When attempting to improve customer retention, we often focus on incentives that will drive customer behavior to change: if we want to develop customer behavior X then we offer our customers incentive Y. And as we reward the behavior we want, the encouraged behavior will inevitably become more pronounced. What we frequently forget is that these same principles hold true for our employees, and often with better results.
As the economy has continued to fluctuate almost constantly, businesses have been forced to adapt processes and strategies to fit changing economic demands. One of the biggest changes in the automotive industry is that dealers are no longer able to wait for customers to come to them. Dealerships need to ensure that their sales teams are prepared to first find the sales.
Sales people will generally focus on the processes that deliver the dollars, and these processes have changed. Dealers are not waiting for a vehicle supply to push; rather they have to pull a demand for vehicle sales out of their customers. And if dealers want to effectively change to a demand-driven process, they need to reward the processes that create the right opportunities and deliver the right results.
We’ve included some suggested commission ideas that would be simple to implement and effective at driving desired behaviors from personnel in your service and sales departments and ultimately help your dealership build sales and revenue.
Many dealerships see a steep drop off in retention between the first and second vehicle service visits. By splitting a small commission between your sales department and your service advisor on returning service visits, you will encourage both departments to improve skills in customer service and upselling.
Customers who haven’t been in for a service visit in over 12 months are probably having their vehicle serviced at a competitor. Generate a call list including orphaned customers and a word track for available employees to use to follow up with these lapsed customers. Offer a $5 or $10 commission for each service appointment made during these calls.
Internet Contact Requests
Whether it’s information from sales or service, if your customer completes a contact form online, they need to be contacted to hopefully schedule an appointment. Encourage your sales and service department employees to follow up quickly on internet contact requests by offering a small bonus for each successful appointment made through an internet lead.
“Test drives sell cars.” Dealers have been using this adage for years because it works. The closing percentage generally goes up if the prospective buyer has sat behind the wheel of the vehicle they’re considering. Use this tool to an even bigger advantage by incentivizing your sales department for what actually sells cars. (We also recommend you include a minimum close ratio to avoid “tampering” with the test drive commission program.)
If your sales and service departments are doing a great job at keeping your customers coming back, reward them. Allot a specific amount to be shared between the two departments for each customer who purchases a new or used vehicle who is a current service customer (meaning they have been in for service sometime in the last 12 months).
Service Department Prospects
Maybe one of the best places to look for potential buyers is in your own back yard… or at least back door. Encourage your sales department employees to be proactive in reviewing scheduled appointments. Have them scout out customers with vehicles more than 2 years old and suggest they test drive a new model while waiting for their vehicle to be serviced. Pay a bonus for used vehicle trades sourced through the service department.
There are many ways to reward your employees for their efforts and hard work. What other incentives have you found to be successful?
For non-dealers, what ways have you found work best in rewarding your employees?
Every business that has offered a loyalty rewards program has seen a variety of responses to every reward offered. Some rewards are rarely – if ever – redeemed by members, while another reward may seem to be the only reward members want. And while we may switch out unused rewards for others we see as more valuable, the success of that reward will likely remain low unless we’ve evaluated and employed the characteristics of highly successful rewards in our own reward selection.
Detailed below are eight properties that we believe are the foundation of the most successful rewards. A good reward should incorporate many – if not all - of these properties:
Flexible – Most loyalty programs are set up to last years, even decades. Your rewards should be flexible enough to adapt through any changes that may develop over the course of the program. Changes in membership numbers, the economy, product pricing and various other conditions are inevitable, and you should ensure each reward is able to cope with these changes over time.
Affordable – Select rewards that your business will be able to afford over an extended period of time and through multiple redemptions. Be sure to calculate the cost of the reward accurately so that you can adequately budget to see its affordability.
Simple – The more complicated the reward, the more frustrating it will be – for you and for your rewards members. It should be easy for your customers to estimate the value of the reward to themselves. (And remember that customer-perceived value may well be different from the value your business associates with the reward.)
Attractive – The reward is what will encourage your customers to join your loyalty program. No matter how elaborate and valuable your program is, if your rewards are not attractive, your customers won’t join.
