It is a generally accepted principle that it is more expensive to acquire new customers than it is to keep old customers loyal. Additionally, Pareto’s 80-20 rule tells us that our most loyal customers are responsible for bringing in as much as 80% of our overall sales. It’s easy to see why customer loyalty and rewards programs have “gone viral” in the business industry over the last decade.
With the dawn of flash sale websites like Groupon and Living Social, however, businesses – large and small alike – are forcing us to take a closer look at these long-standing business maxims. Many businesses are jumping on the flash-sale bandwagon, seeing the droves of new customers lured into their stores and offices by one-day discounts and super savings. But very few of these “wagoners” are evaluating the potentially negative impact these deep-discount offers can have on the loyalty and retention of their best customers.
A 2010 study by Rice University’s Jesse H. Jones Graduate School of business discovers that one-third of the businesses using Groupon promotions are breaking even on these offers – at best. Additionally, customers that take advantage of Groupon offers generally have the “coupon-clipper” mentality. They are visiting the promoted business solely because it is offering the best price with its Groupon offer. They don’t make return visits, and they don’t spend as much money or tip as well as the broader customer base.
Your most loyal customers, on the other hand, don’t need coupons to get them to visit your business. They know through experience that your business is where they want to take their patronage. With these customers, certain promotional offers can in actuality prove more damaging than beneficial; for example, the loyal sports aficionado that orders season tickets each year would be less than enthused to discover a 50% Living Social offer the day after he ordered his tickets for that season.
Careful planning is required to ensure your existing customer loyalty and retention is not negatively impacted as you attempt to maximize your flash-sale and one-day-discount efforts. We suggest the following four practices to help you find a balance between the two:
Alert Your Existing Customers of Upcoming Special Offers
Providing your current customers with a notification via email or another direct marketing outlet will allow them to prepare for the upcoming sale or special offer. But more importantly, it communicates to your customers that you want them to be the first to know about special savings – and everyone likes knowing that they are in the loop. Keeping your customers “in the know” helps you earn and maintain their trust – and is a far better than letting them find out about Groupon deals after the fact.
Prepare for the Potential Rush of New Customers
Flash sale customers are probably going to be prepared to encounter longer lines, empty shelves and flustered – or unavailable – employees. Your loyal customers, however, are returning to your business expecting the same level of quality customer care that they’ve received on every past visit. Ensure you have the proper resources in place at your business – prior to launching a Groupon or Living Social deep discount offer – to prevent your existing customers from having negative experiences.
Offer Discounts Only at the Right Time
As with all marketing efforts, when using Groupon or Living Social you need to ensure you are offering the right special offer or discount at the right time. For example, if your business runs on a seasonal cycle, you probably don’t want to run one-day discounts immediately after the heavy buying period. Deep discounts may be infinitely more effective when used to bolster sales during a seasonally sluggish period or when used during an intense buying period to win new customers away from the competition.
Don’t Discount the Power of Word-of-Mouth Advertising
When they see the temporary sales spikes that come with many one-day discounts, some businesses have mistakenly decided that Groupon was the basket in which to store all their eggs. And while sales spikes of that nature are far from a bad thing – especially in today’s economy – businesses should take care to ensure that flash sale sites and deep discounts don’t replace word-of-mouth advertising or customer loyalty programs. According to a “Referral Programs and Customer Value” – a recent study published in the January 2011 issue of the American Marketing Association’s Journal of Marketing – referred customers generate higher profit margins than other categories of customers. Encourage your loyal customers to refer their friends and family – and reward them for it. Keep your good customers happy and they’re bound to bring in more good customers.
Using the latest research and long-time business maxims, we recognize that focusing on long-term customer retention is the true key to overall business success. The most profitable and loyal customers are not created through one-day discounts, but through a solid history of positive experiences founded on good marketing practices and quality customer service.
Flash sale companies like Groupon and Living Social do appeal to many businesses as a method of new customer acquisition – and can be effective when used properly. Businesses should take the proper steps to ensure that acquiring new customers does not come at the expense of long-term loyal customers.
Have you tried using Groupon, Living Social or any other flash sale sites to drive new customers into your business?
How have these offers worked for you?
What challenges have you faced with using deep discounts?
How have you resolved these challenges?
The Auto Retailer’s Ultimate ‘How-to’ Guide to Customer Loyalty & Retention Program Set Up, Management & Measurement
If you fly, buy pet food or dine out, you probably participate in a customer loyalty program. Chances are, because these and other merchants reward you for shopping with them, you tend to return to them frequently when you’re ready to repurchase.
