82331265 Sullivan Ford Auto World FINAL Draft

BA 235 Services MarketingGroup 7: Case Solution ~ Sullivan Ford Auto World 21 Feb. 2012

Case Ba ckground

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.

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


– 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


The front end of the dealership employs salespeople who are tasked to

transact with possible customers. The dealership offers brand new and pre-

owned 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.


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)

• 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

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.

• 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

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.

• 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.

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

– 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

– 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

– Front end office employees tend to not refer the company’s vehicle

servicing department. This results to lost revenues for the back end

office

– Poor customer service survey results for the back end office

– Poor management of customer complaints

• 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

• Threats

– Bill Froelich, owner of several dealerships, expressed interest in buying

out the company in order to achieve economies of scale.

– 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

– 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.

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.

– Such avoidance results to unpleased customers getting more irate.

– 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.

– Management’s decision on not investing in technology to make

business process efficient because of cost considerations.

– Inability of management to pulse customer requirements and

expectations.

– 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

– Based on the survey results Auto World received poor ratings on the

question “Was the problem fixed right?”


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

absenteeism.

– Poor soft skills of employees.

– 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.

– 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

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.

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:

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

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.

– 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.

– Launch a customer care program to encourage delivering high-

quality 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.

– 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.

– Design a channel where customers can supply feedback from

their most recent transactions. Feedbacks can be supplied onsite

(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.

– 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)

– 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.

– 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).

– Come up with innovative offerings that can drive up the

company profit. An example will be offering extension of service

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.

82331265 Sullivan Ford Auto World FINAL Draft

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