Value-added strategies are certainly in fashion. Every organisation claims to be seeking them, many claim to have found them - but what, in reality, does the phrase mean, and how do the principles apply to the European contract hire and leasing industry?
A value added strategy is a way of offering clients an additional service or product over and above the norm and for which they would be willing to pay. Delight, rather than satisfaction, might be one way of describing the objective.
In my opinion, a value-added strategy does not include answering the phone by the third ring, sending a quote by email within 10 minutes of the enquiry, or by always thanking the person for calling.
Those are totally different issues; one might claim they are part of an overall quality or image strategy that everyone should be working towards.
Something that is value-added is much more subtle. Yet not all fleet clients receive it, even if it costs no money!
Fleet organisations are sometimes guilty of failing to offer these more subtle services - they are too focused on putting more cars on the road.
In the case of the leasing and contract hire industries, there is a case of gross oversupply across Europe. It is relatively easy for fleet companies to put more units on the road if clients want them. But is that not half of the problem?
The leasing industry is its own worst enemy in that it has allowed itself to be driven by the request for more fleet volume. Is this not a prime reason for the current round of amalgamations and takeovers in the fleet industry?
In a commodity service-based industry, an important way to generate incremental profit is to increase the number of units in operation. If it is the only way, there is a finite limit as to how far the industry, and the individual organisation, can grow.
This applies to the conventional leasing company — if it stops increasing the number of units on the road, it cannot increase profits.
My suggestion is that the leasing company or fleet services provider, at a time of economic downturn, needs to stand back and ask the fundamental question: 'What is the real value we add to our clients' business proposition?'
If every fleet company did this, they would find that there were items in the business proposition that added little, if any, value to the client's activities.
One needs to look at the package and perhaps analyse the following:
- Services offered by principal competition.
- Items or services that have simply become 'no charge commodities' — whether requested or simply provided.
- Services that provide genuine added value to the business proposition.
Items/services that are unique to your clients, that only you offer, or are considered to be 'special' even if also offered by the competition.
I would challenge many contract hire service providers to review their total service offering and identify which items they regard as genuinely adding value, and which they provide simply because they always have.
I think the second stage of any such analysis needs to be to communicate with the client base, or better, a wider prospect base, to determine which services they need, and which services would be attractive. In turn, it should then be possible to build a perceived value to those individual services and so to restructure the leasing package.
Once that exercise has been completed, the organisation could claim to provide a perceived value for money package. Given a real value-for-money base product, the operator can then begin to plan unique incremental services that might be of interest to the client to provide exceptional added value.
Value for money, in my view, can be differentiated into a number of segments. Consider some of them:
- Split by fleet size. Do all fleets require the same level or extent of service support? What might be omitted from the standard package for small/larger fleets because it adds no value to them?
- Within individual industry segments, are there services that the industry doesn't need that add nothing to the perceived value of the service acquired?
Within individual fleets, what level of analysis has been undertaken to determine whether all services are required by all vehicle users or whether some services can be deleted?
Most fleet industry professionals could quote examples of each of those categories where the client takes a range of services that fail to add value.
My question is a simple one. Could we by specifying the individual vehicle, or group of vehicles, provide the client with a better package that makes them feel they have better value from your operation than from anybody else?
This is the first step in developing a customer relations management programme about it. Customer relations management, or CRM, can be defined in a number of ways, but one definition that I favour runs broadly as follows:
'For OEM, dealers and service providers, customer relations management is a business enhancement strategy to capture the business opportunities available between vehicle replacements.'
There is nothing special about the definition; some would claim CRM is an IT system or programme to enable the business to take advantage of those opportunities automatically.
But it may also be the human touch that works to improve the effectiveness of the fleet or leasing business. This may include the creation of incremental business, and, given the right consultancy-selling approach, enable the lessor to add services for part of the lease - in effect, outsourcing additional work that is highlighted as the contract develops.
These notes have examined a generic situation that many international and domestic contract hire and leasing companies find themselves in.
Profitable fleet volume is the strategic objective - without taking too wide a look at the motivations or the profit opportunities that are hidden in the client relationship.
That may mean deleting certain aspects, at a zero reduction in rental rate, that improvement in profit, or adding further services the client did not realise were beneficial - or available - but is willing to pay for them.
As the European economy plateaus, or even sinks into a recession, profit will become even more critical - and relatively little may be available through increase leasing sales.
Under such circumstances a reinterpretation of CRM, or at least a pragmatic interpretation, and treatment of each client as 'a market segment of one' may enable the leasing company to unlock value added while building its profitability.
At Nottingham Business School some very basic research has identified well over 30 different services that can be provided as part of a contract hire arrangement - and in most cases they can be priced into the package.
That could be the cue for a piece on services outsourcing — way beyond the scope of the present article!
To take a menu list, even if not as long at the Nottingham one, can provide the basic building blocks so the lessor can tailor a package for the lessees that is genuine, exceptional value, simply because there are no unnecessary, low or zero added value items included in the client proposition.
Never forget, the client seeks value for money, offers the opportunity for an ongoing relationship - on its own terms - and may accept, if you provide them, services for which they are charged but do not have a use.
Could you help your clients make better use of those funds — and become a hero in the leasing industry? (December 2001)