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					                                                                                                    MGMT E-6020
                                                                                                   October 17, 2011

                            Midterm Exam Case Analysis: Sullivan Ford Auto World

        Carol Sullivan-Diaz, a young health care manager, finds herself responsible for running her family’s car

dealership when her father, Walt Sullivan, unexpectedly passes away. As Carol analyzes the state of the

dealership she is growing increasingly concerned about the poor performance of the business, both with regard

to the sales (“front end”) and service (“back end”) departments. Carol wonders whether a turnaround is

possible. Auto World has been financially deteriorating for the past 18 months. The business has been losing

money as a result of several factors, including, on the sales side, a decline in new car sales caused in part by

rising interest rates, squeezed margins due to promotional activities, and rising fuel prices. Service revenues are

below average compared to other similarly sized dealerships although a small surplus is still being made. Auto

World’s decline, however, is partly based on internal factors that can be changed, particularly on the service side

of the business.

        To succeed in the auto business marketing has to be concentrated on both the sales and service aspects

of the business. The challenge is that marketing vehicles differs from marketing services for those same

vehicles, and services pose distinct marketing challenges. Marketing a vehicle consists of both marketing the

core product (the vehicle that responds to the customers’ primary need and involves transfer of ownership) and

the supplementary service elements that, as Lovelock explains, “are mutually reinforcing value-added

enhancements that help customers to use the core product more effectively.” Historically Walt Sullivan

approached vehicle sales by emphasizing promotions, discounts, and deals, which helped maintain sales volume.

These are effective marketing tools that help drive vehicle sales, yet they do not address the services available to

the buyer after purchase.

        According to a continuum first suggested by Lynn Shostack, purchasing a car is low on intangible

elements and high on physical elements, which makes the marketing different for the service aspect of the

business, which is higher on intangible elements. Marketing a vehicle involves creating the most attractive offer

for the customer as compared to competitors. Motor vehicles are high in search attributes and are easy to

evaluate so the potential buyer has typically done some research and has in mind the make and often model of
the vehicle he or she desires. Once the buyer has decided on Ford as the manufacturer, where the buyer makes

the purchase will most often come down to price. In this sense, Walt Sullivan’s approach to car sales is on point

and should continue to be pursued, with a tighter control on spending to improve margins.

        The core product (the vehicle) is a physical good, while the separately charged supplementary services

have a physical outcome, in terms of service to the vehicle, but are based on interaction and intangibles. The

intangibles make marketing services for a vehicle more difficult. The services provided by Auto World for

vehicle owners are considered labor and expertise rental. The customer hires service personnel to perform work

on the vehicle that he or she most often cannot perform. The buyer is seeking the service because he or she

lacks, in most cases, the expertise, tools, or skills to get the job done. As Lovelock points out, “it is the

intangible elements – including the labor and expertise of service employees – that dominate the creation of

value in service performances.” Marketing strategies for sales and service have to evolve from the similarities

and differences between the two areas.

        Walt Sullivan was able to successfully build one of the best known auto dealerships in the metropolitan

area. He purchased the current site of the business six years ago and retained the service and repair bays, but

tore down and rebuilt the showroom, located in front of the service and repair areas. The renovated showroom

boasts high ceilings, handsome décor, and highly polished new model Fords. It is a comfortable, inviting

atmosphere. The front end of the dealership currently employs a sales manager, seven salespeople (one of

whom is leaving), an office manager, and a secretary. Sales seem to come easily when the circumstances are

favorable.

