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Letter to the Editor

Developing a Marketing Strategy

Careful research and analysis provide repair facility operators with the best method of creating a comprehensive growth plan...

A proper marketing plan is crucial to success in the collision repair business. Too many facilities, even the most successful, pay little attention to this useful business improvement tool.

With the growth of larger, multi-store collision repair operations, and the increases in competition they have wrought, it is important for collision repairers to develop a comprehensive marketing strategy.

To do so requires a facility to research and analyze their market area, the overall potential sales of that market, and the competitive nature of the market. Given this research, a repair facility operator seeking to grow at the expense of direct competitors will be better positioned to produce accurate and effective marketing strategies.

The following article details the research and analysis steps necessary to develop a growth-oriented, actionable marketing strategy. Included is a detailed examination of marketing tools and messages repair facility operators can use to their advantage.

Market Area

Identifying a shop’s existing market area is the first step in developing a comprehensive marketing strategy. The geographic situation and demographics of the shop’s customers define the potential for every repair facility.

To determine the extent of the local market, the shop operator should first conduct a geographic analysis of his current business to answer the questions: Where does my customer base live and work? Where are my referral sources located?

The easiest method for determining the geographic location of customers is by using a detailed local community map and pushpins that identify the customers and referral sources.

To perform the geographic analysis, shop operators should purchase a large scale map of their local community, place it on a bulletin board and, using a database or other record of their past repair orders, begin locating customers’ addresses with pushpins. Different color pushpins can be used to classify customers by type or referral source.

For example, insurance referrals from a specific insurer may be blue. Those from another insurer can be red. Use the home addresses of customers, but also pay attention to their work addresses. Often, customers will choose a repair facility close to work versus their home for convenience. Most shops will notice definite clustering of their customer base. How so?

Collision Repair Industry INSIGHT research indicates that, on average, 80 percent of customers are influenced by a repair facility’s current customers.

In simple terms, this means that 80 percent of a shop’s customer base buy their services based upon the experiences of past customers who have used, or know someone who has used, your facility and are satisfied with the service provided. These friend, neighbor, and business associate referrals generate the cluster effect among customers.

A side benefit of this geographic analysis of a shop’s existing customer base is that the information can clearly define areas for possible expansion. Looking for areas with few, or no, customers, a shop must determine potential reasons for the lack of customers. Is it strict geographic concern, i.e. your facility is too far away to service them? Or, are there other reasons such as a strong competitor more closely situated to service that area of the map?

Market Potential

The next step in developing a comprehensive marketing plan is to determine the dollar value potential for collision repairs in the shop’s local market area, coupled with potential expansion noted above. The task, though straightforward, can be difficult to quantify precisely. Given a market drawing area determined in the shop’s research of its customer base, the shop must place a value on the total potential market for this area in terms of vehicles and dollars.

The most common method for doing so, and one that works very well for larger geographic areas, is to multiply the number of registered vehicles by both the local repaired accident frequency, the percentage of vehicles that are involved in an accident and are actually repaired, and local severity statistics.

First, check for the availability of lists of registered vehicle owners in the local market. Many states sell their motor vehicle registration records to mailing list companies. These lists are often available by vehicle type and zip code.

With these figures in hand, the calculation of local market potential is possible.

The theory behind these calculations is straightforward. If there are 100,000 vehicles in the market, a certain percentage will be involved in an accident each year. Nationally, this number stands at approximately 15 percent. Taking this number, 15,000 vehicles will be involved in a collision. Of these 15,000 vehicles, roughly 7 percent, the national average, or 1050 vehicles, will be total losses. The total loss ratio will vary depending on the average vehicle age in the community, and local factors such as traffic: the more traffic, the slower the speeds, the less damage to the vehicle. On the other side of this equation, rural areas, with higher speeds and more single vehicle accidents, will have higher total loss ratios.

In addition to the total loss deduction, a certain percentage of vehicles will not be repaired. Either the damage is not severe enough, or the owner pockets the insurance check. Approximately 26 percent of vehicles involved in a collision will not be repaired on a national basis. For our example, that equates to a further reduction of the potential market of 3900 vehicles. This results in 10,050 potential net repairs for the market.

Once the shop operator has determined the net number of vehicles that are likely to be repaired in the target market, he can multiply this repair base by the average dollar cost of the repairs, also known as severity. On a national basis, the average cost of repair currently is between $2000-2200.

This number varies from market to market, so it is advantageous to use the average cost of the shop’s actual repair orders to calculate the market potential. For our example, 10,050 multiplied by a $1900 average repair equates to a market potential of $19,095,000. The chart on page 10 details the formula outlined above.

Also, compare rates and allowances for the market. Are they higher or lower than national and regional averages?

One important aspect to consider, however, is that registered vehicle owner information might not paint an accurate picture of the market, especially on a local or neighborhood basis. Why?

If a large proportion of a shop’s work comes to the facility because of the proximity of the facility to a person’s place of employment, the registered vehicle calculation for that area will not paint an accurate picture of the market potential. The reason is simple: Employees do not register their vehicles where they work!

Beyond business districts, repair facilities located in vacation or resort communities experience high weekend and seasonal vehicle populations that can often double or triple the potential market over the local resident base. Take factors such as seasonality and place of employment into consideration when determining the potential market.

Also, talk with friendly insurance agents and appraisers who have an understanding of their company’s book of business in the market. They are great sources of information regarding frequency and severity of claims in local markets.

They might also point towards expansion opportunities to service their customer base. Many consolidators have used this approach when examining acquisition targets.