Unique – The more unique each reward is, the better your loyalty program will stand out from the programs of your competitors. You want your program to distinguish your business, to set you apart – and above – the rest. And while it’s easy to find rewards that are expensive, you need to remember to keep the rewards affordable, as discussed above. The challenge is to find unique rewards that have a high customer-perceived value, but that don’t cost your business a fortune.
Seen to Be Attainable – It is possible for a person to win $1 million, but the average person wouldn’t necessarily see it that way. You don’t want your rewards to simply be attainable; to your customers, the rewards must be seen to be attainable.
Aspirational – Aspirational rewards are often more attractive over a longer period of time. Many customers feel a level of guilt if they see they are getting something for nothing, particularly if they are receiving luxury rewards and high-end soft rewards. Allowing your members the opportunity to earn these rewards will actually help many of them to reduce this feeling of guilt and allow them to appreciate the reward for a longer period of time. It also gives them something to look forward to, something to work towards, that they can feel good about once they’ve achieved the reward.
The Right Image – The image of the reward must match your company’s image, as well as the image of the customer. Harley Davidson can reward its members in different ways than BMW could. Be sure to involve your marketing department as you discuss what rewards to include; make your rewards part of your branding process.
How have you used these reward traits in your own loyalty programs? Are some more widely effective than others?
What other characteristics have you found to be essential in the making of good rewards?
Rewards drive behavior, whether you’re training your dog to sit, potty-training your toddler or encouraging specific buying habits from your customers. By rewarding the behavior you want and not rewarding the behavior you would like to discourage, you can generally predict the direction a behavior will trend.
Perhaps the most crucial part of customer loyalty programs are the rewards, and a good reward will accomplish many different things. We’ve provided a list below detailing the different functions of a good reward. We suggest you evaluate your rewards individually to determine if the rewards you’ve employed in your loyalty program are fulfilling their overall purpose.
1. A Good Reward Provides Your Customers a Reason to Participate. Your loyalty program would be useless if no customers see a benefit for them. Make sure your rewards appeal to the group of customers that would be most valuable to your business. The rewards you select should be exciting enough to engage these customers and to maintain their interest and continued participation in the loyalty program.
2. A Good Reward Says “Thank You” to Your Customers. Many of your customers will see the rewards you offer as an expression of gratitude for their continued business. Carefully select rewards that will not be insulting. Consider the customer-perceived value of each reward. Put yourself in their shoes and ask, “What’s in it for me?” Choose rewards that will show your customers that you value them and their business.
3. A Good Reward Encourages Customers to Supply Useful Data. The data gathered through a customer loyalty program is much more than just their email address. The rewards you select should be designed to encourage your members to identify themselves every time they make a purchase. For example, customers will want to be “tracked” if you have a program based on acquiring and saving points towards large rewards.
4. A Good Reward Changes Customer Behavior. One primary purpose of a rewards program is to increase sales by increasing loyalty and retention. Rewards can be used to encourage your customers to increase both their purchase size and their purchase frequency. For example, Payless ShoeSource uses BOGO (buy one, get one) rewards to encourage the purchase of more items. Department stores like Kohl’s offer in-store cash rewards when certain purchase thresholds are met, encouraging both increased purchase sizes and repeat visits.
5. A Good Reward Retains Existing Customers. A reward that is interesting or exciting enough to keep your members’ interest will aid in customer retention, the primary goal of any loyalty program. Aspirational rewards can take a long time to earn, and the closer a member is to earning the reward, the less likely they are to defect to the competition. Points-based systems are effective in much the same way. Once members have earned soft rewards – customized benefits earned after certain transactions or cash thresholds (e.g. Marriott offers better rooms to Platinum Rewards members) – they are unlikely to sacrifice them, making soft rewards effective retention builders.
6. A Good Reward Attracts New Customers. An exciting reward with high customer-perceived value can play a key role in attracting new customers (e.g. sign-up bonuses). However, be careful to avoid rewards that appear to give a better deal to new customers than to your existing members. Many mobile phone providers have learned this the hard way, seeing that many customers jump to a new provider with a better deal once their contract is up.
7. A Good Reward Differentiates Your Business From Your Competitors. You don’t want “just another rewards-based loyalty program.” Pick rewards that set you apart. Ask your customers what they value and provide rewards that reflect what your customers want. Offering rewards that can be redeemed at local businesses is a way some auto dealers have found to distinguish their programs from their competitors.
