Category: Retail Operations

Chez Vicky

As a young consultant at Coopers, I had the privilege of being included as the technology person on a number of engagements with other specialties. One such was the Victoria’s Secret engagement, where I was able to work with the firm’s top retail experts. I am going to make a point here, about knowing your customer, but not without telling the story.

Our customers in the Detroit office were mostly from the manufacturing practice, and the guys teased me about shipping out to the Victoria’s Secret facility. “Wear a hardhat,” one wag said, “in case a box of panties falls on you.” We did, in fact, keep hardhats in the office.

I did not know a corset from a camisole, so I resolved to study the catalog until I knew the names of all the items.

The retail people were different. My tech counterpart arrived from Chicago with just a rollaboard, same as me. He was chafed because he had had to wait for Charles, the retail expert, with his train of checked baggage. Bemberg lining, doctor’s sleeves, Aston-Martin cufflinks. They were a different species.

My side of the engagement was to evaluate the client’s competence in software management, capacity utilization, contingency planning, staffing, budgeting, and so forth – routine work for me.

I also ran the day-to-day activities of collecting data and conducting interviews. Victoria’s middle managers were, unbelievably, all attractive women. I would have to tell my guys to stop hyperventilating. “Yes, she’s hot. She’s also a VP.  We’re interviewing her tomorrow.”

The men who worked there seemed inured to Victoria’s charms. The head of store ops banged through the statistics from memory. He knew which item, color, and style sold best in each market.

“The black satin tap,” he said, on this topic, “that one.” He pointed, without looking up, at a promotional poster. I confronted a life-size photo of a dark-haired woman modelling this item, to good effect. I did not know, initially, a corset from a camisole, and so I resolved to study the catalog – no, not the illustrated one – until I knew the names of all the items.

The firm’s seniormost retail expert, Marge Meek, took me under her wing. She was a retail god. Like, personal friends with Marhsall Field, or something. Marge took me to visit some stores, which turns out to be pretty important in retail.

“Okay Mark, who is the Victoria’s Secret customer?” Well, to start with, she is young, fit, well-educated, and upwardly mobile. I rattled off what I had read in the annual report.

“Now look around. Is that who you see here?” I am a tech guy. It would never have occurred to me to visit a store and study the customers.  Marge offered her own characterization, which was a little less flattering, but undeniably accurate.

Back at the job site, we reprised our field trip for the team. Our engagement partner had his own opinion. “Women that date Mexicans,” was Dean’s pronouncement. He was not well-liked by the retail people.

Moving to Powersports

Back in 2020, I contacted all the leading F&I administrators, pitching my plan for AI-priced service contracts.  As soon as the conversation touched on VIN decoding, they would invariably stop and ask me if I could get VIN data for powersports.  This turned out to be a trend.

Having been in automotive for many years, I was a little sniffy about powersports – although I had worked with Ducati, Harley, and RumbleOn during my tenure at Safe-Guard.  What I knew then was that powersports had only one DMS (Lightspeed), one menu system (Maxim), and no – there was no good VIN service.

When you’re in the powersports industry, you’re selling fun.

At $34 billion, powersports is dwarfed by the mighty auto market, but it has higher margins and better growth.  According to published financials, gross profit is around 20% for auto retail and 30% for powersports.  I expect that the 3% CAGR will perk up as the ecosystem improves, which is the topic of today’s post.

In automotive, we have a rich software ecosystem.  In powersports, not so much.  The ecosystem is complicated by a wide array of vehicles, from jet skis to snowmobiles, with the attendant challenges in standard process and vehicle ID.

The Powersports Market

There are roughly 17,000 car dealers in America, compared to 7,000 motorcycle dealers.  From a dealer’s perspective, powersports means less competition and higher margins, according to Mercer Capital – and it is terra nova for software vendors, as well.  Public auto group Sonic took Mercer’s advice, recently acquiring 13 powersports dealerships.

Here is another explainer, this one from SEMA, on the market structure of ATVs, UTVs, and motorcycles.  I am including it basically for this great quote from dealer consultant Rob Greenwald.  “When you’re in the powersports industry, you’re selling fun,” he said. “We sell lifestyle.”

