage delivering highquality service. The company can do their own after-sales surveys and reward employees with high evaluations and impose performance improvement programs on those who continuously fail. Integrate survey results in the performance appraisal of the employees.

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Redefine qualifications for service personnel selection. HR should be noted of qualifications and standards for selection of future employees- excellent interpersonal communication skills, pleasant appearance and etc.

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Design a channel where customers can supply feedback from their most recent transactions. Feedbacks can be supplied onsite

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(feedback forms) and electronically (through sms or emails). The objective is to make the process of sending positive and negative feedbacks easy for the customers. -

Include in the sales managers’ objectives that protocols are being followed. This will ensure that sales people always refer the service department.

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Include the service department in the promotions and other marketing activities. This will increase awareness of the service department. Upon computerization, the company can also create a database which can monitor customers. The company can identify loyal customers or those who never came back. With that they can implement customer loyalty discount schemes (ex. 10% discount on your third change oil service). They can also call customers and remind them of service offerings (ex. Calling a customer after 6 months and asking/reminding that they might need a tune up or change oil)

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Change the window time for check-in and check-out of vehicles. Surveys show that customers feel that the service hour is inconvenient. Extend time for check-in and checkout without adding headcount through shifting schedule of the employees.

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Implement a dress-code policy. This is in response to negative survey results on service employee appearance specially the front liners. Appropriate dress-code promotes proper office decorum and lifts employee self-esteem. If possible provide uniforms for the front liners (e.g. collared polo shirts in company color with company logo and employee name) and the mechanics (e.g. single colored coveralls with name and company logo).

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Come up with innovative offerings that can drive up the company profit. An example will be offering extension of service

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warranties for an additional premium to new and pre-owned vehicle buyers. Auto World should maximize potential of this captive market. -

Offer additional services that will be of value to the customers. When the company starts doing better again, they could come up with additional services that would entice customers to keep coming back or to attract new ones. They could offer free pickup and delivery of cars for repair or maintenance. Another example could be a day-after service call or follow up, just to check if the customer was happy and satisfied with their service.