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Strategy

Oil-change franchisee needs a turbo boost Add to ...

Bill Bhangal is in a jam these days. The owner of 10 Jiffy Lube franchises in Southwestern Ontario says his revenue, just like the economy, has tanked. “Before the downturn, customers would arrive every 4,000 to 5,000 kilometres – now it's stretched to 7,000 kilometres, with customers availing of lesser services than before,” he says.

The drop in business, which he estimates at 7 per cent to 10 per cent, has cut his average revenue per customer to $69, a number he'd like to see increase to $80. But one of the quickest ways to do so – raising prices – is not an option in these trying times, he says. February sales dropped 7 per cent over last year, and March has shown a modest uptick, says Mr. Bhangal, 42, who has worked 15 years in the auto industry.

He started small, with garages and then service stations, and over the course of six years has acquired exclusive regional franchisee rights for 10 Jiffy Lubes in Brampton, Mississauga, Oakville and Burlington that together employ 110 people. Mr. Bhangal says he shelled out about $750,000 per location, including franchise costs of about $188,000 to $325,000 per site, according to the Jiffy Lube website.

Mr. Bhangal's silver lining is a high rate of customer retention. “Almost 75 per cent of my customers come back every four months,” he says. Weekly customer surveys, which he outsources, indicate that the reason for this loyalty is value-added services, including a free vehicle cleaning with oil change, free coffee and newspapers in the lounge, and water bowls for pets.

But despite the extra services offered, and with prices about 7 per cent to 10 per cent lower than his main competitor, Mr. Lube, Mr. Bhangal hasn't been able to match his rival's higher prices per customer.

A big reason, he believes, could be low brand awareness. There are only 44 Jiffy Lubes in Ontario, compared with almost double for his competition. Mr. Bhangal spends 3 per cent to 5 per cent of sales revenue on advertising flyers, billboards and coupons, but says he's at a disadvantage because Jiffy Lube does not have the benefit of national advertising.

Mr. Bhangal says the recession could be a blessing in disguise, and hopes that when his customers choose to maintain their aging cars they'll come to him for their next oil change.

But until then, he wonders what his strategy should be.

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What the experts say

Bill Bhangal should raise prices at his Jiffy Lube sites to match those of his main competitor, Mr. Lube, says Perry Maisonneuve, founder and president of Northern Lights Franchise Consultants Corp., a Mississauga-based firm that advises franchisees around the world.

“He doesn't need to compete on price because 75 per cent of his customers come back due to the little extras, so ‘perceived value' already exists in the minds of the consumer,” Mr. Maisonneuve says. “If he were to increase the price of his basic oil change from $42 to around $45, it will yield an immediate boost of 7 per cent.”

Such a price increase is “very likely immaterial for customers' buying decisions,” says Mr. Maisonneuve, who specializes in expansion and development for small and medium enterprises.

The next step is “training all levels of staff at Jiffy Lube to up-sell their services,” he says, referring to the practice of suggesting higher-priced products or services to customers. “People are keeping their cars longer instead of replacing them, so promote it, sell it. Educate them about the benefits of upgrading to a synthetic oil, which increases a car's longevity and improves engine performance and efficiency during Canadian winters.

Then spread the word through public relations and promotion in the local media stressing the dual benefits of going green – on your wallet and the environment.

It's crucial that Mr. Bhangal increase his marketing budget because he doesn't have national ad support like his competition, Mr. Maisonneuve says.

But for the message to truly resonate, he must focus on potential customers in the immediate community. “The oil-change business is one of impulse buying,” he notes. “You go where it's convenient, or to a person you trust – your own dealer or mechanic – and you don't change that unless something has changed the equation, such as a personal relationship.”

Mr. Bhangal should network, advertise and even sponsor the activities of local organizations, Mr. Maisonneuve says. “If my daughter's soccer club gets a small percentage out of each oil change, I'd patronize it.”

To build customer loyalty and generate business, he recommends a rewards-and-referral program. For example, tell customers that by coming more often they could get a free oil change for every fourth one in a year.

The bottom line, Mr. Maisonneuve says, is that Mr. Bhangal should be different. “All things being equal, you go to a location that's convenient. So we've got to change that: You don't want all things to be equal, you want it to be a destination, not an impulse.”

Michael Abramson agrees. The president of Toronto-based Adlib Group Inc., which specializes in franchisee marketing, says Mr. Bhangal's shops must generate excellent word-of-mouth.

After examining Mr. Bhangal's advertisements, Mr. Abramson suggests a makeover: “He's advertised ‘worry-free driving,' but it's not about worry-free driving, it's about what sets him apart. After all, if an oil change really does provide worry free driving, customers could get that anywhere they get their oil changed.”

As well, the worry-free theme may not stand out for potential customers because it could easily be referring to tires, brakes or seat belts, says Mr. Abramson. “What they can't get anywhere [else] is Jiffy Lube's price or his comfortable service environment.”

Mr. Abramson suggests a creative tagline for Mr. Bhangal's Jiffy Lube franchise, such as: “A better deal on oil changes and you don't have to call us ‘mister.'”

He explains, “There is a double play on the word mister – it says ‘we are not that formal' [stressing the service environment] and also takes a little dig at the big guy in the industry [Mr. Lube].”

For the long term health of his enterprise, Mr. Maisonneuve says Mr. Bhangal must take a hard look at his business model and consider moving or closing non-performing shops.

“Between all his locations, he's looking at over 1.4 million people and that many cars, so he's already fallen into a rift of spreading himself thin. It's like too little butter over too much bread,” he says.

He recommends Mr. Bhangal follow the retail concept of clustering, or establishing locations close together so that consumers notice more outlets in their neighbourhood, which in turn improves brand recall. It also helps to bring in drive-by customers.

Adds Mr. Maisonneuve: “If you do manage to make [the passing motorist] your regular customer, you've effectively succeeded in grabbing market share from the competition, and growing your own.”

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IN A NUTSHELL

  • Customers already value the service, so a marginal price increase shouldn't hurt. Promote pricier services while stressing the importance of regular maintenance to a car's longevity.
  • Building relations takes time, but it's worth it. In a downturn, consumers tend to patronize businesses they trust rather than trying something new.
  • Consumers are bombarded with more than 3,000 advertisements daily. Mr. Bhangal should repeatedly stress his “personalized service” until it becomes part of the brand's core message. Then deliver on it, 100 per cent.
  • Bad locations or poor staff can hamper sales. Train, motivate and consider offering productivity-linked bonuses to all levels of employees.
  • Be the big fish in the little pond. Make sure you have 40-per-cent market share before expanding into new territories.

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