        The back end of the dealership currently employs a service manager, parts supervisor, nine mechanics,

and one service writer. A perceived ideal staffing model includes an additional service writer, but turnover for

the service writer position is high given difficult customer interactions. The younger Sullivan twin girls fill in

when they are able. Carol’s analysis of the business has uncovered that there is sufficient capacity to take on

additional repair work; however, a higher volume of work would require an additional mechanic(s). Overall,

there are no glaring issues with the sales aspect of the business; however, there are visible issues on the service

side.
        Walt Sullivan had never shown much interest or placed much focus on the parts and service aspect of

the business. As Walt once remarked to Carol, “Customers always seem to be miserable back there. But here in

the front end, everybody’s happy when someone buys a new car.” The disconnect between the front end and

back end of the business is glaringly apparent. The service facility is not visible from the street, and although it

has modern, well maintained equipment, the building appears outdated and greasy. The service area has a side

entrance for customers, cramped quarters where the service writers work with customers, and peeling paint – a

far cry from the pristine and inviting sales area of the business.

        The service process also leaves much to be desired. Customers stand in a room overlooking the service

bays and are frequently interrupted by ringing phones while working with the service writer. All service work is

tracked through written documentation. Prior to his passing, Carol tried to persuade her father to computerize

the service process, yet he never acted on her suggestion. In addition to the antiquated service process, the

service manager, Rick Obert, though knowledgeable, possesses a rough and argumentative manner, which can

be off-putting for customers.

        Vehicle servicing can best be categorized as possession processing because the customer involvement is

medium impact, generally limited to dropping off and picking up the vehicle, requesting the service, explaining

the problem, and paying for the service. Though customer involvement is generally limited to these touch

points, service encounters are moments of truth in that each interaction can create or destroy value. Satisfaction

of customers is incredibly important because there is convincing evidence of strategic links between level of

customer service satisfaction and overall performance of the company. Increased value for the customer as a

result of increased satisfaction translates to increased value for the owner(s).

        Auto World needs to consider the width of their customers’ zone of tolerance. Customers

base expectations on several elements, including desired, adequate, predicted service, and the zone of

tolerance (the extent to which customers are willing to accept a variation in service). Speed and

convenience of place and time are increasingly important determinants of effective distribution and

delivery of service. As Lovelock elaborates, customers are increasingly busy and “expect service when it

suits them, rather than when it suits the supplier.” Customers calculate whether a service is

“worth it” by considering price and the outlays of their time and effort, including time expenditures and
exposure to negative sensory experiences.

        Intangible elements often create the most value in service performances. When one thinks of service as

a theater production it is clear that those intangible elements include, but are not limited to, expertise and

attitudes of service personnel. Auto World needs to use communication to promote confidence in its capabilities

so that customers perceive less risk involved with using the service. Emphasis needs to be placed on expertise

and experience. A reduction in service variability is also necessary and can be achieved by, as Lovelock states,

“adopting standardized procedures, implementing rigorous management of service quality, training employees

more carefully, and automating tasks.”

        To gain a better understanding of where improvements are needed in the business, Carol analyzes data

she possesses from customer satisfaction surveys. The surveys, mailed to the dealership monthly by a firm used

by Ford Motor Company, are sent to new car purchasers within 30 days of purchase, and again to new car

purchasers within 9 months of purchase. The survey sent within 30 days asks buyers to use a 5-point scale to

measure satisfaction with the dealership as related to the sales department, vehicle preparation, and the vehicle

itself. The survey sent within 9 months asks buyers to rate the overall service experience and also rate the

service department on 14 attributes, including service personnel interactions and quality of work. While both

areas of the business are suffering as compared to years past, the survey results show greater issues with the

service side of the business.

        The 30 day survey, focused on the front end of the business, shows above average ratings in most areas

as compared on a regional and national level. A finding that puzzles Carol, however, is that 90 percent of

respondents to the 30 day survey claimed to have been told about the services available through Auto World, but

less than a third of those respondents had actually been introduced to someone in the service department. It is

Carol’s understanding that introduction to a service department member is part of the process of making a

vehicle sale. She discovers through discussion with Larry Winters, Auto World’s sales manager, that the

introduction is left to the discretion of the salesperson because some of them do not feel comfortable interacting

with buyers in the service bays once the customer has been in the much nicer front end area. As Larry points

out, “It’s quite a contrast, if you know what I mean.”
        The findings of the 9 month survey are quite disturbing to Carol. While vehicle ratings are in line with

national averages, the overall level of satisfaction with Auto World’s service is rated consistently low, placing it

in the bottom 25 percent of all Ford dealerships. The worst service ratings concern the following: promptness of

writing up orders; convenience of scheduling work; convenience of service hours; and service department

appearance. Further low ratings are evident with relation to interpersonal variables, including attitude and

politeness of service personnel, explanation of the work performed, and understanding of customer issues. The

service department rates close to average on length of time to complete work, parts availability, and quality of

work completed.

