Dr. Talal's Honda.

Khanfar, Nile M. ; Loudon, David

CASE DESCRIPTION

The primary subject matter of this case concerns the consumer purchase decision process for a new automobile. Secondary isues examined include the ethics involved in certain actions by dealer representatives, how small businesses must tightly manage their sales efforts, proper business etiquette when dealing with customers, and understanding customer satisfaction issues in the automobile selling environment. The case has a difficulty level of four, appropriate for senior level. The case is designed to be taught in one class hour and is expected to require one hour of outside preparation by students.

CASE SYNOPSIS

Dr. Sultan Talal and his wife have made a decision that they need to purchase a new minivan to replace the older large-size van they own. Talal has decided on a Honda Odyssey, even without test driving the vehicle for confirmation. The case takes the reader through the various stages in the decision process from information gathering to decision and postpurchase activities. Talal experiences many typical consumer interactions in this environment. The case focuses on some of the ineffective actions taken by employees in the dealership including inadequate sales effort, rudeness, unethical behavior, and poor customer relations and follow-up.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches This case is designed for use in undergraduate marketing courses to help students:

* learn how to deal with customer satisfaction and ethical issues in a personal selling situation for a small business organization;

* evaluate an actual sales incident and critique the approach taken to develop improved strategies for a car dealership.

It is very suitable for a written report and/or oral presentation by students. It can also be used for examination purposes. The case lends itself to a variety of marketing courses, including Principles, Services, Consumer Behavior, Personal Selling, Ethics, and Strategy. It can also be used as a role-playing device in any of these courses. Faculty may want to cover the following elements in their discussion of the case.

DISCUSSION POINTS

Brand Loyalty

Ask students "Why did Dr. Talal seek out a Honda dealer?" Brand loyalty is the key reason that he is searching for a dealership in order to buy another Honda. Satisfaction with the reliability, dependability and brand quality of his first Honda has led Dr. Talal to trust the brand so strongly that he was willing to buy another Honda without even taking it for a test drive. Ask students if they could consider spending $30K on a vehicle without a test drive. Dr. Talal did. The Honda customer profile is different from other brands. Honda customers tend to be more educated and value driven.

Location

Ask students how important they think location is for such a decision as this. The location of the nearest dealer is always an important consideration in purchase decisions. For products such as automobiles, which may need after-sale fine tuning or service, it can be a very important issue. Dr. Talal decided to purchase the vehicle from the Honda dealership closest to his house, if possible. Although he did not shop the price of the vehicle with local dealerships, he did find out the cost of the vehicle from a dealership in his previous hometown just to keep the Florida dealer "honest."

Consumer Behavior

Ask students if they can identify any stages in the consumer decision process. They should be able to generate discussion about the problem identification stage, information search and evaluation, purchase decision stage, and postpurchase behavior. An interesting situation in this case is that the early Honda brand choice determination eliminated much of the information search and evaluation that many car-buying consumers go through as they travel (or surf) from brand to brand or dealer to dealer.

Ask students if the purchase decision process in the case is highly representative of what they would expect for most car purchase situations. The first encounter the customer, Dr. Talal, has with the sales representative at the car dealership may seem somewhat unrealistic. Seldom does a sales representative at a car dealership give his best price on the first encounter with no bargaining or negotiation. The negotiation process was not the usual situation because the sales person was aware that Talal was a former Mercedes-Benz sales manager as indicated in the case; therefore, he was aware that Talal would undoubtedly find out the cost of the vehicle. As a result the rep gave Talal a very fair price of $26,994 plus fees for a vehicle considered to be a hot seller. This price results in almost $650.00 profit to the dealership. From Talal's experience, he knew that the rep's commission would likely be $50-100. Talal's goal was not to bleed the salesman, who had given him an excellent deal. Talal knew that he might need his help in the service department at some time in the future. This point can be a good issue to stimulate students' thinking about fairness and ethics in negotiation.

In the auto sector, as in many other industries, a downpayment is a normal part of the purchase process. Ask students why they think Dr. Talal, a highly intelligent professor with a PhD, did not ask the amount that would be charged before giving the sales representative his credit card? Students will find that in the car business a deposit normally does not exceed $500 dollars. In fact, Talal used to charge only that amount when ordering a $50k Mercedes-Benz for his customers. Also, a deposit is a psychological commitment to the sale. As the sequence of events in the case indicates, Talal had made them a firm commitment and, in fact, East Coast Honda had already sent a driver to the nearby dealership to pick up his minivan. All of that was done before they asked him for the deposit. Therefore, he probably assumed it was unnecessary to even ask for a deposit. Additionally, a deposit is normally used to test the credibility of the customer. The sales person should have known that Talal was credible person, since he had his business card and had called him at his office several times. The sales person also knew that Talal was not using the deposit as a down payment because he was paying for the vehicle with a cashier's check. A proper approach in this situation would have been for the rep to clearly state the amount that he intended to charge and to ask for Talal's permission.

Students might also be asked if they think there are any significant "environmental" factors that may have influenced behavior in the case. There are many possibilities they might suggest. The role of family life cycle stage, spousal power and influence, and cultural/subcultural factors are some of the obvious elements students could identify and discuss.

