Sullivan Ford Auto World - FINAL Draft

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

Case Background

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.

Cars Sales (Fron-end)

Ford Vehicle (Brand New)

Pre-Ownded (Multi-brand)

Service Dep't (Back-end)

After Sales ServicePartsService

Walk-In ServicePartsService


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.

Sullivan Ford Auto World - FINAL Draft

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