        After further analysis of individual service files Carol finds that customer responses on interpersonal

variables range widely and skew negative when Jim Fiskell was the service writer involved. Jim has recently

quit the position, but will this clear up the issue entirely? Not likely, as this is only one factor contributing to

poorly rated service experiences. While a myriad of service attributes cause dissatisfaction, the responses Carol

finds most worrisome relate to a customer’s likely future use of Auto World’s service department. The 9 month

survey responses show that more than half of respondents indicate they would prefer to use another Ford

dealership or “some other place” for maintenance and minor mechanical and/or electrical repairs. Overall, the

rate of the likelihood of purchasing from the dealership in the future is below average.

        To begin to improve on these issues, much attention needs to be paid to the servicescape. The business

requires customers to enter the service facility so the physical environment needs to be managed carefully

because the servicescape can have a profound impact on customer satisfaction. Focus also needs to be placed on

face-to-face interactions. Service personnel need to be both technically competent and possess good

interpersonal skills and positive attitudes toward customers and the work that needs to be performed. Building

upon this idea, there needs to be interaction between management in the sales and service sectors. There must

be a cohesive approach to customers. As Lovelock states, “you need to be concerned about satisfying your

customers on a daily basis, running your operational systems smoothly and efficiently, and making sure your

employees not only work productively, but also deliver good service.”

        Given what Carol has analyzed and discovered, she sees two options for the dealership: prepare to sell

the dealership at a low price or invest a year or two of her time to try to turn the business around financially,
with the goal of selling the business for more down the line or installing a GM to run the dealership for the

family. Carol should follow the latter option, especially since she feels confident she can reenter the health care

industry at a later date with relative ease. There are numerous changes Carol should explore.

        Since she is given the names of customers who complete the survey/questionnaire she should reach out

to dissatisfied customers personally to see where improvements can be made. Carol should follow-through on

her original suggestion to her father that the service work order process become computerized. The service area

also needs a cosmetic overhaul to show cohesion with the front end of the business. The great disparity between

the front and back end is having a marked impact on customers’ willingness to pursue service at the dealership.

Carol should also consider building in some flexibility for vehicle drop-off and pickup. The current process is

not convenient for all customers. Overall, the services offered need to be differentiated and positioned to be

more attractive to buyers, and Carol needs to consider all available alternatives.

        It is clear from the case that the way Walt Sullivan was running the business is no longer completely

viable, particularly on the service side. Carol, who comes from a different perspective, has the capacity to bring

about improvements. Carol needs to consider the 7 Ps of Services Marketing, which include product, price,

place (or distribution), promotion (or communication), process, physical environment, and people. Together,

these elements represent what is required to meet customer needs while remaining competitive. Particular

concern needs to be paid to process, physical environment, and people.

        Carol also needs to be aware of the Three-stage model of Service Consumption, which includes

prepurchase, service encounter, and postencounter. Particular attention must be paid to the service encounter

stage, in which the customer initiates, experiences, and consumes the service. She needs to understanding the

behavior of her customers as this is the heart of marketing. If approached pragmatically, the funds left over

from Walt’s insurance policy can be used to make real improvements to the business. Hiring an additional

mechanic and service writer would be great choices, as well as paying for service automation and cosmetic

improvements. Additional training would also serve employees well and should be concentrated in

interpersonal skills and stress reduction, particularly for service writers.

				
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