Service Group Advisor | Volume VIII, Issue 1 – When a dealership offers a prepaid maintenance program (PPM) to customers, what is the dealership hoping to get in return? Certainly one answer is to gain customer affinity for the dealership.
That affinity is profitable too. Experience shows that customers who use a dealer’s repair facilities are 17 times more likely to purchase their subsequent vehicles from that dealer. As fortunate as that is, the true long-term benefit is that PPM plan customers frequently purchase additional customer-pay retail parts and labor services that boost repair order profitability.
Necessary for the dealership to capitalize on this opportunity is the dealership’s commitment to deliver a safety and reliability inspection to every vehicle owner. This inspection helps verify the needs that brought the vehicle into the shop in the first place and for technicians to identify other legitimate maintenance and repair needs beyond those covered by the customer’s PPM plan.
Boosting a PPM repair order with another $150 to $350 of additional up-sold retail customer-pay business will add serious money to the bottom line. When a PPM plan is built into used vehicle prices, a dealer can bump after-sale service use of his or her dealership from about 15% to upwards of 50%.
One dealer who plugs a basic three-product PPM plan into every one of the 600 used units it sells yearly expects to generate more than $1.3 million in total incremental service revenue. This return is based on a $682 retail upsell per customer per service visit over the two-year plan term, even after factoring in a 55% utilization rate and plan costs.
Studies of current customers purchasing one company’s PPM program reveal a remarkable statistic: while current industry statistics indicate that roughly one in five customers return to the dealership for service, this company’s plan holders are visiting their servicing dealers at a rate of 72%.
Further, plan holders that return to the dealership to redeem their plan elements also purchase incremental retail service about 90% of the time. In addition to the increased visit frequency, those plan holders are spending an average of $128 per visit for incremental retail service upsell products and services.
A dealer that writes 1,500 repair orders per month can easily sell 150 to 200 maintenance policies just by asking the customer. In F&I, it takes a 500- to 600-unit store to generate the same 200 maintenance policies.
So, given these upsell profit opportunities, why are some dealers’ prior experiences with PPM disappointing? Many have said that customers simply won’t buy these plans. However, this may not tell the entire story. When those programs are examined, it is clear why customers wouldn’t be interested – they were loaded with services of low value to the customer yet priced quite profitably for the dealership. This is unfortunate, as the nature of these plans and dealers’ inability to sell the plans cost dealers much lost service business.
Newer, redesigned PPM programs help to eliminate this downside. Today’s programs offer a wider range of products and services. These programs, usually administered and managed to offer what is considered valuable to the dealership’s customers and market, seem to really work – for consumer and dealer.
Finally, today’s PPM plans are software-driven, handling once time-consuming chores like plan registration, service claim and premium submission. Because dealers control these programs, any reserve or forfeiture is immediate. Forfeiture is money remaining in the reserve for plan services not redeemed by purchasers.
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 PPM plans, the third-party administrator holds this dealer-funded reserve. It is from this reserve that the administrator would often take up to 60% of the value of the cancelled services as part of its fee structure.
The new generation of self-administered, self-manager PPM plans offers attractive advantages to today’s market and value-conscious buyer. Custom plan content really appeals to them. That richer content makes these plans more attractive. These plans also enhance the owner’s investment in having the vehicle maintained by the dealership where they bought the PPM plan. This, in turn, enhances opportunity for alert advisors to upsell additional services for healthier repair orders.
Different customers have different buying habits; whether we are playing the role of retailer or the role of consumer, we understand this foundational principle without giving it much thought. It is, in many ways, the basis for our desire to understand our clientele; understanding individuals’ buying habits helps us be better marketers, better salespeople and better retailers overall.
Our buying habits as consumers are determined first by our circumstances (e.g. geographic location, family situation, financial status, lifestyle) and second, by our relationship with the retailer and its products. This relationship – or relative attachment – is, in turn, influenced by our general need for the retailer’s goods or services, the opinions of our friends and family and by our past experiences with the product or the retailer.
In her book Customer Loyalty: How to Earn It, How to Keep It, Jill Griffin cross-compares low and high relative attachment with high and low repeat purchase frequencies, and discusses the four distinct types of customer loyalty revealed through this comparison.