8. A Good Reward Improves Your Relationship with Your Customers. Soft rewards – service above and beyond what is expected – are often the best rewards to drive advocacy. You want your customers to leave ready to tell their friends and family about the excellent service you offered. Soft rewards provide the positive customer service experiences that are remembered longer than most other rewards.
Some rewards are better at fulfilling certain functions than other rewards. What patterns have you seen in your own business?
What rewards have you found to be the most effective overall?
The best way to figure out what your customers think of your business is: ask them. Profound, right? Surveying your customers can provide you valuable insight about your products or services that you can only rarely experience for yourself. What are your customers experiencing? How are they responding to recent changes? How are they interacting with your employees? What products do they like best and why? Knowing these details can be extremely beneficial as you constantly work to improve your customers’ experience with your business, products and services. But even with the most insightful details, these results can be misleading… if you are using them to track the wrong thing.
Inevitably, the one prompted response every customer survey includes is the one that can be the easiest to misinterpret: On a scale of 1 to 10, please rate your most recent experience, with 1 being Very Dissatisfied and 10 being Very Satisfied. Many businesses erroneously equate “Very Satisfied” with “Loyal” when this is not necessarily the case.
A satisfied customer is exactly that: satisfied. But that doesn’t mean they have any intent to repurchase your product or service – or even revisit your business. An auto analyst at J.D. Power said it best: “A satisfied buyer is a repeat buyer – maybe.”
Customer loyalty, however, can be used to more reliably predict sales and financial growth. While satisfaction is an attitude, loyalty is a specific buying behavior.
A loyal customer:
• Makes regular repeat purchases.
• Purchases everything you sell that they could possibly use.
• Encourages others to buy from you.
• Demonstrates immunity to the pull of your competitors.
It should be noted that each trait of loyal customers contributes – either directly or indirectly – to your sales; so as your loyalty base grows, chances are your sales will too.
Harley-Davidson Inc. provides perhaps the best example of how loyal customers work. Harley is a household name known by old and young alike. The bikes are American icons to many, often recongnized by sound before they’re seen. Even young children know they’re HOGs – even if they don’t know what HOG really means. With over 1 million members, the Harley Owners Group is considered one of the closest, most loyal groups of consumers in America.
So how does Harley do it? They understand their target market better than almost any other retailer out there and – by meeting their target customers’ needs – they constantly grow loyal customers.
Harley customers clearly exhibit all four buying behaviors of loyal customers:
Makes regular repeat purchases. To Harley owners, their bike is a grown-up’s toy, constantly being upgraded and customized. They purchase the newest models and customize their bikes with new seats, pipes, headlights and many other available accessories.
Purchases everything you sell that they could possibly use. In the mid-1990s, Harley’s line of branded merchandise exploded. They now sell everything from the classic Harley black leather jackets to branded key chains, belt buckles, bras and snow globes. Customers can create wishlists to send to their friends and family through the Harley-Davidson website. And loyal Harley customers keep coming back for more each time new swag is released.
Encourages others to buy from you. Harley owners say there is no known cure for Harley fever, and with HOG membership at over 1 million, the fever is spreading. But when was the last time you saw a Harley-Davidson advertisement? They’re out there, but maybe not as prevalent as they once were. Like many companies with a large loyal base of customers, Harley can rely significantly on word-of-mouth advertising.
Demonstrates immunity to the pull of your competitors. Many Harley owners believe they ride the only true motorcycles on the road. But Harley doesn’t simply sell motorcycles, accessories and swag; the company sells community, identity – even freedom. Harley sells a complete experience that would be near impossible to replicate. To loyal Harley owners, there is no competition.
Harley-Davidson doesn’t settle for satisfied, and neither should you. When surveying your customers, be sure to ask questions that help you understand their buying habits. Don’t limit yourself to finding their level of satisfaction; aim to find those who are loyal – and to keep them that way.
How do you measure customer loyalty?
What types of questions could you use in surveys to help you gauge loyalty?
Do you use a loyalty program? Loyalty programs can help you track your customers’ purchases and determine who your most loyal customers are.