Dealer Marketing Magazine | September 1, 2010 – Everyone loves to get more value out of an investment than they originally put in. It’s not very often, however, that both the dealer and the customer feel the same way when the customer leaves the dealership; one party or the other usually feels that they could have – or should have – gotten “more”.
Imagine a scenario where, when the customer drives off in their new car, they know they received the best value for their money and anticipate a great relationship with their dealership over the coming years as their car is well cared for; and the dealer leaves the sale knowing their customer will come back again and again for future maintenance, service and vehicle purchases. A “Win-Win” scenario, where the dealer and the customer each come away feeling like they got the better end of the deal.
Indeed, these scenarios describe the functionality and outcomes produced by today’s technology-driven prepaid maintenance programs (PPM). These software-driven, dealer-controlled programs are the best “Win-Win” business tools available today – with no industry gimmicks and real, tangible results.
PPMs keep customers returning to your service department. That’s good news. Even better news is that each PPM visit also creates upsell opportunities. The statistics speak for themselves: customers who use a dealer’s repair facilities are 17 times more likely to purchase their next car from that dealer, and keeping a greater percentage of customers returning to your service department can bring huge increases to your service bottom line too!
Given the price and administration structures of most traditional plans, regardless of the return promised on their sale to customers, many PPMs challenged all but the most advanced dealerships to afford and manage profitably. Technology removes these barriers by putting the administration, management and reserve functions at the controlling hands of the dealer.
In other words, key functions and processes, including redemption management as well as plan registration, service claim and premium submission, are carried out in-house through the dealership management system (DMS) and web-based software, making the PPMs not only more affordable, but more effective as well.
Thus, software-driven PPM programs are a great leveler. Their fees to the dealership are three to four times less than traditional third-party-based PPMs. They eliminate traditional “seeding fees” charged for setting up and maintaining the PPM reserve account. These fees average $10,000 to $14,000 collected by the third-party plans for every $1 million in reserve.
The hands-off freedom afforded by today’s PPMs give the dealer complete control, on a daily basis, over how money is reported, tracked and used. Earned reserve or plan forfeiture amounts are realized immediately – no sharing with an outside administration company.
Every plan will experience forfeiture. It results when a customer terminates the plan early or for whatever reason does not use the plan. For most traditional PPMs, the third-party administrator holds this dealer-funded reserve. It is from this reserve that the administrator would often take up to 60 percent of the value of the cancelled services as part of its fee structure. Today’s technology-driven plans enable the dealer to processes forfeiture through the general accounting ledger in the DMS.
The Other Side of Win is…Win
Today’s self-administered, self-managed plans also are more appealing to customers, particularly those buying mainline domestic and import brands who seek value in all they buy, whether automobile services or groceries.
Today’s technology-driven plans make it very easy for dealers to customize what is offered in the dealership’s PPM offering. Often this will result in a plan made up of products other than, or including, discounted prepaid LOF, tire rotation and fluid services. Plans that provide the product (value) important to the local market will appeal more to buyers, making their presentation and sale in the F&I office or service lane more profitable and successful for the dealership.
It is these plans’ ability to retain a customer’s service business and then create upsell opportunities for additional customer-pay repair order (RO) business at each plan service visit that make them like a money tree. These programs can triple the likelihood of the customer continually returning for service – a big growth over the 18 to 20 percent of customers who do traditionally return with a PPM’s incentive.
By converting PPM owners’ prepaid maintenance work to additional legitimate service needs (Your shop does insist on giving every vehicle that enters the store a free, no-obligation vehicle inspection, right?) the additional retail parts and labor can produce healthy additional business.
Some dealers report the ability to glean another $150 to $350 of additional up-sold retail customer-pay business per RO as a result.
When both sides win, what’s to lose?
Technology-driven PPMs that you manage and control simply make it too attractive not to give prepaid maintenance programs a second look.
Dealerships operating highly successful customer loyalty programs tend to structure those efforts around three loyalty traits – loyal customers, loyal employees and loyal dealers.
An example is Acton Toyota of Littleton, in Littleton, MA, which launched a loyalty program in 2007. Since then, the dealership has registered more than 24,000 retail members to its program and is adding 365 new members a month.