For varying reasons, some customers do not develop loyalty to certain products or services. For example, I know a manager of a travel agency who goes anywhere in town to get a haircut, so long as it costs him $10 or less and he doesn’t have to wait. He rarely goes to the same place two consecutive times. To him, a haircut is a haircut regardless of where he receives it. (The fact that he is almost bald may have something to do with it!) His low attachment toward hair services combined with low repeat patronage signifies an absence of loyalty. Generally speaking, businesses should avoid targeting no-loyalty buyers because they will never be loyal customers; they add little to the financial strength of the business. The challenge is to avoid targeting as many of these people as possible in favor of customers whose loyalty can be developed.
A low level of attachment coupled with high repeat purchase produces inertia loyalty. This customer buys out of habit. It’s the “because we’ve always used it” or “because it’s convenient” type of purchase. In other words, nonattitudinal, situational factors are the primary reason for buying. This buyer feels some degree of satisfaction with the company, or at least no real dissatisfaction. This loyalty is most typical for frequently bought products. It’s exemplified by the customer who buys gas at the station down the street, dry cleaning from the store down the block and shoe repair from the nearby cobbler. This buyer is ripe for a competitor’s product that can demonstrate a visible benefit to switching. It is possible to turn inertia loyalty into a higher form of loyalty by actively courting the customer and increasing the positive differentiation he or she perceives about your product or service compared to others available. For example, a dry cleaner that offers home delivery or extended hours could make its customers aware of this fact as a way to differentiate its service quality from that of competitors.
A high relative attitude combined with low repeat purchase signifies latent loyalty. If a customer has latent loyalty, situational effects rather than attitudinal influences determine repeat purchase. I am a big fan of Chinese food and have a favorite Chinese restaurant in my neighborhood. My husband, however, is less fond of Oriental food, and so despite my loyalty I patronize the Chinese restaurant only on occasion and we go instead to restaurants that we both enjoy. By understanding situational factors that contribute to latent loyalty, a business can devise a strategy to combat them. The Chinese restaurant might consider adding a few all-American dishes to its menu to pacify reluctant patrons like my husband.
Premium loyalty, the most leverageable of the four types, prevails when a high level of attachment and repeat patronage coexist. This is the preferred type of loyalty for all customers of any business. At the highest level of preference, people are proud of discovering and using the product and take pleasure in sharing their knowledge with peers and family. Loyal Swiss Army Knife users are constantly telling friends and neighbors how valuable the knife is; how many handy uses it has; and how often they have used it in a day, a week or a month. These customers become vocal advocates for the product or service and constantly refer others to it. When I was starting my business, a friend was newly inspired by the Quicken software program, which automates one’s checkbook. He insisted on bringing his program over and demonstrating it to me on my computer. He was displaying premium loyalty.
Jill Griffin. Customer Loyalty: How to Earn It, How to Keep It. Revised & Updated. Jossey-Bass, 2002.
What examples do you have of these four types of loyalty at work in your store?
How have you encouraged Premium Loyalty in your customers?
What can you do (or suggest others do) to promote better customer attachment and/or improved visit frequency, particularly in “no loyalty” customers?
Increasing Store Profits
The purpose of the LoyaltyTrac Service Rewards program is to increase dealer profits by decreasing the rate at which existing customers defect to other service providers. The LoyaltyTrac program, when implemented properly, will provide two essential benefits of a loyal customer: first, the customer will visit your dealership more often; second, when they do visit they will spend more. It’s a simple concept – higher visit frequency and increased spend equals more profit.
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Dealer Marketing Magazine | By Michael Bowen | June 7, 2010 – Customer Relationship Management (CRM) has grown exponentially in importance since it was first introduced. The first CRM systems were little more than contact management systems. Today, however, CRM technology has advanced and has become much more. The latest generation of CRM systems that specialize in automotive retail can segment your database, so you can target your marketing campaigns to specific customers with the right offer at the right time, make sure that you use their preferred contact method, and produce analytics so you can examine your campaign and determine what works, what doesn’t and what you should change for your next campaign.
