EDITOR's NOTE: This series is based on a seminar conducted during the recent National Tire Dealers & Retreaders Association convention in Dallas.
DALLAS-With so much chang-ing in the tire industry, tire dealers may find that business practices that worked in decades past no longer are generating sufficient sales and profits to assure the continued success of their businesses, noted speaker Joseph A. DePaolis, a Rochester, N.Y.-based marketing consultant and NTDRA past president.
Dealers often feel threatened by increased competition from mass merchandisers, discounters and warehouse club outlets, he said. Yet many haven't the slightest idea of who their dealership's customers are or how they differ from those who regularly patronize these mass merchandising retail competitors.
In our previous article (Oct. 3), Mr. DePaolis explained how to use a local map to plot out a dealership's marketing area-which typically generates 80 percent of its sales. In urbanized areas, this marketing area usually falls within a three-mile radius of the dealership. However, stores in more rural areas may draw customers from an area of five miles or more.
Mr. DePaolis also explained how dealers can profile the demographics of their market using information derived from local sources such as the Chamber of Commerce, department of motor vehicles, city planning commission, newspaper, radio and television stations and the public library.
These demographics should include the number of registered motor vehicles in the market, the types and ages of those vehicles, plus similar information on those living within that trading area, including their ages, income level, education, buying habits etc.
In this, the second segment of the series, Mr. DePaolis tells how to use this information to develop realistic sales objectives for a typical dealership's tire and automotive service operations.
Setting a unit sales objective for new passenger tires. Begin this process by determining the number of passenger cars registered within your dealership's marketing area, then multiplying that total by the average number of replacement tires sold per vehicle as indicated by industry data.
Your dealership's ``fair share'' of that total may then be calculated on the basis of whatever percentage of the market's total service bays your operations represent.
If, as in the above illustration, your dealership has 8 percent of all the service bays in the market and your unit volume amounts to at least that same percentage of the market's potential, you are getting your fair share, Mr. DePaolis told dealers. ``If not, you are spotting the competition an advantage,'' he warned.
Setting a dollar sales objective for new passenger tires.
Since you, as a business owner, bank dollars-not units-it therefore is useful to take these calculations one step further and estab-lish dollar sales objectives, Mr. DePaolis pointed out.
A quick review of your dealership's sales tickets or a computer printout will reveal its average per-unit selling price, he explained. (Divide total passenger tire sales by the number of units sold.)
Then simply multiply the average per-unit selling price by the previously calculated unit objective to determine your dollar sales objective for passenger tires.
Establishing a sales objective for automotive service.
``Getting your fair share of the automotive service work in that marketing area can be critical to the success of your business,'' Mr. DePaolis said.
Although there are many ways to calculate what a dealership's fair share of the automotive business should be, following is an easy formula dealers can use in their local marketing area, he said.
``Again, we will revert to the motor vehicle registration to establish the auto service work potential in your marketing area. You will be pleasantly surprised at the huge potential out there-and that there is no reason to be so threatened by all the competitors. In fact, if you make the commitment to do this mini-marketing survey, you not only will grow, but prosper at the same time,'' he said.
Step one: Determine your dealership's primary customer base (PCB).
This is the number of passenger cars within the circle that you established as your marketing area. This will then become your primary customer base or PCB.
For the sake of continuity and simplicity, Mr. DePaolis once again chose the hypothetical figure of 500,000 vehicles.
Step two: Multiply your PCB by $100 to estimate the total annual service work available within your marketing area.
(An American Automobile Association survey indicates motorists spend an average of $100 annually on those automotive services traditionally performed by tire dealers.)
``If this figure staggers the imagination, then we have hit a home run,'' Mr. DePaolis told dealers. ``Because, assuming you have a market share of 40,000 vehicles (8 percent of the 500,000 vehicles used in the above example), your automotive service potential is:
40,000 times $100 or $4 million.''
Step three: Calculating your dealership's ``fair share.''
As in the previous illustration involving passenger tires, determine the number of service outlets within your area.
Divide the estimated potential service work available in your marketing area by the total number of bays operating in it and the result is the average amount of service sales per bay.
To establish your service work objective, multiply the service work available per bay by the total number of your bays.
Therefore, if you have an eight-bay operation, your potential sales are calculated by multiplying eight bays by $31,250 (per bay) which equals $250,000.
This is your ``fair share,'' explained Mr. DePaolis. Compare it to your present service volume:
``If your actual share is smaller, then you are losing market share to competitors. Better find out why and fast;
``If your actual sales are larger, you are getting your unfair share. Good for you;
``If these two figures are equal, you are getting your share-but (the business is) not growing!'' he concluded.
Mr. DePaolis is president of Consultative Services in Rochester, N.Y.