Unlike buying a car, a powersports purchase is discretionary.  This means it’s more susceptible to economic downturns, but it’s also more fun.  People enjoy visiting the dealership, and that changes the technology model.

Digital retail, for example, is still important – but not to reduce time in the dealership.  It’s so that we don’t have to pull you out of that RZR to sign papers.

Crossover Software Vendors

A few of the website providers I wrote about are also active in powersports, like Dealer Inspire and Fox.  However, neither of these seems to have their digital retail solution in play.  One DR vendor that I recognize from auto is Joydrive, which made a strong entrance by partnering with Polaris and Octane.

Octane is the leading finance source in powersports, but there is a new entrant from the auto space, RouteOne founder Toyota Financial.  TFS is now the private label consumer and wholesale finance source for Bass Pro.

Another crossover vendor is Darwin which, after dominating the auto space, moved first into motorcycles – challenging Maxim’s lock on Harley-Davidson – and now into other powersports.  Speaking of menu selling, F&I providers here are Galt, Safe-Guard, and Protective.

Movement Toward Powersports

What I encountered in 2020 seems to have been a general movement toward powersports.  Lured by big groups like Bass Pro with its 170 locations, Marine Max (125), and RumbleOn (60), software vendors are extending into powersports.

There sure are a lot of motorcycles at this car show.

They will go where the dealers are and, as I walked the NADA show in Dallas, I had to smile at the untapped demand.  “Drop your business card and win this Harley,” offered one vendor.

“There sure are a lot of motorcycles at this car show,” I remarked.  And then there was the Kawasaki booth, enlisting car dealers looking to diversify – for fun and profit.

GPS Trackers and OBD Ports

While I was working at Safe-Guard, in 2018, we adopted and co-branded a GPS tracker from ZAZ.  Shortly thereafter, we learned that our crosstown rival, EasyCare, was backing another such product, called SAVY.

Of the two, SAVY had more consumer-friendly features in their mobile app, which I feel is decisive.  This point of strategic positioning is the focus of today’s post.

Neither hookup did well, demonstrating that providers of “paper” F&I products are ill-equipped to deploy hardware.  I took the installer training, just for grins, with Hector Delgado.  So, at least I have a useful skill to fall back on.

I also consulted briefly for LoJack, in 2012, helping them sort out issues around preloading – issues they solved, ultimately, by selling the brand to Spireon.  Old-timers will recall LoJack used to work on radio.  It’s GPS now, like all the others.  “New LoJack by Spireon” is, in fact, old Spireon plus the stronger brand name.  The field today consists of:

    • Ikon
    • LoJack
    • Recover
    • SAVY
    • ZAZ

The model for all of these is that the dealer installs the tracking devices and uses them for lot management, and then sells them through to customers as theft protection.  They’re often sold as a nonnegotiable “preload,” which makes sense from the dealer’s perspective because it would cost another $50 of technician time to remove the device if the customer doesn’t want it.  You can see how consumer mobile app-appeal figures into our story.

If the device is drawing power from an OBD port, it can report the vehicle’s battery condition along with its location.  There’s a lot more you can do with OBD data, but manufacturers can be prickly about connecting to those other pins.  The typical device consists of the GPS chip, a cell modem, and an accelerometer.  You may have noticed that your iPhone also includes these parts, but not the OBD plug.

Speaking of those other pins, subprime lenders and BHPH dealers can wire the device to do starter interrupt.  That is, the OBD-powered devices.  The Recover device I saw at NADA is battery powered.  The argument for a battery-powered device is that it’s easier to install.  The opposing argument is around battery life, especially if you are selling it through, and the advanced capabilities available to an OBD scanner.

Connected Car Features

This brings me to the consumer features:

    • Service reminders
    • Teen driving
    • Driver performance
    • OBD health scan
    • Dealer inventory
    • Service scheduling
    • Credit application
    • Trip history
    • Recall notification
    • Digital glovebox

The astute reader will note that many of these features also aid the dealer in customer retention.  On the other hand, dealer-friendly features don’t mean a thing if the customer doesn’t use the app.  So, preloading can work against you if F&I fails to upsell the device properly.