Loyalty programs are powerful customer retention tools. They work by changing customer behavior. Well-organized, administered and marketed loyalty programs create among customers a higher perceived and real value in a business. This earned loyalty builds longer-lasting relationships that convert to sustainable, repeatable business opportunities.
For the auto retailer using a third-party loyalty program, the results can be significant:
• Retention increases of 20% and more
• 50% return rate from customers engaged in the dealership’s loyalty program
• Increases of .5 hours per RO from repeating customers
Despite these powerful outcomes, nearly three-quarters of all dealers in America
remain reluctant to adapt a loyalty program as part of their business practices. Our experience working with dealers to help them better understand loyalty program dynamics reveals why:
• Dealers are often unclear about why a loyalty program is a process they should integrate into their business
• Dealers who understand the value of a loyalty program are sometimes confused about these programs’ structures and processes and how to implement such a program throughout the dealership
• Dealers are often unclear about what they should expect from a loyalty
program once installed and operating in their business
This eBook, The Auto Retailer’s Ultimate ‘How-to’ Guide to Customer Loyalty & Retention Program Setup, Management& Measurement, describes the “who, what, when, where and why” of successful auto retailer loyalty programs. We trust you will find it informative, instructive, and helpful as you consider a loyalty program for your dealership.
Please fill out the brief form below to download the complete whitepaper:
Most loyalty programs worth their salt come bundled with marketing tools – like email marketing systems – to help keep you in contact with your program members. Maintaining regular contact with your members is essential to building strong, long-term relationships, and email marketing is probably the most cost-effective method. But just because you can blast an email to all your members every day doesn’t mean you should.
Businesses that use the “blast” method will probably see positive results for the first two to three months of their new loyalty program’s email marketing feature. But after the initial excitement has worn off, the program members will become desensitized and, in some cases, annoyed. And the emails you send? Unread, blocked or flagged as spam.
The key to staying in contact with your loyalty program members and building that positive relationship is: Target. Target. Target. Send your members emails that will actually mean something to them individually. After all, they trusted you with their personal email address, so use it wisely.
When preparing email marketing campaigns, we suggest you use the following 3 “Rs” to better target your marketing efforts for the greatest overall result:
The Right Message: You’ve probably heard that it’s not always what is being said that matters, but that how something is said makes all the difference. Every part of an email campaign has a purpose, and often that purpose is to drive an action. For example, your email subject line should have the proper balance between relevance, urgency and the “so-what” factor; the action you are prompting is an email open, which is not as easy as it sounds. Craft the message carefully, whether it’s in the email subject line, the campaign headline, the body text or the call to action. Each of these email “parts” is essential to the overall action: getting the member back through your door. So take the time necessary to prepare the right message.
The Right Person: Any good writer knows that before you start writing, you need to know who the reader will be. The same holds true for email marketing, only you have an additional benefit that comes with a good loyalty rewards program: you know a little bit more about your intended audience than a lot of writers out there. By using your members’ demographic details, geographic location and past purchase data, you can narrow the marketing field and send campaigns only to individuals that are the most likely to take advantage of what you’re offering (e.g. you may not want to send a sale promotion for hiking boots to the rewards member who only ever buys high heels or dress shoes). By sending marketing emails only to the right people, you will greatly improve the efficacy of your marketing efforts.
The Right Time: With email marketing, timing is everything… and it’s not just a matter of not sending advertisements for winter coats in June (unless your members happen to be south of the equator). Timing can be a particular day of the week at a specific time; for example, if you target your campaign at business professionals, and you send the emails at 6:00am Saturday morning, your emails will go right to the bottom of the “Monday morning inbox” pile, leading to poor campaign results. Timing can also, however, have nothing to do with the actual date and time; auto dealers wouldn’t have very much success with an email campaign advertising the latest models targeted at members who just bought a new car two months ago. Perhaps the most important timing factor is how often a member is receiving emails. Depending on your business and the individuals you are emailing, 4 emails per month could be too few, just right or too much (and sending out a new email every day for a week is almost always too much). Reference the other two “Rs” to determine the right time – on every level – for each email marketing campaign you send.
By sending the right message to the right person at the right time, you’ll ensure your loyalty rewards members are receiving personalized offers and incentives. And the more personalized the offer, the more likely your customers are to stay engaged with your marketing efforts and to keep coming back for business – again and again.
What results have you seen from better targeted marketing in your business?
Think of companies that email you regularly… What offers are you more likely to respond to? Why do they work?
Many dealerships allow their finance managers to price prepaid maintenance programs (PPMs) high enough to shatter success from the start. They overprice PPMs thinking that the real benefit comes from the plan profit and forfeiture. While some new buyers will take the bait, the typical consumer, when asked to pay $895 for three years of scheduled maintenance, simply adds up the cost of nine or ten oil changes and a half dozen tire rotations and says, “Thanks, but no thanks!”