Market Demographics

The repair facility must also have an understanding of the demographics of the regions in its existing and potential market areas. How much do the people in those areas make for a living? What kinds of cars do they drive? These questions can be answered through research. Local chambers of commerce, libraries and the internet can provide local market demographics. The U.S. Census Bureau conducts neighborhood level research on most communities in the U.S. This information will include vital statistics such as average family income, the age of the residents and other factors related to the potential growth of the market.

Competitor Analysis

With an analysis of the repair facility’s customer base and market potential, the next step necessary to generate the marketing plan is to perform a detailed competitor analysis to determine their capacity and their referral relations to help gauge opportunities for expansion.

To do so, plot existing competitive collision repair facilities on the pushpin map. Start a file on each competitor and build a dossier of specific information about their facilities, the number of technicians they employ, the insurance and dealer referral sources they maintain and the advertising and marketing efforts they put forth.

Much of the required research on a repairer’s competitors can be gathered from sources such as friendly insurance appraisers and suppliers. Also, the facility operator must analyze the Yellow Pages for competitor advertisements as well as local newspapers, television, radio and outdoor advertising.

Analyzing Opportunities

With the market research detailed above in hand, a repair facility operator has a powerful tool to help determine opportunities that exist for expansion through increased marketing activity.

Several key questions must be answered by the operator when seeking to determine the opportunities available for expansion including:

• Can the facility expand the size of the market served?
• Can the level of insurance referrals in the current market be increased?
• Can the facility expand OE-dealer or fleet referral business?
• Can increased market share be garnered within the existing trading area? And finally,
• Can the existing facility produce a projected increase in demand while maintaining quality and customer satisfaction?

Answering each of these questions will help the repair facility operator determine the highest impact marketing activities available. Also, the final question on the existing facility’s capacity utilization provides a reality check. If a shop gathers increased business, but is unable to meet the increased production demands, customer satisfaction will decline. These declines could hurt the existing business- negating the effect of any marketing activities that increase its exposure.

Developing Strategy

With answers to the questions detailed above, the repair facility is now ready to develop a comprehensive set of marketing strategy statements. The statements should summarize the key customer relationships and how the services you offer uniquely satisfy their needs compared to competitors. The statements should provide a framework for quantifiable measurements of the marketing plan’s performance.

An example one such statement is, Our business will leverage our existing CSI performance and low cycle time to increase insurance referrals by 25 percent over the next year.

This type of statement provides a set of key benefits, high CSI and low cycle time; a description of the target audience, insurance referrals; and a goal for improvement, a 25 percent increase in insurance company referrals.

Each customer type and referral source that is targeted should be addressed in the strategy statements developed for the marketing plan.

Marketing Tools

With a firm understanding of your market, your personal goals, and the marketing strategy you want to employ, the final portion of the marketing plan details the actions to take to reach the goals you defined. The marketing action plan outlines each specific event or action you will take to increase sales. For example, the action plan can contain a summary of quarterly promotion and advertising plans, with spending and timing details for each program.

Marketing tools for collision repair services fall under two main categories:

1. Pre-sale marketing
2. After-sale marketing.

Pre-sale marketing includes all of the efforts undertaken by the shop to "create awareness" of the facility. Pre-Sale Marketing Activities include:

• Yellow Page Advertising
• Agent Referral
• Dealer Referral
• Newspaper Advertising
• Radio/Television
• Advertising
• Billboards
• Internet Advertising
• Youth Sports Sponsorships
• Personal Contacts
• Signage
• Targeted Direct Mail
• Event Promotion

All of these tools are geared towards creating awareness and projecting an image of the facility in the prospective customer’s mind. A facility’s image is marketed through all of the above pre-sale marketing activities, with each area providing support for another. For example, establishing referral volume is much easier if the referral source is already familiar with the shop because of advertising or signage and has received a favorable impression of the business.

Previous INSIGHT articles have recommended a marketing budget of between three to five percent of a facility’s gross sales. This figure should include traditional marketing expenditures, such as Yellow-Page and newspaper advertising, and also the incremental costs related to discounts put forth to secure referral volumes.

If parts and labor discounts are offered to secure a DRP arrangement, this has a definable cost for each job that can be projected and included in the marketing budget. This cost should be carefully tracked over time to measure the referral relationship’s effectiveness.

A detailed listing of marketing tools by customer type is shown on page 13.

With a budget for marketing expenditures established, the shop can judge how to allocate this money among available marketing activities based upon its market research. Each tool employed should fit within the marketing strategy defined through the process outlined above, and support the overall marketing effort.

Finally, after-sale marketing includes efforts to make sure that current customers are satisfied with the service provided and to make them into a strong referral base. These efforts include post delivery follow-up activities such as thank you letters and CSI monitoring. Given the high percentage of a shop’s business that is subject to the recommendation of previously satisfied customers, after-sale marketing activities should not be ignored.

The Message

During the development of the marketing plan, careful attention must be paid to the messages delivered to each individual customer type by their marketing activities. As repairers understand all to well, the concerns of vehicle owners are often at odds with their insurers or other interested parties. Careful attention must be paid to the delivery of messages that address customer and referral source concerns, while maintaining consistency.

Repair quality, customer satisfaction and cycle-time are common concerns for both a vehicle owner and their insurer- and are effective messages to deliver to both constituencies. INSIGHT suggests that the repairer present these messages, detailing the shop’s abilities relative to the competition, to both audiences on a consistent basis.

Conclusion

By working through the detailed market research and analysis procedures outlined in this article, the repairer will have a firm basis for developing an effective, growth-oriented marketing plan. Doing so will help the repair facility deliver the key messages on their abilities to their prospective customers. It will also serve as a focal point for shop personnel to better deliver on the promises and messages they communicate to their customers.

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