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How wrong promotions and policies can cripple your business…

July 26, 2007

no-sale.gif   What if you offered free products, and prominently posted a 1-800 customer satisfaction number direct to the corporate office in your customer waiting area?   Sounds like some pretty great ideas to demonstrate customer focus and care, right?   A “can’t miss” recipe for business success … or a sure fire going out of business strategy?  Last night I listened with sheer incredulity, as my brother described the marketing and operations blunders of the chain of auto service stores he works for.   Leaving the conversation, I was amazed at some of the basic business 101 mistakes.  Let me summarize a few here:

Always link free promos to a legitimate fee offering.   This company offered free oil change coupons in the paper with no requirement for use in conjunction with any paid service.   The promotions were driven at the regional levels,  handed down to store managers and built upon a flimsy upsell premise.  Give away an oil change and find things wrong with the customer’s car as an opportunity for upsell.   Result?   Customers show up for the free oil change, and decline further service.   Wait times are often 45 mins to 1 hour, during which time, customers who are frustrated with the time taken to receive their free service call the corporate line and complain.  Result?  They are provided with coupons on the spot for additional free oil changes, and other free services.    The store must absorb the materials and labor cost of the promotions as an expense hit against it’s monthly P & L.

If one “loss leader” is good, why not three? -The store also offered “lifetime alignments” and “lifetime free tire rotation” (no limit on frequency, or intervals between use)  Similar programs intended to build loyalty or “stickiness” of the customer to come back for routine free service, at which time additional services could be offered.  These activities consume 30 minutes of mechanic labor and result in zero revenue for the store.  The mechanic’s receive only 50% of the normal book hours, so the employees share in the impact to their bottom line when the customer declines further service.   Finding ways to “out-free” your compeition is not a solid way to build a business.  “You should do business with us, we have more lenient terms and conditions and provide more services for free”.

Manage your mixThe uptake on these free services is understandably high, and the mix of free service vs paid service hours in the day has grown out of proportion.   Not only are these no revenue service promotions a material and labor drain, they delay work on more lucrative repairs, resulting in additional concessions and further profit erosion.

Concessions should be proportionate – A customer, waiting for 4 new tires to be installed grew impatient, and looking through the window, noted several mechanics who were not working on his particular vehicle, engaged in horseplay.  He called the 800 number on his cell phone, from the waiting room and was compensated by having his entire bill zeroed out.  The tires, mounting, balancing, installation – all on the house.  And yes, those did come with lifetime free rotation, as often as he would like to stop in.  

Think end to end – Based on the approach to warranty, in which the company eats 100% of the come back repairs, the approach to air conditioning should be a no-brainer.  Do it right the first time.  Instead, many customers decline the leak test and just request an evac and recharge.  The system of course, leaks out shortly, and they are back for warranty.  Under warranty, which bills the customer nothing, and pays the mechanic 50% book rate and nothing for parts used (underwritten as expense by the store) the source of the leak is found, and replaced – be it a cheap ‘O’ ring, or an expensive evaporator.   In this scenario, the customer has just invited the store to underwrite the consequences of his unwillingness to pay to have the repair properly performed, and the store has oblidged.  “We lose a little on every deal, but make it up in volume”.

My brother’s stories went on in more detail to the inexplicably short sighted operations and warranty practices, and the prevailing theme that the management solution to flagging revenue was to seek increasingly higher volumes of customers.I was left pondering the old addages of the customer is always right, or the customer is king.  This may be true, so long as the person is a customer.  When they are no longer paying, are they really a customer?   If one leads with promotions targeting people that are brought in by the prospect of getting something for free, what kind of customer are they likely to be?  A thirfty one.   It may be difficult to convert them into the kind of lucrative, and sustainable customers that a business can be built upon. 

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2 Comments leave one →
  1. July 31, 2007 5:04 am

    Amen brother Mark, preach it!

    On a serious note, I’m not surprised these things happen. Wherever free things appear, cheap people who will spend incredible amounts of time & energy to receive only those free things will appear.

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