It is possible that prejudice arose in the buying situation with Reed because his sons were soldiers serving in Iraq and Afghanistan. Also the name Talal is a well known Middle Eastern name. It may also be possible that having Dr. Talal's extended family in Reed's office aggravated him. While it is not at all unusual in the automobile business for the whole family to be in the finance manager's office, in this situation perhaps Reed was aggravated by seeing that many foreign people, especially two females wearing middle eastern garb, and a successful middle eastern college professor. Ms. Talal's parents were there because if they were left outside the office it might be culturally disrespectful.

Students could be asked their reaction to the extended family showing up for the purchase. This could be another cultural factor in the case. From a sales standpoint, it is important that the family shows up to look and take delivery of a spotless vehicle and to even take pictures with it (most dealers will do this for purchasers to post in their company scrapbooks). These are the lasting moments that buyers will always remember. Because this vehicle was to be for Dr. Talal's wife, having her parents participate in the purchase process in which the minivan is picked up gives them a good feeling that their daughter is well cared for. Remind students that in automobile marketing (as in other settings), we are not just selling vehicles but rather we are providing solutions and great feelings of customer satisfaction, even extending to important bystanders of the purchase event.

Personal Selling Issues

Ask students to cite some of the personal selling interactions that occurred with dealership personnel that were not effective. The salespeople and finance manager need to take lessons in customer service and how to greet a customer. The initial salesperson, Mr. Donald, gave Dr. Talal a brochure when they first met and told him to look at it and let him know whenever he was ready to come back! He made some potentially fatal assumptions. He assumed that the customer would automatically return, and return to him. The salesperson needs to follow a greeting protocol and a pre-qualifying process and never to underestimate the power and options (other brands and dealers) available to the customer.

The finance manager and the salesperson should always respect the wishes of the customer. If the customer decides to pay cash for a vehicle, then it is the job of the finance manager to offer other options to the customer, but never to misrepresent or deceive the customer into financing with the dealership. In this case, the finance manager "forced" the salesperson to give Dr. Talal a blank credit application for him to sign. When Dr. Talal asked "why," he was told it was a post-911 federal law. At this point, not only was dealership policy and the law misrepresented, but also the customer was lied to and his intelligence insulted (as a highly educated person and a former Mercedes-Benz sales and finance manager). This was a clear violation of the law and could have resulted in severe repercussions for the individuals and dealership. This illustrates to students just you how far some employees in the car business will go to make an extra dollar. Even though the Honda dealership was a member of the prestigious President's Club, unfortunately the personnel reflected a negative image that has become widespread within the new car industry.

The case notes that Dr. Talal thought that pulling the credit might reduce his credit score. Dr. Talal assumed that whenever a company pulls someone's credit report, the credit agency tracks the frequency of inquires and the names of companies that pulled the person's credit. If the customer has been to several dealerships and all of those dealerships pulled his credit, a bank may look unfavorably toward this because they will wonder why he did not buy or get financed. Actually, there are "soft" inquiries and "hard" inquiries. A soft inquiry could be made by a lender to make you a preapproved offer or a car dealer to check your credit report. Hard inquiries occur when lenders pull one's credit report in response to your application for credit, and could contribute to a lower credit score depending on what else is in your credit report. Fair Isaac, the maker of the FICO score, states that its scores ignore all auto-loan inquiries made in a rolling 30-day period prior to scoring and typically count car-loan inquiries older than 30 days as one inquiry when they are made within a 45-day period.

Customer Satisfaction

Ask students how important they think customer satisfaction is in the automotive industry. They should be aware of the concept of "customer lifetime value." For example, GM believes a customer could be worth over $275K to them during their purchase lifetime. This assumes that a loyal buyer will purchase over 11 GM vehicles during that time.

Dealerships generally strive to obtain high Customer Satisfaction Index scores from customers. The scores are tabulated from customer satisfaction surveys conducted via phone or mail by American Honda Corporation, which is a subsidiary of the Honda parent in Japan. Some dealerships will offer a free oil and filter change just to entice customers into giving them high scores. Or they might offer no charge-rental cars in the service department for Honda customers whenever they bring in their cars for service.

Ask students how they think a dealer might benefit from high CSI scores. Dealerships that obtain high CSI scores will be given priority to choose from limited-availability vehicles or even get a higher quota of supply of vehicles. In a very competitive market (e.g., south Florida) this could be a very important differentiating edge for the dealership. They will also get bonus money that is tied to volume under the condition that the dealership maintains high CSI scores. The dealership may also get a designated elite status such as the prestigious President's Club. Such status may then be reflected in dealership advertising, managers' and salespeople's business cards and letterheads. The designation will help the dealership to promote itself and Honda products to the public in an impressive and convincing way.

A very important point to bring out is that dealerships spend huge amounts of money in newspaper, radio, and television ads to promote themselves and their products. Yet when a loyal customer like Dr. Talal comes along to buy a vehicle, they may fail to offer simple, honest, straightforward customer service and respect to such prospects. As marketing literature indicates, loyal customers and positive word-of-mouth are the most effective marketing methods to obtain new customers.

Lack of marketing training and supervision by dealerships and lack of understanding of customer wants and desires has cost the automobile business dearly in the poor perceived reputation they currently have. Customers are not attracted to a dealership solely because of their "need" to own a vehicle. Dealerships also need to understand their "wants" for fair price, respect, service (before and after the sale), honesty, and integrity.

A smart manager will save the dealership lots of money and earn more business and higher CSI scores if only a fraction of the budget designated for promotions were spent, instead, on training their sales force and management on these issues.

Nile M. Khanfar, Nova Southeastern University

David Loudon, Samford University