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Marketing for Expansion

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Auto Craft Collision Repair, a five-shop repair operation based in Wichita, Kan., was looking to open its fourth location in the southwest part of the city. Jaden Randle, Auto Craft’s marketing director, thought he found the perfect spot—cheap land located right off the highway.

“We were really close to building there,” Randle says. “We were just about to pull the trigger.”

Before the final decision to move forward, Randle talked to the local government about plans they had to develop that part of the city. What Randle learned was a game-changer: The city was going to reconstruct an area highway in a way that would have a huge negative effect on the success of the shop.

“They put a bypass right over our proposed location,” Randle says, noting the shop would have stared directly into a 50-foot exit ramp if he had built there. “You wouldn’t have even been able to see our store.”

It was frustrating to find out the initial plans for expansion wouldn’t work out, Randle says. But that knowledge really paid off in the long run. “You can’t just throw up a shop without knowing what’s coming first.”

Randle did a little digging and found another location nearby: a location with great frontage, which also conveniently sat along the highway in an established part of town. “We had to pay a little more money, but in hindsight it was definitely worth it.”

“It’s very important to understand the market that you’ll be relying on to help meet your goals and keep your business growing.”
— Barry Rinehart, market services manager, Akzo Nobel

Assessing your market—before you set up shop—is highly important before you spend a load of cash on expansion. Not only will it help you understand where the best place is to build your shop, but also whether that market will be able to support the sales you need to achieve your goals. To do that, you need to understand that market’s potential and how you’ll be able to compete against the other shops that are already there. You might even want to get your feet wet to test out that market before you establish a full-blown shop.

Assess to Succeed

Matthew Ohrnstein, managing director for Symphony Advisors, says it’s not uncommon for collision operations to make an attempt at expansion without assessing their market first. But they often encounter all sorts of problems as a result.

They overestimate the size of the market, they underestimate the strength of their competition, and they incorrectly believe their insurance partners will continue working with them in the new location, Ohrnstein says. The success of your business greatly depends on those variables, and your performance can suffer if you don’t have your facts right.

“A certain market might appear to be a great place, but if it doesn’t have the potential to fill up your shop with work, you could be making a big investment for little return,” says Barry Rinehart, market services manager for Akzo Nobel Vehicle Refinishes. “It’s very important to understand the market that you’ll be relying on to help meet your goals and keep your business growing.”

Randle adds: You don’t want to open your business based solely on a hope and a prayer. You could end up somewhere that just doesn’t have the community growth you need to succeed.

Know Your Market

How do you know whether a certain market has the ingredients needed to sustain your business for the long haul? Well, obviously, the market has to have a solid customer base for you to capitalize on. There are a few key factors to look at to help you determine whether that market is a viable option to take a chance on, and where the best location would be to achieve that:

• Know your market size. Most shop owners should consider their market as a five- to 10-mile radius around their facility. Rinehart says your market size does change depending on the area you’re looking at. Shops in rural areas could consider their market as a 30-mile radius around the facility.

• Determine the market potential. Generally, there is about $100 of collision repair available per capita per year for a particular market, Ohrnstein says. You can simply multiply the market’s population by $100 to get a feel for the collision repair dollars spent there. For example, a market with 50,000 people has an annual market potential of $5 million.

Ohrnstein suggests using $100 as the starting point, and adjust that number based on the area’s usage of public transportation.

Knowing your market potential will help you determine whether that area is capable of giving you the amount of sales you hope for. Ohrnstein says a good market share to shoot for is about 20 percent. So, for example, if you want your business to bring in $4 million a year, you need to target a $20 million market.

• Understand the demographics. Find out the demographic information of the population base that lives and works there, Rinehart says, like the number of people, number of cars per household, and the median household income.

Median household income can be a good indicator of how profitable you’re going to be, Ohrnstein says. Markets with higher income levels tend to have people with newer cars and collision insurance coverage. Those people are more apt to be fixing their cars.

Ohrnstein suggests driving around the market and making observations about what types of vehicles are in the area. You can also obtain household income information from the U.S. Census Bureau at census.gov.

• Understand the work providers. Assess all of the work providers that exist in the market—for example, dealerships without body shops and DRPs, Rinehart says. Talk to them to see if they would benefit from you moving into the area, or if the competition already has that work wrapped up.

