Developing a new product in the retail automotive F&I industry requires special attention to the steps that must be completed and what ‘ingredients’ go into the mix. Find an administrator that has...

Developing a new product in the retail automotive F&I industry requires special attention to the steps that must be completed and what ‘ingredients’ go into the mix. Find an administrator that has the secret recipe!

Image by Arek Socha from Pixabay 

Whether you prefer the food from your mother’s kitchen or a four-star restaurant, they both have one thing in common: Each begins with a recipe. An essential how-to that dictates the steps required to achieve that perfect bite. Not only does a recipe dictate the ingredients, but the amounts and order in which the steps must be taken, as well. An error in any of these variables, and the outcome quickly turns from fabulous to failure

Strong product administrators are nimble enough to change with the times.

Developing a new product in the retail automotive F&I kitchen requires a similar recipe with specific steps, completed in order, and great attention paid to the ingredients that go into the mix.

A good product administrator should use a methodical approach to product development that involves a large amount of research to create each product’s unique features and benefits, and ensure the needs of all stakeholder are met:

  • Agent
  • Dealer
  • Lender
  • Consumer

Lets use potential products for electric vehicles as an example. A good administrator should research the current and future electric vehicles in development by their different manufacturers, including battery manufacturers and suppliers, and available service contracts in the industry. Additionally, review average repair costs to determine which product features and coverage levels would be most beneficial to each product stakeholder group.

A Different Twist

Good cooks will often say their dish is better because of a secret ingredient or an extra dash of something unique. The same is true in F&I product development. When researching current products in the market, successful administrators will conduct a gap analysis, asking:

  • Is a product truly new?
  • Is there something similar/the same already in the market?
  • If so, how is the product performing? What are the product sales and loss ratios?
  • What is the growth potential of the product?

With the electric vehicle protection products we are focusing on in this article, the administrator should review the current state of the electric vehicle market and its growth potential, along with the available service contracts, which could be sold with electric vehicles. The more generalized vehicle service contracts provided a significant amount of coverage for components that aren’t included in electric vehicles and provided limited coverage for electric-vehicle specific components. The vehicle service contracts designed specifically for electric vehicles also fell short in one key area – battery coverage. Using this information, they will see the need to bring to market an electric-vehicle-only vehicle service contract.

Will It Sell?

Another important step in the research portion of product development is market analysis. Is the product worth developing? Is the market large enough? What’s the cost to create it? Product administrators have finite development resources and want to apply those resources to creating products that will generate revenue.

When bringing products to market, your product administrator should work hand-in-hand with you and your dealer clients to determine product positioning, and how to best utilize F&I products to generate more foot-traffic and profit per unit sold (PRU). For example, they should work with clients to field consumer research, specifically evaluating whether and to what extent the product:

  • Differentiates the dealership
  • Increases market awareness
  • Increases the likelihood that customers will purchase from a given dealership
  • Is used for determining where to purchase a vehicle
  • Helps generate customer retention and referrals

The results of consumer research like this helps your administrator determine how a given product benefits you and your dealers, i.e., if a consumer finds a product valuable, they are more likely to purchase it, increasing a dealership’s revenue generated on a vehicle sale.

Timing Is Everything

Just because a need has been identified, doesn’t mean a product gets developed right away. Product administrators need to continually evaluate their product pipeline in comparison to what’s going on in the market.

In terms of our electric vehicle example, an administrator should be researching the predicted adoption bell curve for when electric vehicles would reach a tipping point in gaining market share compared to traditional motor vehicles to determine the timing around the product launch.

Administrators must ask:

  • Do market forces dictate that certain products should be accelerated?
  • Are the priorities aligned with customer and client demand?

Something as simple as seasonal application can move a product to the front of the development pipeline.

Cooking It Up

Once an administrator decides to bring a product to market, the real work begins. With a vehicle service contract, administrators must evaluate each potential component in terms of:

  • Likelihood of breakdown
  • Whether a part can be repaired or must be replaced
  • Cost to repair or replace

This evaluation is conducted across all vehicle manufacturers, makes and models for both current and older model vehicles. With the risk analysis in hand, administrators determine which components are covered, and how to price the product to cover claims.

In conjunction, a legal team must evaluate state laws to determine where products can be sold, and whether they must be sold as insurance, a waiver, or as an extended warranty. Each state also has their own rules that must be included in any contract. For example, Florida has specified that products must be filed with a specific price, and once that price is set, a seller cannot vary from that price for any reason.

Once an F&I product is filed in each state, it can finally be sold.

The Taste Test

Product analysis doesn’t end once the product is in the market. A good cook would not offer a dish without tasting it. And a good product administrator must continually evaluate its products in the market.

Good administrators don’t abandon a product once it has launched, rather they continually evaluate current products on a regular basis against all the same criteria used in the product development phase. The more data gathered, the more finite an administrator’s rating process will be, enabling the administrator to expand flexibility and pricing.

Product development is not a one-step process, but rather a continuous refinement to ensure success in the market. Just as a good cook continuously updates their recipe, so to must product administrators update their products. As vehicles and customer needs change, you and your dealers will need new solutions to meet those needs. Good product administrators continually evaluate their current product mix and new product pipeline compared to market need.

They should collect feedback from current and prospective clients as to what’s working, what’s not working, and what needs to be developed. As well as also asking those clients to inform them on what they don’t want in a given product to avoid overcomplicating products.

Just like in any industry, product development in the F&I space requires constant research and evaluation, along with a strict attention to detail. Continuous feedback is required along with a close watch over all the variables that can affect consumer need, like changes in vehicle design, natural disasters causing damage to vehicles, changes in repair and maintenance costs, etc. Strong product administrators are nimble enough to change with the times.

Tom Rubadue serves as vice president of product management at EFG Companies. EFG facilitates the compliant and successful sale of consumer protection products by surrounding its clients with an engagement model that incorporates an array of training and marketing services.

Read: Providers and Administrators Unite to Help F&I