Noel Osborne is a retired boat dealer. He ran dealerships in New Jersey and Pennsylvania before moving on to Florida, where his son now operates his former business. Since “retirement” Osborne has returned to his roots with one mission: to help dealers improve their businesses.
Through a position as a lead instructor at Yamaha University, a three-day dealer management symposium, Osborne spoke at length and in detail about how dealers can improve their profitability. He runs Osborne & Associates from which he also offers limited one-on-one consulting.
It was Osborne's insight that allowed Boating Industry to dig into the meaning behind the concept of grading dealers in the March issue. You can read the entire article by clicking here and you can read the one-on-one interview below. This interview has been edited for brevity and clarity. It was conducted on December 2, 2004.
Boating Industry: You told me you've designed systems for marine dealers that they had never had in place before. What types of things do you focus on?
Noel Osborne: Probably first and foremost would be how to set up efficiency tracking systems and implement efficiency motivational programs that will increase efficiencies at the dealer level from the 40-percent range, where it is now - if it's even there - to more in the 70-percent range. There's your $100,000 (profit) right there.
Boating Industry: Any others you want to mention?
Noel Osborne: Marketing plans. Balanced marketing plans. Most marine dealers really do respond to whoever knocks on the door. In other words, it's not a well-planned program. It's not an annual marketing program.
In that same regard, how to properly use the co-op funds that are available. Most dealers don't use anywhere near the amount of co-op funds that they have available to them, and it's just like throwing money out the window.
Boating Industry: You talked a lot yesterday about A-, B-, and C-level dealers. The Yamaha University packet does a good job of outlining some of those definitions. Is there one in there that you feel is most important? Is there one that you can point to and say, if a dealer starts here, the rest will fall in line'?
Noel Osborne: I think that all dealers have to recognize one basic thing and that is that they're in business for two reasons: to take care of the customer and to make a reasonable profit. You can just stop there. And then say, OK, what do we have to do to achieve that?
There's no question in my mind that the biggest failure we have in this industry, and this is substantiated by the independent program that was conducted by Statistical Surveys back in the mid-90s, is that we're just failing to provide the experience that the customer expects.
In some cases - Yamaha, Grady-White and Cobalt, for example - there are some companies out there that are doing an outstanding job. And some dealerships that are doing an outstanding job. It's just that it's probably no more than 25 percent of the dealers that are really performing like they should. Twenty-five percent of the dealers, I would say, are probably A dealers.
Boating Industry: How many do you think fall into that lower level of the C dealer?
Noel Osborne: I think the vast majority of dealers are probably B-level dealers. Probably 50-60 percent are B-level dealers and the balance, which is about 20 percent, are C-level dealers.
I'll talk tomorrow about customer service and some of the champions of delivering customer service and one of the top champions of delivering customer service happens to be this hotel chain, the Ritz-Carlton. And I think you'll find it quite interesting because if you can develop customer loyalty at your dealership, you've made one giant step toward profitability.
Now, you know, most people believe that 80 percent CSI isn't all that bad, but if you stop and think about it, that means 20 percent of your customers every year are dissatisfied. To give you a little correlation here: A dealership is capable of adding about 20 percent to its customer base every year. So if they gain 20 and lose 20, they stay where they are at, and I would suggest that that is why this industry is staying where it's at. A well-run dealership should be able to add 20 percent to its customer base every year. But if they lose that 20 percent to poor service, they're gaining nothing. One of the primary reasons the industry is not growing is that we're not able to keep a higher percentage of customers in our portfolios.
Boating Industry: Is there a term that really describes or defines all of these characteristics, whether that's sophistication or professionalism or something along those lines?
Noel Osborne: I think it's professionalism. Professionalism means a lot of things. The No. 1 issue here is: what is of value to the consumer? In our society today, value is probably the most important single element of buying decisions that people make.
Even just a day or two ago, I was reading the newspaper and people are buying this year for Christmas, but they're buying the higher-end stuff and not the low-end stuff. Let's face it, our products are high-end toys, and people will spend the money on their toys. You can not deny them that in good times or bad times. But if you don't take care of them, they'll drop you like a hot potato. The amount of time that the typical consumer has to use their toys is very limited. And when they want to use their toys, their toys had better work, and if they don't work, they'll go find another toy that does work. I say a toy - that could mean taking trips or RVing or could be any one of a number of things.
It's so valuable these days because there just isn't enough time in a day. People in your age bracket, for example, in most households the husband is working, the wife is working, and there are three or four kids and the activities that kids are involved in now are so much more time intensive than they were just 20 years ago. So when it's time to go play, they want to make sure that their value is there, and that's where we're failing to deliver the value. I want to make it very clear that it's not a Yamaha problem. But it certainly is a problem with a number of boat builders. I have a serious problem with the lack of control and management of dealer networks by a number of manufacturers. Why would they allow their dealers to deliver sub-par service?
Boating Industry: One of the things that we talked about in discussing grading dealers, is that most people do look to volume as the No. 1 indicator in what makes you an A-, B- or C-level dealer. Does that go along with what you're saying … that manufacturers grade dealers on how much of their product they sell?