The next generation of CRM, which has already started to arrive, will be even more sophisticated. It will include features that help you connect your dealership to social media sites, increased cross platform integration, as well as other useful tools such as video email and SMS text messaging.
There are a lot of options out there for auto dealers with different features, options and prices. In order to help you navigate through what is available and what will work best for you, we’ve spoken to some automotive CRM experts and asked them about how to best use CRM systems to grow your dealership and where CRM is headed in the future.
The experts we spoke with are Bryan Anderson, founder and general manager of Autobase, Mike Gorun, managing partner and founder of MediaTrac, Stan Megerdichian, CEO and president of Peak Performance, and Everett Mullens, CFO of Auto Jockey CRM, Inc. … Which CRM is right for you depends on your dealership, but whatever your needs are, our experts will help you understand how CRM can help grow your business and maximize profits.
What are the essential parts of an auto dealership CRM system?
Bryan Anderson — A dealership’s CRM is the central nervous system of its sales and marketing effort. It is the people, processes and technology working together to drive and close significantly more business opportunity in the showroom and service drive. It creates process (and therefore, profit) in everything from showroom control to desking and internet lead management (ILM) to business development (BDC). Through a powerful but easy to use CRM, a dealership can build a single database of every sales opportunity from every customer who ever touched the store, and then use that data to sell more cars at lower costs.
Mike Gorun — The essential parts of an auto dealership CRM system are:
1. Database management. Optimally, it should be linked to your store’s DMS system. This will allow the dealership to capture transactional data in a variety of areas and organize it into a single, detailed profile with preferences about each customer. The ability to National Change of Address (NCOA) your customer data through an import/export function is highly desirable so that the store can maintain an accurate customer address.
2. Customer segmentation. Must have the ability to identify and target the right customer segment with the right services via the right channels at precisely the right time.
3. Database marketing. Identifiable by needs-based marketing, past purchase marketing, non-solicitation communications, information based marketing, value based marketing and life-cycle marketing.
4. Communication design and deployment. Should include a marketing function that will let the dealership easily create and deploy communications of varying content and graphics to specific, identifiable customer segments.
5. Contact management & response analysis. Tracking communication deployment to customers is essential in monitoring frequency of contact. Handling email messages that cannot be delivered to the recipient due to permanent or temporary reasons (hard/soft email bounce maintenance) should be automated.
Stan Megerdichian — CRM systems must have DMS integration, useful analytics, and timely and relevant communication touch points. They should be easy to use, intuitive, support the OEM brand and be measurable.
Everett Mullens — The most essential component for an auto dealership CRM system is literally the commitment from management. Without that, nothing else matters. Of course, ease of use and easy trainability are important as well. Most CRMs provide all the tools required to manage the showroom, BDC and internet, so from a technical standpoint all of the essential components such as manual input, lead integration, automated follow up, reporting and management monitoring, etc., are covered. How it is incorporated into overall sales training is important as well.
What are the latest advances in auto dealer CRM/Has CRM technology reached maturity?
Bryan Anderson — Because CRM is an ever-evolving blend of people, processes and technology, CRM can never really come to a point where it is mature, outdated or unnecessary. When technology-based CRM hit the showroom floor in 1988, it served mainly to handle, in mass, the production of printed letters and scheduling of phone calls. Today, CRM captures extremely valuable customer data and uses it to drive significantly more traffic through SMS text messaging, voice messaging, as well as video email and other forms of digital marketing — all within a permission-based framework that customers will appreciate. Once with a narrow focus on the showroom, CRM now means an integrated, whole business strategy — from single-point stores to the enterprise operation with 50+ dealerships. As technology and the processes that support ever-evolving dealership needs change, so will CRM.
Mike Gorun — CRM was originally introduced as a business product in the early nineties by Siebel Systems. Since then, data and data segmentation have moved to the forefront as some of the most needed and desirable product features. Direct customer marketing elements continue to drive product enhancements as well.
As we see continued advances in technology, increases in cross platform vendor integration will maintain product advances for the foreseeable future.