“The city doesn’t care who you are or where you’re at.
They’ll just build roads around you in ways that can really
affect your business.”
— Jaden Randle, marketing director, Auto Craft Collision Repair

Ohrnstein warns that you shouldn’t just assume you can take your current DRP partners with you to the new location. Just because you enter a new market doesn’t mean insurers are going to disrupt long-term relationships with shops they’ve already been doing business with in that area.

• Look for new, growing areas. Identify where the population base is moving, and in what direction the city is expanding, Rinehart says. You might choose to put your shop in a more rural area knowing that the city is expanding in that direction, and there will be a lot of new neighborhoods popping up in the near future.

Randle says each of Auto Craft’s shops was initially built in suburbs that were just starting to grow and prosper. “We did the research, and knew those communities would eventually grow with new neighborhoods and businesses,” Randle says, noting it was obvious a body shop would be needed in those high traffic areas.

T&J Studios, tjstudios.com

Randle says he attends the local chamber of commerce meetings to get the latest information about city development.

• Know the labor costs. Look at the prevailing spread between what you get paid for an hour of labor versus the market cost for an hour of labor, Ohrnstein says. Insurer reimbursement rates and labor costs vary across the country. This dictates how profitable you’re going to be, and what your sales need to look like to meet your goals.

Speak with a representative from your paint company’s value-added service program, Ohrnstein says. “Those companies often have internal resources that can help with this type of research.”

• Follow big box stores. You can learn a lot by looking at where stores such as Home Depot, Lowe’s, Walmart and Costco are building, Ohrnstein says.

“If those businesses have done their research and are succeeding, there isn’t any reason why a body shop shouldn’t succeed there as well,” Randle says.

• Understand traffic flow. Speak with the local government about any construction plans they have that could alter the flow of traffic around your business, especially if you’re near a major highway or traffic light. “The city doesn’t care who you are or where you’re at,” Randle says. “They’ll just build roads around you in ways that can really affect your business.”

In addition, it’s important to make observations as to whether people want to get off the highway to go to your area, or if they tend to drive on by, Ohrnstein says.

Competitive Analysis

Since you may not already have a footprint in the area you’re looking to get into, you need to assess the other shops you’ll be competing with to see how you stack up against them. This will help you understand whether you’ll be able to outperform them and acquire a portion of their business, or if you’ll have to step up your game to make a name for yourself.

But what can you do to determine the strengths and weaknesses of the competition? Rinehart says there are a few characteristics of your competitors you’ll want to assess in order to get a feel for their performance:

• Where are they located?

• Do they have a website?

• What additional services do they offer?

• How long have they been in business?

• Do they have affiliations with other businesses in the area?

• Are they involved in the community?

• Do they specialize in certain types of vehicles?

• What is the community’s general perception of them?

• What does their location look like?

• What does their advertising look like in print, on the radio and on TV?

• What is their market share?

Rinehart says you can get a feel for the competition’s market share by driving by and counting the number of cars in their lot. “It’s not going to be completely accurate, but it will give you a good educated guess for how much work they bring in,” Rinehart says. “Understanding all of these factors will give you a feel for how you’ll realistically be able to compete against those shops.”

Test the Waters

Market research is clearly important, but the reality is that it’s just an educated guess as to how your business will be able to perform. You may just want to get your feet wet first to get a solid grasp of the market conditions.

Randle says Auto Craft tests each new market with a satellite estimating shop before they move ahead and build a full new facility. The company currently has one of these satellite locations in Andover, Kan., a small suburb that only has one other competitor.

“We put a drop-off location there to test the market and see if we could pull some business away from the competitor,” Randle says. And they have: The satellite shop, which offers estimates and ships the work off to the nearest Auto Craft location, brought in $45,000 in sales in January 2011—only its sixth month in operation.

Randle says the cost and risk of doing this are extremely low: $3,000 on signage, payroll for only one estimator, computer expenses, and $1,000 a month to rent space in the middle of a strip mall. Auto Craft also spends about $2,000 a month on marketing —by hosting summer barbeques and sponsoring community events—to let community members know the satellite shop is in the neighborhood.

Satellite estimating locations are a great way to test the waters of a new market, Randle says, noting this is the best way to gauge the performance of the location you chose.

“It’s obviously not a bad idea to see what kind of traffic you’re able to pull in before you actually break ground.”

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