Consider Line Extension to Grow Your Business
Expand your business by using equipment and capabilities you already have to provide additional services.
A few years ago, the Harvard Business Review published an article in which they made the following observation: If the railroad industry had not looked at itself as being in the railroad business, but rather as being in the transportation business, today there would be companies like Burlington Northern Airlines, Santa Fe Cruise Lines and Union Pacific Trucking. Their myopic view of the business they were in led to the failure of many railroad companies and to the near failure of the industry itself.
How does this apply to the auto repair industry? Often, we get so caught up in the scramble to get new customers who fit into our business model that we forget the potential gold mine that exists in our current customer base. This is especially the case for specialty shops, but it applies to many full-service shops as well. Much has been written, taught and discussed about how to harvest repeat business and referral business from within your existing customer base, but there has been little discussion about a strategy called “product/service line extension.”
Product/service line extension (PSLE), as the name indicates, involves adding additional products or services to your current menu. Some of the most obvious in our industry are transmission shops, muffler shops, fast lubes and brake shops that are now offering general repair services to supplement the declining demand for their services. That declining demand is proliferated by the fact that many general repair shops have extended their service menus to include these specialized services.
While PSLE may seem like a “no-brainer,” there are some potential pitfalls and even some land mines to avoid. In this article, I’ll address a few of the key factors to consider before launching into PSLE in your business.
The first consideration is your shop’s physical capacity. If the PSLE you’re considering involves adding equipment or inventory, does your shop have adequate space available? Does your shop have some underutilized space? If not, the ideal PSLE would be something that can be conducted in the existing space without creating a production bottleneck. For example, fast lubes found that some of the added services negatively impacted their quick, in-and-out service, so they had to limit the added services. Transmission shops usually have the vehicle for a longer period of time, so adding services is simply about making greater use of the space.
The capability of the staff is another consideration; you might call it team capacity. Do you currently employ technicians who can perform the service(s) you’re considering? Do they have the knowledge, skills and tools? Also, you need to consider if they have the desire … you’re doomed from the start if your team isn’t on board with the program. Not to be ignored, do they have the time or are they already overloaded? Look for something that can be added without consuming an inordinate amount of the technicians’ time.
For example, you could add transmission or power steering fluid exchange services – since these services are basically done by a machine. That frees the technician to do other work while the machine performs the service.
Consider the difficulty and risk factors involved. An example of a high-risk PSLE is installing transmissions. With the easy availability of new, used and remanufactured transmissions, there’s a great temptation for general repair shops to venture into this market. I know of several general repair shops that have done so … some with success and others with heartache. The biggest land mine in this strategy is in the preliminary diagnosis. Many vehicles present malfunctions and other evidence that a replacement unit is needed when there’s actually something external to the transmission that’s coincidentally causing the problem.
Often the replacement unit exhibits that exact problem; or it works for a short time, only to fail due to the same external problem that caused the first failure. Unless you have access to the latest tech info – specifically for transmissions – you run the risk of replacing a unit that only has a minor external problem. You can gain access to a lot of tech info through your membership in organizations like the Automotive Service Association (ASA), Automatic Transmission Rebuilders Association (ATRA) and Automatic Transmission Service Group (ATSG).
There’s also a soon-to-be released, online service called Bulletin Filter (www.bulletin filter.com) that addresses this issue. It searches an extensive database for the year, make, model and transmission type in question and matches the symptoms to reveal the specific technical service bulletins that address possible simple fixes, so you don’t end up selling a transmission when it isn’t needed. But the better choice might be to outsource your transmission work to your local, trusted transmission shop.
Ask yourself if the service you’re considering is a good fit for your current business. Does it complement your current service menu, or does it distract from or interfere with it? An example of a good fit is a tire store doing alignments. I’m surprised at how many tire stores don’t do alignments… maybe there’s something I’m missing, but it doesn’t seem like a quantum leap. A bad fit is anything that gets in the way, dilutes your core business or sends a confusing message to your customers.
One time, we decided to add custom exhaust service in our transmission shops. We made the decision by the seat of our pants and ended up facing each of the pitfalls mentioned above.
In the end, we stopped selling exhaust work unless it was on vehicles that were already there for transmission work. It still added profit, but we learned to gracefully decline the exhaust-only jobs, thereby sending a confusing message to our customers.
Ultimately it boils down to the money: You need to consider your return on investment (ROI) and incremental gross profit. Calculate how many of the proposed new services you need to sell to generate enough incremental gross profit dollars to pay for the added costs and expenses to make it worthwhile.
To determine your incremental gross profit, deduct the cost of parts, materials and direct labor costs from the selling price of the service. Also deduct any other intrinsic costs, such as training expense, amortized cost of equipment and loss of revenue if it detracts from your shop’s ability to perform your more profitable core services. Now ask yourself whether you can find and sell enough of these types of jobs within your existing customer base to make it pay.
The idea is to increase your gross profit and bottom line within your existing customer base, thereby minimizing any added marketing expenses. Don’t fall into the same trap the railroad industry did … just be creative and think before you leap.If you have any questions or would like to discuss this article in greater detail, feel free to reach me at the contact info below.
Editor’s Note: This article is one of several management articles that are being contributed to AutoInc. this year by Automotive Management Institute (AMI) instructors. AMI’s knowledgeable instructors will continue covering a variety of topics designed to educate and train today’s service and repair professional in AutoInc. To learn more about AMI, its courses – including its monthly webinars – and instructors, visit www.AMIonline.org. AMI administers the distinguished Accredited Automotive Manager (AAM) program.
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