Stan Megerdichian — Customer communication is evolving with technology. I don’t think there will ever be a maturity event as long as new technology is being developed. As new communication tools are being introduced, we find applications for those tools. Social media, texting, telematics, email and direct mail, all have their benefits depending on the message that is being communicated.
Everett Mullens — Integration with the dealer DMS is important. As you can imagine, we are constantly adding new features. Although we have a good short- and long-term strategy for features, the best ideas come from our dealer base.
CRM is a fairly mature technology, but there will always be new ideas, new strategies and new directions to explore for improving dealership marketing and sales. Examples are changes in social networking, SMS, etc. New technologies are being created every day, and conversely, are becoming obsolete every day. It is our job to be aware and keep current as these technologies evolve.
How can dealers best take advantage of their CRM system?
Bryan Anderson — Assuming the CRM is easy to use and powerful enough to drive real results, the best thing a dealer can do is to make it central to everything done in the dealership. Use it in sales meetings. Enforce usage from the point the up is taken to the time the deal is booked. Capture as much data as possible, because it’s the data that is key to making money. Of course, to accomplish this, lean on the CRM provider. Soak up the onsite and online training made available by the CRM provider. Spend quality phone and face time with the CRM account manager to learn best practices that will maximize ROI across both fixed and variable operations. Usage is key, but the dealer shouldn’t have to go at it alone. Dealers can best take advantage of their CRM by taking advantage of every resource their CRM partner has to offer.
Mike Gorun — Adopting CRM best practices is a challenge for many organizations. A recent industry survey indicated that the majority of individuals in dealership management are not familiar with the basic fundamentals of their CRM platform. You can’t take full advantage of your system until you have:
Learned the features and full operation of your system. There is no CRM standard, so what can and can’t it do?
1. Defined the contact strategy and ongoing communication process for each customer segment (sales, service, finance, parts, and fleet) within your store.
2. Develop a plan for transitioning customers from sales follow-up to service communications before they hit the shop door.
3. Have another plan that identifies aging service vehicles and transitions that customer back to the sales prospecting process.
4. Don’t ignore the customers that don’t purchase a vehicle from you. They are great candidates for service and future sales opportunities.
Stan Megerdichian — The simple answer is “by using all of it.” Most dealers are paying for a lot of features that they don’t use. They should periodically review their account setting with their vendors in person and modify different components of their program based on their changing business and market needs.
Everett Mullens — Require use by all staff — no exceptions. Work with your vendor to develop new ideas and strategies.
How can dealers best integrate their CRM systems with their marketing efforts?
Bryan Anderson — Automotive CRM should be the very core of a dealer’s marketing effort. Traditional media is rarely as effective, but be sure, it is always more expensive and just as impossible to track. Rather than a dealer “spraying” his message through TV, radio and print and “praying” that people respond, he or she can market to the thousands upon thousands who have already made contact with the dealership. Customer data is used to create inexpensive, timely and targeted campaigns that drive significantly more traffic to the showroom and service drive. Marketing customers through the CRM with eNewsletters, digital web ads, video mail, voice and text messaging, etc., is significantly cheaper, and it’s never a bad time to see a few extra dollars go to the bottom line.
Mike Gorun — Dealers should try and integrate all aspects of their marketing and customer relationship/retention by taking the information they collect through the CRM program and using it to develop a marketing, informational and value driven campaign(s) that touch all departments of the store. Until recently, CRM was viewed as primarily a sales department tool. Now, through the use of marketing automation software or loyalty programs, CRM can be highly effective in targeting potential customers while reducing your spend on direct mail, email blasts and other ineffective marketing efforts.
Stan Megerdichian — There is a tremendous amount of analytics that is generated through the CRM systems. Analyze valuable customer behavior information to do targeted, relevant marketing.
Everett Mullens — Your CRM should have all customer contact information, which will give you the ability to use email and print to communicate with your customers. Use filters to target marketing to individual market segments, i.e. sales, lease retention, service, etc. From a sales training standpoint, we send a training CD that will provide computer based video training for showroom and internet staff.
What is the biggest mistake dealers/salespeople make when using their CRM system?