Successful PPMs are priced in such a way that even if a customer pulls out a calculator and – looking at the service menu – adds up the pricing for oil changes and tire rotations, the total represents at least an equal amount to what the F&I manager is charging them for the PPM.
Dealers that understand the full purpose and potential of PPMs price them well below the actual retail value. Instead of trying to turn huge profits in the F&I office, these dealers focus on the long-term potential of each customer. When incremental upsell can average over $90 per “PPM” visit, dealers can quickly see RO numbers increase – as well as revenue. Statistics also show that up to 83% of customers will repurchase a future vehicle if the dealer can keep them returning to their service lane for regularly scheduled maintenance. With these two factors alone, even a PPM given away for free would more than pay for itself by the end of its contracted term.
The typical consumer recognizes that by purchasing a PPM, they are not only (in most regions) able to finance their first x-number of years of vehicle service and maintenance with their vehicle purchase, but they are able to lock in their maintenance at non-inflationary pricing.
With this type of program properly priced and executed, PPM sales penetrations can reach up to 50% or more, providing dealers opportunities to continually win over their customers, service visit after service visit.
Are your customers seeing value in your PPM? Is the price right?
Many dealers mistakenly think PPMs are only successful when sold in F&I. Have you tried selling them through your service lane?
Would you buy your dealership’s PPM?
“When you change your thought process and go to thinking about the relationship with the customer, and the service that you’re providing the customer, then all of a sudden transactional liabilities go away” says Chris Zane, Founder and President of Zane’s Cycles in Branford, CT. Zane Cycles was recently featured online at Inc.com.
“If I don’t make money on one individual transaction but the customer’s satisfied and the customer’s happy, then he’ll come back over and over and over again.”
As with any entrepreneur, he has tried things that didn’t work, and one of his earliest mistakes was thinking he was in the bike business. “Over time,” Zane says, “you come to realize that you’re really not selling a specific product, you’re selling a solution to a problem.” This realization “made it so that we could recognize the value of the relationship with the customer and not just the bicycle stuff that we were selling.”
At Zane’s Cycles, focusing on the relationship with customers has been the foundation for proven success. “We started with the fact that we were going to solve problems for customers. We were going to create this environment where they wanted to be,” and for Zane, the rest was history. “Consistent growth for the next 23 years,” says Zane, who expects to close 2011 with $21 million in sales.
Here are some of the problem-solving, relationship-building business practices that have contributed the success of Zane’s Cycles:
Sell Experiences. Zane tells his customers that riding the bike for the first time for a 7-year-old isn’t just a minor accomplishment; it’s the “first real freedom that kid has ever experienced away from the parental grip.” He creates experiences that will make customers feel good about the products.
Don’t Nickel & Dime. Zane decided a long time ago to stop charging for any add-on that would cost less than a dollar. “We’re looking at the lifetime value of the customer. Why ostracize someone over one or two things that might cost us money when understanding the lifetime value gives us the ability to justify it?”
Don’t Chalk Up Casualties of Business. When Zane hears of a customer that had a negative experience, he empowers his managers to go over-and-above to change the unhappy customer’s mind. Zane says a happy customer will shop at his store for years to come – and tell his friends about it. This lifetime loyalty more than makes up for the initial expense of making the customer happy.
Be Flexible. Not every policy Zane has tried worked out. Zane has encouraged new entrepreneurs and less experienced business people to take things step by step. “Put things into place that are customer focused, that are lifetime relationship focused. And then you can tweak them,” to do what needs to be done “to move the company to the next level.”
See the Full Potential. “How many different transactions will I have with a customer?” Zane asks. For Zane, the average lifetime customer brings in $12,500 in revenue; “that subsequently turns into about $5,600 in profit… I need to look at that first-time customer like a $5,600 profitable customer and not the $2 I might make on a tube because he just happened by the store to get a flat replaced.”
Building lifetime loyalty is the primary purpose behind any good customer rewards program. The points should be easy to earn and be redeemable for a variety of rewards – rewards that are valuable to your customers. Members should be recognized, singled out and treated as if they were the most important customers out there – because the are! The more valued they feel, the better relationship you will be able to build with them – and that valued relationship is what will keep them coming back to your business for a lifetime.
In his book Reinventing the Wheel: The Science of Creating Lifetime Customers, Chris Zane writes, “No matter what kind of business you run, you should always be in the relationship-building and experience-selling business because that’s where you find the greatest success.”
Where do you begin when changing your focus from transactional to lifetime customers?
What business practices have you initiated to promote lifetime loyalty?