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The relationship between the 21st century customer and supplier is a complex one. It was never straightforward, and events over the past fifty years or so have complicated it still further – although at the same time providing new ways of nurturing it. Over this time, the face of marketing has changed beyond recognition. The 1950s and 1960s saw mass marketing at its peak. After the austerity of the war years, stores filled up with goods that consumers bought enthusiastically. When one customer left, another took their place. In most cases, there was no relationship between customer and supplier.
Shops expanded, big stores began edging out the smaller corner shops and the days of the ‘mom and pop’ shop were numbered. The kind of relationship built up between small shopkeepers and their customers became a thing of the past. The consumer opted for bigger, more modern stores, with more choice – and anonymity. Not only did storekeepers no longer know their customers’ names and preferences, they didn’t even know how many customers they had. They had no idea who spent a lot or who didn’t. And most importantly, they had no way of telling when a dissatisfied customer left. Were they even interested? After all, there were plenty more where that one came from.
It was a good time for retailers. As their stores grew, they became more and more powerful. Not only could they buy merchandise on better terms, but they could almost force their customers to buy their more profitable lines. Mass marketing had arrived.
But mass marketing had its disadvantages. It was almost totally untargeted, making it both costly and wasteful. It was indiscriminate, attracting as many ‘cherry picking’ customers as good customers. It depended on one-way communication: no feedback was received and no relationship was formed. And later on, as the media fragmented, it became less productive: more advertisements were needed to reach the same audience.
However, the big retailers got better and better at retailing. Their merchandising improved, their customer service improved and they matched each other on prices. Their stock control improved, resulting in less waste and fewer out-of-stock lines. The playing field was leveling out. They were almost all uniformly good, and it became harder and harder to differentiate themselves from their competitors.
Then they were all squeezed from another side. In some countries, retail space was growing at a faster rate than the population, which meant that it became more difficult and more expensive to attract new customers. In some of the major sectors discounters moved in, drawing yet more customers from the high street retailers. It didn’t look quite so optimistic any more. Suddenly, it made sense to retain regular customers rather than simply relying on new ones turning up.
Furthermore, in many instances, globalization has made it more important to build loyalty. The motor industry provides a good example. Fifty years ago, Americans tended to buy American cars, and there were relatively few imports. Today, cars are imported into the U.S. from all over the world to the extent that, in some cases, it is quite difficult to attach a country of origin to any particular model. Loyalty to a specific make now depends more on the actual car and the service offered than on national pride.
But how could organizations with thousands or even millions of customers apply the principles of mom and pop marketing to their massive empires? Advancing technology came to their aid. Fortunately, this has advanced faster than anyone could have predicted. Nearly forty years ago, Gordon Moore, co-founder of the computer chip producer Intel, predicted that the number of transistors that could be put on a computer chip would double every year. He later altered this to every two years. In practice, events have run somewhere between the two, and this is fairly typical of advances in computer technology. Databases that, a decade ago, would have required massive investment and a team of operators can now be run on a desktop computer and can respond to “what if?” questions with almost instant answers.
Once the case for the value of nurturing loyal customers was made, it began gathering momentum. There had been isolated programs before but, within a few years, they were everywhere. Some were carefully thought out responses to the solid argument of the value of loyal customers while others were simply ‘me-too’ copies of what competitors were doing. Many missed the point completely. On the surface they appeared much the same as the good ones but their objective was simply to buy customers’ loyalty. Their operators thought that the reward would be enough to bring customers back time after time. But it didn’t take long to become apparent that they were mistaken. Customers simply carried many loyalty cards and collected points wherever they shopped. They were just as promiscuous as before.
The point that the retailers were missing is that while a simple reward may well have an effect on sales, it doesn’t help the retailer to improve his company’s core offering to the customer.
The smarter operators used loyalty programs not to buy repeat visits but to buy information from their customers in order to learn more about them: who their most profitable and least profitable customers were, what they wanted and what would be most likely to make them loyal. This information was then used to guide the policies and even the culture of the business, and customer-centricity was born. True relationships between supplier and customer became possible for the big players as well as for the small ones. The same old techniques that had been used so successfully by mom and pop stores so many years before could now be used by retail giants as well: get to know who your customers are, what they want and then meet those needs. In fact, the best of those that have become widely known as ‘loyalty programs’ are not that at all – they are actually programs that gather information which, in turn, is used to cultivate loyalty.
theloyaltyguide: an absolute goldmine of loyalty information | 2004 edition | thewisemarketer.com