Bryan Anderson — It may come as a surprise that perhaps the biggest mistake made is done so prior to selecting a CRM partner. When selecting a CRM partner, clearly define your business goals and then press your CRM vendors on specific features. Is there a defined strategy and process to close more unsold floor traffic, internet leads and repeat business opportunities? How will they help improve the appointment process, or manage multi-touch, permission-based campaigns?
We offer a number of great features, don’t get me wrong; but the features that enamor us today can fade from view tomorrow. Features will always change, usage can always be increased, but at the end of the day, it’s about how the CRM drives process, builds ROI and makes money for the dealer. Today’s market is too cutthroat to be focused on anything else.
Mike Gorun — They lack a truly defined customer relationship/retention process. Customer relationship management is a process not a system. The CRM system will help you manage that process, but you must identify what your goals are by customer segment and have your CRM system align and target your communications based upon the individual segment objective.
Equally as important, and one of the most frequent mistakes, is using your CRM customer database to drive irrelevant email blasts to customers regardless of who or where they are in their ownership lifecycle.
Stan Megerdichian — They think that once they buy a CRM system, they’re set. Truth is, CRM systems are tools. They’re only as good as the people who use them. The tool by itself won’t fix a problem. Customer Relationship Management has to be integrated within the dealership staff, culture and philosophy.
Everett Mullens — One of the biggest mistakes is allowing personnel to bypass the input of all customers, either because the sales staff is too lazy or does not understand the importance of tracking all customers. Another is not using the power of the CRM to fully automate the long term communications with your customer. Finally, there is a disconnect when managers fail to monitor and manage the sales staff via the CRM.
How can dealers use their CRM systems to help take advantage of the improving economic climate?
Bryan Anderson — He who owns the data, owns the market. It’s true in a down market, and perhaps even more so in a recovering economy. Because a True CRM captures so much data on every customer to touch the store (floor, phone, internet, service, referrals, etc.), the dealership can easily zero-in on customers who are ready to spend money in their showroom or service drive. Dealers can use the CRM to then drive communication to these prospects (and current owners) through timely, meaningful, permission-based marketing campaigns. Not only are sales and service revenues increased, but so is the gross for each deal and the satisfaction of each customer. In fact, the only reductions one should expect are in the costs of traditional advertising and the market share of his competitors.
Mike Gorun — In today’s economy, the customer is the key to a dealership’s future success. The right customer relationship management strategies can give you insights that lead to increased revenue, improved earnings and solid competitive advantage.
Dealerships that implement an effective CRM and or loyalty initiative will ultimately establish and cultivate much stronger relationships with their customers, achieve more loyal customers and experience a gain resulting in a substantial payback through increased revenue and reduce marketing costs.
Stan Megerdichian — Today’s CRM systems make it very easy for dealers to interact with their customers. The dealers should use the analytics to communicate all worthy information that their customer may find useful. If the customer finds value in the engagement then they will be more receptive to any other messages coming from the dealership including returning for service and buying another vehicle.
Everett Mullens — CRM’s should be able to target both short and long term customer prospects. For example, target those customers who will be coming off leases, etc. Dealers need to be creative in developing targeted incentives for customers to buy, whether through specialty advertizing through outside sales firms or internally developing those incentives. Use your CRM to filter or mine the target market.
Before the onset of any successful journey – whether personal or professional – three questions need to be answered:
Where am I?
What is my destination?
How do I get there?
Unfortunately, we often focus so much on the goal or destination that planning the best route to actually reach that goal usually falls by the wayside. Valiantly striking out in the direction we think we should be heading, and hoping to eventually arrive where we intended, can lead to disappointing results.
The same applies to loyalty programs. As much as we would all love to just jump ahead to the finish line, successful rewards programs require planning, periodic evaluation and course corrections. And because you’ve chosen LoyaltyTrac as your retention program partner, you’re not alone on this journey. Consider us your personal navigator on your drive to success.
This is the purpose of Driving Retention.
Through our newsletters and new website, we will be providing you with hand-selected hints, insights and practical examples, all designed to guide you in your quest to improve loyalty at your store. We are here to lead you to higher profitability, greater customer retention and – ultimately – to your overall success.
Enjoy the drive!