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Halo Effect: How to Capture a Bigger Piece of the Auto Service Pie

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Halo Effect: How to Capture a Bigger Piece of the Auto Service Pie

During last month’s Specialty Equipment Market Association and Automotive Aftermarket Products Expo shows, I learned of a new buzzword going around. It’s called “mobility management.” And here’s why it’s important.

As millions of connected vehicles are added to the road and all kinds of vehicle systems data is captured and analyzed, it’s going to lead to a “holy grail:” prognostic and predictive vehicle maintenance solutions.

A version of this holy grail was available 20 years ago when the venture capital-backed company that I founded at the time, AutoPact, was promoting the managed car care concept.

Managed car care was intended to resolve the problem of “overselling,” while offering better car care at substantially reduced costs. By paying a monthly fee, members received all their car care from one facility, or through a network of connected service facilities, that focused on providing preventive maintenance and planned parts replacement to catch breakdowns before they happened.

The benefits we sought to provide were:

  • Increased convenience, including one-stop, full-service car care, scheduled appointments and a streamlined repair process, makes getting in and out faster. Monthly automatic payment saved time at checkout.
  • Improved quality provided by service facilities via a streamlined repair process, where the focus was on preventative maintenance and anticipating problems before they occur. Customers communicated their concerns directly with Automotive Service Excellence-certified staff members, instead of filtering through salespeople.
  • Peace-of-mind, which meant no more worrying about being sold unnecessary repairs. Preventive maintenance bent the cost curve so major breakdowns were avoided (but covered) and parts replacement could be planned better.
  • Value in the form of one, affordable monthly fee that covered everything.

AutoPact had two basic membership plans. ValuePact was offered on vehicles up to 180,000 miles and covered only preventive maintenance items like oil changes, filters, brakes, and state inspection services, plus replacement of wear items — except tires — and all of the manufacturer’s recommended service.

This was a very profitable program if priced right because when something broke, the member almost always let you repair it. To encourage this, we offered discounts on uncovered repairs. We wanted about 75% of our customers to be ValuePact members.

We also offered a product called MaxPact, which provided a halo effect for everything else that we did. MaxPact was offered on vehicles up to 100,000 miles and included all the preventive and scheduled maintenance services covered by ValuePact. However, it also covered mechanical breakdown repairs for the enrolled vehicle, such as engine, transmission and electrical system repairs. 

Providing MaxPact introduced us to state insurance laws and the concept of adverse selection. (People who owned cars that needed a lot of work really want to sign up for it.) 

We wanted about 25% of our customers to be MaxPact members.

None of the plans covered any body work. Tires were excluded from the plans but sold separately. Because members trusted us, we sold a lot of tires. That was all plus business.

To become members, consumer vehicles were inspected up-front and brought up to snuff.  Any needed repairs or delayed maintenance was completed by our technicians at market rates. Then, vehicle owners were eligible to become members. 

Members paid an up-front membership fee, which would now be $99 to $149 for a two-year ValuePact plan and $199 to $249 for a three-year MaxPact. The first month’s payment was made in advance. The monthly fee was kept steady for the life of the plan.

We confirmed that setting prices at a level that both meets consumers’ perceived value expectations and provides enough revenue to offset the expense is critical to overall profitability — a concept that still applies today.

We also observed trends in consumer behavior. You know what happens when people pay for car service monthly? They come in every month. (You’d think they’d have better things to do!)

In addition, we learned that a managed car care provider, among other things, must: a) manage member visit frequency; b) monitor initial vehicle inspections; c) re-evaluate eligible vehicles; d) continually update actuarial data; e) develop comprehensive member tracking and billing systems, and; f) continually test membership fee elasticity by adjusting prices.

Armed with that information, ask 100 people if they’d consider joining a managed car care program and I bet that over 40% will say, “Yes.”  But here’s the rub: As the service provider, you don’t want all of those people as members. Consumers whose vehicles are in line for impending breakdowns due to neglect would fit into this category.

Ultimately, we figured out that the right way to offer managed car care is to be a fee for service provider, like you already are today, and then overlay managed car care on top.

We also found that if we signed up only one vehicle in a household for a member, they brought all their other household cars to us. Why? Because they trusted us. That’s the halo effect, and that’s how you can capture a greater share of the household wallet for tires and service as the transportation industry continues to evolve.    ■

Michael McGregor is a partner at Focus Investment Banking LLC (focusbankers.com/tire-and-service). For more information, contact him at michael.mcgregor@focusbankers.com.

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