Also, as mentioned above, your iPhone can support most of these functions on its own.  I run Life 360, which adds “insurance referral” to the driver performance feature.  The advantage to the dealer-installed device is that it’s physically attached to the vehicle.  By the way, you can buy a home OBD scanner for $30 at Walmart.

The dealer-installed GPS tracker is an amalgam of all these capabilities.  The key to success is exploiting them creatively and packaging them in ways that appeal to the consumer.

Direct to Consumer VSC Sales

Direct to consumer (D2C) service contract sales can be divided into two broad categories: with and without dealer consent.  This, along with the lifecycle “touchpoint,” determines the choice of tactics. Today’s post will discuss the state of the art for dealer-driven D2C selling.

Direct-to-consumer marketers price VSCs to absorb high cancellation rates and can generate margins in excess of 25% – Gina Cocking

Outfits like Car Shield market directly to consumers using their own advertising and their own lead lists.  These are generally brokers, selling service contracts from their chosen administrators, outside the dealer process.  Car Chex does this, and also does marketing for dealers.  Endurance, whose ads you may have seen on television, is actually an administrator.  On the dealer side, obviously, D2C marketers will offer whatever service contract is sold in the dealership.  The leaders here are APC and Dialog Direct.

The traditional tactics are telemarketing and direct mail, but there are some exciting new entrants.  The image above is from Tec Assured.  Their 2-8-28 contact program uses a combination of digital and phone messages directing the customer to a branded website.  The site handles credit cards and premium finance.  Instead of a call center, Tec Assured leverages the dealer’s BDC.

So, the ideal approach would be some Hegelian synthesis of the old and the new.  First, though, let’s talk about touchpoints:

  1. Second chance – this is around thirty days after the vehicle purchase, and the talk track is something like, “hope you’re enjoying the new car, and you forgot to buy a service contract.”
  2. Warranty expiration – this is a few months before the factory warranty expires. A postcard is traditional.  Directing the customer to your website, via digital marketing, is more modern.
  3. Service visit – dealers have the inside track here, because they can follow up a service visit with something like, “lucky thing that repair was covered.”

Thinking about these touchpoints, you can see the power of adding digital tactics to traditional D2C marketing.  You may also have noticed the eligibility issue and the financing issue, because the sale is happening outside the dealership and after vehicle purchase.

Servicecontract.com offers monthly subscription pricing, which may begin during the factory warranty period.  This means the customer is paying in advance for coverage that hasn’t started yet.  On the other hand, if the factory warranty is expired, then they require an inspection at Pep Boys or a 30-day waiting period.

Financing is key.  No one is going to buy a $2,000 service contract on their credit card.  This is why Dialog Direct is affiliated with Budco, a well-known premium finance provider.  APC also has a financing arm.  Servicecontract.com is essentially an innovative form of premium finance.

In my experience, the hardest piece to build is the call center and support infrastructure.  Whoever handles the finance contract has to support accounting, cancellations, and customer service.  Even if you’re not doing telemarketing, you still need a call center.

Digital marketing means using email, text, social, and retargeting to direct the customer to your website, following a contact program like Tec Assured.  As a Salesforce trailblazer, I would call this a “customer journey.”  The journey should be driven by some analytics, and culminate in the customer clicking a Personalized URL that links to the website.  The journey can also include phone contact and direct mail.

The website can change its skin to match the dealer’s branding, based on the PURL.  When I was at MenuVantage, we supported a dozen different brands, like GMAC’s IntelliMenu, all from a single code base.  The site UX will include the usual shopping and checkout features, along with sales tools like testimonials and TCO data – not unlike an F&I menu system.

Also like a menu system, the website must be able to originate contracts via API for whatever product provider the dealer chooses.  See my various posts on this topic, as here and here.

This is classic digital transformation.  The challengers bring new tactics, and these tactics will certainly become the norm.  The incumbents are well entrenched, though, and tactics can be copied.