Noel Osborne: And that, I suggest, in the long run, is not going to increase the manufacturer's sales. What is going to increase manufacturer's sales in the long run is going to be providing a quality product with quality service.
Take a Grady-White dealer for example: If you're not in the 90-some-percent range on CSI, you're no longer a Grady-White dealer. And look at how that organization has grown. There's a company that makes a tremendous amount of profit, has extremely loyal customers, has dealers that make good money, and it's because Grady-White has taken the steps to ensure that they don't have any B- or C-level dealers in their network. There just are none.
Another one like that is Pack St. Clair at Cobalt. He just won't tolerate anything other than superior performance by the dealerships.
But you know where all this is going, which is the franchise issue, and I'm not in favor of franchises. But I am in favor of the manufacturers managing their dealer network so that they provide the consumer with a quality experience and that is within the power and control of the manufacturers without a franchise. It can be done, as evidenced by several people who are doing it.
This problem I'm talking about, in which the manufacturers are not taking a lead role in providing dealership management training for their dealers, has got to be one of the biggest problems we have. Because we have a bunch of people out there who maybe came from the service ranks or from a ma and pa type operation and they just have not been trained on how to properly operate a dealership.
This lack of training is reflected in the low profits in this industry and also in the low customer satisfaction ratings in this industry. They've just never been able to pull themselves up by the bootstraps, if you will, and provide the level of service that's required in order for them to be profitable.
You know most of these people went into boating because they loved it or it was their hobby or whatever and there was never anything furnished to them that said, “this is how you should run a dealership.” I have to give Yamaha a tremendous amount of credit for stepping up to the plate here. They're spending millions and millions of dollars on this training program, and it is effective. Is it as effective as I'd like to see it? No. But we still have the majority of the people who attend these go back and incorporate very little, if any, of what they've learned. BUT, those who have gone back and who have incorporated some of what I've taught them as far as business planning, have realized increases in profitability of hundreds of thousands of dollars.
Boating Industry: OK, so yesterday, we heard a lot about the individual characteristics of A-, B- and C-level dealers. What other characteristics are there that we may not have covered yesterday that would help define these dealer ranges?
Noel Osborne: Commitment. Just plain, old-fashioned commitment.
Boating Industry: How do you measure that?
Noel Osborne: It's difficult to measure. I guess the ultimate measurement boils down to the first two items that I said every business has to provide, which was good profitability and taking care of the customers. It all comes back to that. It seems like a circle we're dancing around in here, but that is where it's at.
Commitment can be defined in a number of different ways. Under commitment, I would put down commitment to the customer. An A-level dealer will not accept one dissatisfied customer. The Ritz Carlton will not accept one dissatisfied customer. That's a commitment. Customer service, and I'll talk about this tomorrow, it's almost like an addiction. Companies that provide excellent customer service search out the problem areas. They take care of them. They take care of any problems immediately. That's a characteristic of an A dealer versus a dealer who says, “oh, no, not that guy calling again.”
The other thing is commitment to your suppliers. The relationship that exists between the manufacturer and the dealer is extremely important. It's a two-way street. The dealer cannot expect the manufacturer to provide all the trust. That trust is an overriding issue here. Can they trust the dealer to properly service the customer? Can they trust the dealer to not submit bogus warranty claims? And on and on and on.
And the other commitment is to their employees. Employees know whether the person or the company they work for is committed to the employee base for the long haul. You can't B.S. them. They know. They talk about it on their smoke break, their lunch break or wherever else they are.
If you can successfully achieve high-commitment levels in all three of those areas, you will be a successful A dealer. But A dealers can only handle products from manufacturers that are A manufacturers. That is so important. I talked yesterday about perception. You are known by the company you keep. You've heard that, I'm sure. Well, the same thing goes for the marine dealership. If a marine dealership handles low-quality products where the manufacturer does not provide the proper service or the parts or whatever it is, you'll never be an A dealer. It won't happen.
There's a whole lot of B dealers, as I mentioned over half of dealers are B dealers, and one of the reasons for that is that there are a whole lot of B manufacturers out there. There are a whole lot of manufacturers out there that, for one reason or another, are not willing to step up to the next level, and they are the vast majority.
Boating Industry: So there are three levels of commitment. Are there any other characteristics you can see?
Noel Osborne: Value and commitment are the main things. But too many dealers do not want to spend money on training their employees. I don't understand this. Literally, every employee has to be trained on how to do his job, and this is not happening.
Boating Industry: So is it pretty easy to assume, then, that to move from one level to the next, you have to focus on each of those areas?
Noel Osborne: Well, if you look at each of those areas, an A-level dealer has a marketing plan, so can a B- and C-level dealer start doing a marketing plan? Certainly. An A-level dealer has some sort of a business plan. What's to prevent a B- or C-level dealer from putting a business plan together? Nothing. CSI. What's to prevent the B- or C-level dealer from hitting 90 percent on CSI scores? Nothing. Profitability. You cannot manage what you do not measure. That is such a huge issue here. The dealers simply have to set a baseline for which they can measure, which is a business plan. It's so easy from that point going forward. I don't understand why more of them don't do it. I don't get it. I don't know if they don't feel like it's necessary of if they feel they aren't equipped to write one. I don't get it.