Case History: Volvo Construction Builds Rental Business with CRM

Volvo Construction Equipment is the largest manufacturer of construction equipment in the world. But it is eyeing first place, thanks to a decision to enter the rental market three years ago.

The timing certainly was right. By 2008, half of all construction equipment used in the U.S. will be rented, compared with slightly more than a third this year.

And the marketing strategy was also a good one. Volvo decided that the best way to build the business was to work through franchises, and to support them with financing and a CRM program.

“Volvo could have taken the same amount of capital and purchased a company but it chose to start a franchise company where it support its entrepreneurs,” says Nick Mavrick vice president of global strategy and marketing for Volvo Rents, the franchise division of the Volvo group.

The Program

Volvo assists the franchises, many of which are entrepreneurial start-ups, by providing them with a soup-to-nuts CRM service. For one thing, it creates customized models. These are based on behavior and other variables. Franchises are informed of how many customers per category they need to make a profit.

“They may need 15 contractors who spend $35,000 a year, 16 who spend $10,000 and 35 people that spend $5,000,” says Mavrick. “We turn those financial goals into customer goals, and they receive weekly CRM reports online to track their performance.”

Reports are generated by a point-of-sales system that captures customer and transaction information, and rates renters by recency, frequency, monetary value and other standard metrics. Franchise owners can access these reports online, and use the data to conduct local marketing efforts, or to cultivate a client relationship by sending a case of Omaha steaks or inviting a client to dinner with the family.

“We’ve put the power of maintaining relations with the customer into the field users hands,” Mavrick says. “If you break it all down that’s what CRM is all about—empowerment. We push money and technology to the field so they can activate the marketing budget, but we control the strategy and the capital allocation.”

That includes customized direct mail pieces and telemarketing scripts (simple ones) based on segmentation.

It’s a big job. Volvo has 65 stores in North America, and has another 50 under contract. And it has almost 100 in Europe.

Who are the end users? Typically, 46% of the customer base are contractors and 54% fall into other categories. These might include a factory seeking to rent a compressor or generator, an auto dealer requiring a lift or a homeowner in need of a saw.

Marketing dollars for each franchise are allocated based percentage of revenue. That number is then divided between loyalists, future loyalists and testers.

Eighty percent of that budget is allocated to loyalists for customer events and gifts. Research has shown that Volvo’s most loyal customers spend over 50% more per transaction than the average. “Most companies spend 80% of their budget on testers,” Mavrick says. “They do that because it’s easy to centrally plan, but I want to spend on a loyalist. That requires local market execution. We couldn’t reach them through corporate means in a sincere way where the customer would regard us as authentic.”

Mavrick isn’t a big fan of advertising because he believes that it will “not get you to switch from your provider to Volvo.” As a result, there is no advertising to end users. He believes in the old 80-20 rule—that 20% of the customers will create 80% of the revenue—and he budgets accordingly.

What’s it cost Volvo? “It’s surprisingly inexpensive,” Mavrick says. “Between $5,000 and $10,000 a month.”

The Results

This approach seems to be paying off. The customer base grew by 84% between July 2004 and July 2005, and transactions leaped by 128% nationwide. Among loyal customers, rentals grew by more than 200%.

And there’s one other benefit—individuals working in the franchises feel empowered because they are building the relationships and activating the marketing decisions.

“It’s different from a corporate office that says this is the promotion of the month and by the time word gets to the field location — it’s just another order,” Mavrick says.