ADP Dealer Services Succeeds in Mature Market

For many markets, the demand for business software has passed the early adopter phase, made it through the tornado, and entered the early maturity phase. In some markets, the demand for business software has fully matured. When the market for a product or service category has entered the mature stage in its life cycle, a business’s sales and marketing effort must be refocused from penetrating the potential market to capturing a larger share of an existing market. ADP Dealer Services has faced this challenge, and won the first battle.

Industry Dynamics

ADP Dealer Services competes in a saturated mature market with entrenched competitors. Their market is car and truck dealerships requiring ERP, CRM, and Service Operations products and services. Each of the 23,000 dealerships in North America represents an average of $100,000 in revenue. This is a large market, but the overall industry revenues have been declining. The market had hit saturation and new customers have become more difficult to uncover.

Despite the industry situation, the sales and marketing team at ADP Dealer Services were charged with improving revenues, but how? Randy Kobat, then Director of Strategic Planning at ADP Dealer Services (www.dealersuite.com) shared some of the steps his team took and the results of that effort.

Challenges in Doing More

ADP Dealer Services could not grab market share simply by outspending their competitors.

One of the competitors, Reynolds & Reynolds, was particularly challenging for ADP Dealer Services as the market matured during 2000-2002. ADP Dealer Services and Reynolds & Reynolds each had a 36% market share, leaving the remaining 28% market share to be split among five smaller competitors. ADP Dealer Services is a $706 million unit of the $7 billion ADP. Reynolds & Reynolds reported $999 million in revenues for 2001 primarily from the car dealership market. ADP Dealer Services has 16,000 car and truck dealership customers throughout North America and Europe. Reynolds and Reynolds achieved its 10,000th customer in February 2003. By most metrics, these two competitors are equally strong and possess similarly ample resources to compete head-on.

With a competitor like Reynolds & Reynolds, increased spending by ADP Dealer Services in sales and marketing is likely to arouse an equal response. A competitive matching situation from an all out war for market share would lower overall industry profitability, hurting both industry competitors without improving overall revenues.

If doing more wasn’t the solution that would produce fruitful results, doing it smarter might be.

Opportunity in Doing it Differently

There were two opportunities for improving revenues within the industry consisting of improving the customer retention and providing a better matched array of value offerings to the market.

Industry published research from the National Automobile Dealership Association indicated that the customer retention rate was in the 88% to 93% range. Alternatively stated, every year the business software providers would loose 10% of their customers to the competition. If ADP Dealer Services could raise their customer retention rate above the industry norm, it would be able to slowly chip away at the competitors install base and increase their market share. Increasing customer retention would be a fundamentally necessary step but unfortunately it would not be sufficient. Mature markets also come with price competition that lowers overall revenues and increased market share may not guar*antee increased revenues.

Research, conducted on behalf of ADP Dealer Services, demonstrated the potential for market segmentation. The different market segments have distinct demands for products and services. This creates the potential to tailor offerings to the distinct segments, wherein supplying the appropriate product or service to the appropriate market segment increases the value of the offerings to the customers and improves revenues. For ADP Dealer Services, the value of meeting the demands of distinct market segments arises from the ability to capture a larger customer base, serve these customers better, and take a larger portion of the information technology spending within that customer base. Meeting the demands of the unique segments presented the opportunity to improve revenues. This action held the potential to be both necessary and sufficient.

Action

Given the value of improving customer retention and meeting the demands of the distinct market segments, ADP did both. Some of the work is still in progress, but the early results are impressive.

In 2002, ADP Dealer Services improved its customer retention rate from 90% to 95%. By this measure, ADP Dealer Services is winning the battle over its competitors in the trenches for customer loyalty.

The market segmentation data led to the creation of a new sales protocol in conjunction with a newly released broader suite of products and services. ADP Dealer Services salespeople have been directed to ask early prospects five simple questions. Based upon the answers, the salespeople craft a custom offering that is most likely to meet the needs of customers fitting a specific profile using the newly released broader suite of products and services. Executives receiving their customized offering are more likely to review it favorably, in that the proposed solutions would better meets their needs. As such, they are more likely to give the salespeople the permission to move to the next level in the sales cycle and build the business case for selecting ADP Dealer Services.

ADP Dealer Services is still implementing the new sales protocol that better matches the new services to target segments. Hurdles include that of achieving field sales force buy-in on the approach as a means to improve the salespeople’s income. While not all sales people are utilizing the approach, many are.

Result

By improving their targeting of the value proposition to customers, ADP Dealer Services was better positioned to serve existing customers and create new ones. This produced a noticeable change in revenues, from a decline of 7% in 2001 to an increase of over 11% in 2003. In conjunction with the increase in revenue, ADP Dealer Services also improved their profit margin.

Segmenting the mature market and crafting the value proposition towards the distinct segments was a major portion of ADP Dealer Services route to success in the first round of battle. The strategy was the fruit of a “do it smart” mentality, not the “do it more” approach. In the next step, they must meet the competitive battle with the same ingenuity.