AM Online

On Pavlov’s dog and dealers hard-wired to chase bonuses

By Professor Jim Saker

In the 1890s, the famous Russian physiologist Ivan Pavlov was studying salivation in dogs as a response to being fed and noticed that the animals started to salivate when he entered the room even when he had no food.

     
 
 

Professor Jim Saker is director of the Centre for Automotive Management at Loughborough University’s Business School. He has been involved in the automotive industry for more than 20 years.

 
 

One of his conclusions was that there were some things that dogs don’t need to learn, they are hard-wired to respond to even the thought of food.

Can I say from the start that I have no wish to compare dealer principals to Pavlov’s canine friends, but come every March and September the manufacturers in the UK dangle performance bonuses that any good dealership is hard-wired to go and chase.

A debate in AM this month is over the issue of incentives. Most manufacturer bonuses are based around some form of volume incentive, coupled with an additional bonus based on a measure of customer satisfaction. In most cases, the volume bonus is the greater of the two – the real issue is whether this affects dealer behaviour. Do you drive for one at the expense of the other or do you try to achieve both?

In reality, the objectives are not mutually exclusive and delivering high volumes to happy and positive customers is something most people would want to achieve. The challenge arises if you end up having to trade off volume at the expense of satisfaction. If you incentivise one more than the other, it is self-evident that the priority lies with the one that has the bigger bonus. Our hard-wiring and commercial acumen will inevitably take us in that direction.

I have spent the past five years trying to persuade the sector to stop measuring satisfaction as it is a weak indicator of repurchase intention, especially on the new car sales side of the business.

With the silo mentality of most dealerships and the high turnover of sales staff, it is unlikely the customer will meet the salesperson again. The bigger level of engagement and relationship building is on the aftersales side, which usually fails to attract any big bonuses from the manufacturer.

PCPs – the great unknown

Examining the changes in the car market over the past two years, many observers have failed to really explain why the retail car market has risen so dramatically.



Click here for talent & people best practice and procurement insight

If you are not a registered user your comment will go to AM for approval before publishing. To avoid this requirement please login.

Comment as guest


Login  /  Register

Comments

  • Paul Bennett - Chrysalis-Solmotive Ltd - 09/05/2014 12:59

    An interesting article which confirms some well known and respected thinking. Turning to the management of clients, the PCP has indeed provided much growth in vehicle sales across all brands in the UK, and as Professor Saker remarks; "However, we have little evidence of consumer behaviour and choice at the end of these plans". The answer is clear, dealers OEM's and financiers require a joined up strategy to promote early renewal of customer PCP's and indeed conventional HP contracts also. Moreover, technology is available in the market today from specialist vendors to do just that. It is important that the OEM/financier in partnership with their franchised networks take responsibility and control for providing dealers with services that allow them to enjoy sustainable growth in market share whilst simultaneously delighting existing customers. A value added service such as this will also go some way to ensure the financial well being of their respective franchisees by not simply registering a new vehicle sale (as important as that is), but also allow the dealer to acquire the very best used vehicle for reconditioning and resale on-site. In most cases a one owner sold and serviced here car.

    Reply as guest

    Login  /  Register