For years, your manufacturer has sent you regular reminders that your sales efficiency is below 100%. That has come with separate letters that your CSI is also less than 100%.
You are close to the average on sales effectiveness, which the manufacturer calls “minimally acceptable”, meaning you are one of 50% of dealers not minimally acceptable at any time. That is a ridiculous result. The same is true for your CSI. Since there has been no fallout from your allegedly below “minimally acceptable” performance measures, you have not challenged the OEM’s calculations.
Things are changing. You want to buy a new store. The franchisor of that store wants to know your sales effectiveness and CSI measures in your existing stores. You fear that unless your performance is average or above, your proposal will not be accepted. Also, your franchisor is changing the rules of the game on your sales incentive program.
Uses of Sales effectiveness and CSI measures are mushrooming. To qualify for incentives, you may have to be sales effective, meaning you must be above 100% in the sales effectiveness calculation. And to get 100% of payments under your OEM’s program, your sales and customer satisfaction indices must be above average.
Your OEM’s measurements of your performance are increasingly relevant. So what do you do?
Is your franchisor’s program fair, reasonable, and equitable? Are CSI survey processes statistically valid? What should you be looking at?
Virginia law requires that your franchisor’s performance standards measurements must meet certain standards of their own:
“Any performance standard or program that is used by a manufacturer or distributor for measuring dealership performance and may have a material effect on a dealer, and the application of any such standard or program by a manufacturer or distributor, shall be fair, reasonable and equitable, and if based upon a survey, shall be based upon a statistically valid sample. Upon the request of any dealer, a manufacturer or distributor shall disclose in writing to the dealer a description of how a performance standard or program is designed and all relevant information used in the application of the performance standard or program to that dealer.”
VA Code §46.2-1572.4(A)
Sales Effectiveness. The validity of your OEM’s sales effectiveness measurements depends on three primary issues:
- Allocations. You can only sell vehicles available to you. Sometimes, there are vehicle shortages. You cannot get enough vehicles allocated to meet the OEM determined objectives. You point that out to the factory representative who visits your store, only to be told to buy the cars elsewhere. But if there is a shortage of vehicles, your same-line make competitors are selling them just as you are. How do you get dealers who do not have vehicles for retail sale to wholesale them to you? The answer is you don’t. The first question you should ask is: Are you receiving enough vehicles of each model to meet the requirements set by your manufacturer?
- Your primary market area. The calculation of what you should be selling is heavily influenced by what the OEM assigns to you as your primary market area (or whatever phrase your manufacturer uses). That means you are expected to deliver vehicles in your PMA in proportion to the volume of competitive line vehicles other dealers are selling. Sell above that volume and you are sales effective. Sell below that volume, and you are not sales effective.
The problem is your PMA is often misdefined. Franchisors make it a habit to assign all zip codes or census tracts (depending on what they use for measurements) regardless of whether dealers have a geographic advantage in those. You may have numerous zip codes or census tracts in your PMA in which you have no geographic advantage. Perhaps they are too far from you. Perhaps there is a geographic obstacle such as a river or a mountain. Perhaps there are demographic issues, for example the census tract includes a college where the students prefer import vehicles and you are a domestic dealer. Or the routes between home to work takes buyers past other dealers. Or any number of other reasons. If you have no sales advantage in every zip code or census tract assigned to you, then you will find it harder to be sales effective.
- Necessary Adjustments. Many factors that may affect whether you should have a zip code or census tract in your PMA will also determine whether there should be an adjustment to your performance because of the factor. For example, even if the census tract is appropriate for you, are the brand preferences of the buyers in that market an issue? For example, there is a Ford plant near the census tract, but you are a Toyota dealer. Are there geographic obstacles? Are there demographic obstacles? For example, you are a luxury dealer, but the buyers in that census tract do not have the average household income to afford your vehicles. Are there unusual traffic or work-travel issues? These factors could require an adjustment to performance level to consider the limitations.
If you are not getting enough vehicles to meet your goals, ask for more. And keep asking. You can only sell what you can get. If you feel your PMA is improperly constructed, ask for a review. Challenge any findings that include the zip codes or census tracts you feel should not be yours. Request an adjustment if you have geographic, demographic, brand or vehicle choice, traffic or work related issues, or for any of several other reasons.
CSI Reports. Manufacturer CSI programs aare notoriously statistically deficient. They may be designed by statistical experts, but there are usually biases buried within the structure of the program that affect its statistical validity. Perhaps the manufacturer is increasing the ratings of its vehicles to the detriment of its dealers so it can advertise that. Or perhaps it likes having dealers with CSI deficiencies because it creates factory leverage over them. You may have to challenge the CSI programs of your manufacturer. You may have to hire a statistical expert to take it apart. Short of that, you may want to carefully determine whether the manufacturer’s methods are leading to returns so you can be honestly rated. You may even want to develop your own CSI measurement program so you can do your own measurements of your customers’ happiness with your service that you can use to challenge your franchisor.
Performance measures used to be important to dealers concerned about termination. Those are no longer the only dealers who must be concerned. Franchisors are developing new programs in which performance measures are qualifiers to earn payments to which you are entitled. They are used increasingly by franchisors to determine the qualifications to become a franchisee. You must pay careful attention to the performance reports from your manufacturer, and be proactive about those to protect your dealership and your ability to grow.