If you were to ask today’s consumers if they’d like to hang out at a car dealership, chances are that the majority would respond “no.” When consumers do visit a dealership to purchase a vehicle or get their vehicle serviced, many times the process can be longer than desired and is not always a great experience for the consumer. Dealerships have been attempting to streamline the sales and service process through the use of technology to make the entire process faster andmore efficient so as to be more consumer friendly.
Some dealerships are going a little bit further to make the customer experience more enjoyable with the addition of delis, Starbucks, movie theaters and hair salons, as permanent fixtures. And thinking even further outside the box, a recent Automotive News article highlighted a Fort Worth, Texas dealership that chose to open a 250 square foot wine store inside their dealership. It has been so popular with their customers that it has actually added $700,000 to the dealership’s annual bottom line.
Due to its popularity, the dealership then opened a full size retail wine bar in downtown Fort Worth… with a catch. Not only does the dealership display new Cadillacs inside (and outside) the bar, the bar also serves as a satellite service drive that allows wine bar customers to have their vehicles serviced while socializing and enjoying some wine. The wine bar is 20 miles from the dealership so there are employees on-site who transport customers’ vehicles to the dealership for service, then back to the wine bar upon service completion. This provides a very unique customer experience. It also makes service much more convenient for the many downtown Fort Worth employees who would otherwise have to drive 45-minutes to an hour to have their vehicle serviced at the dealership. In addition, the wine bar produces at least one vehicle sale per month, to say nothing about the increased service business.
Regardless of whether you decide that a wine bar within your dealership is a good idea, creating an excellent experience for your customers certainly is. If your customer experience is less than great, it won’t matter if you have an amusement park in the back lot, your customer could still leave. Customer loyalty is a fickle creature that can be lost much faster than it can be gained. Give your customers a reason to choose your dealership. Then ensure that the experience they have is one that they would want to repeat. Only then can you really build that relationship and transform your customers into loyal customers that will return because they want to – not because they have to.
“When Coca-Cola changed their secret formula in 1983, loyalists were outraged. Coca-Cola received 1,500 calls per day and more than 400,000 angry calls and letters. A psychiatrist Coke hired to listen in on calls told executives that customers sounded as if they were discussing the death of a loved one.” [Fox Business]
Wouldn’t it be something to have customers so loyal that they became upset about a change your company made? Perhaps a customer can be too loyal and then it becomes a double-edged sword, as it was for Coca-Cola. If you made a major change, would your customers care?
Auto dealerships spend a huge amount of money every month on different forms of advertising. Most advertising focuses on customer acquisition in sales. Why? The basic thought process is as follows: “In order to sell cars next month, we need to bring in new customers.” While that is certainly one strategy, it may or may not be the best one for your dealership.
Churn rate is the rate at which a business loses customers to a competitor or different brand, compared to how many customers are acquired and/or shifted from competitors. A high churn rate would typically benefit from a marketing strategy of customer acquisition. While a low churn rate means that your customers are staying with you. No business has a zero churn rate.
The auto business, for the most part, is a high churn industry. Most dealers scramble every month to acquire new customers, simply to stay at their current unit levels in sales, with the hope that they will do better. Churn rate is important because, unless you know whether your dealership has a high churn or a low churn, you won’t know the most strategic way to spend your marketing dollars.
An article in the American Marketing Association suggests high churn brands can attract new customers relatively inexpensively, but their lifetime value will be low. Whereas, new customer acquisition costs will be high for low churn brands, but the lifetime value of a customer, once attained, will be worth it.
This all circles back to deciding what your goals are. Do you want to attract new customers each month to replace the ones that left? Or would you rather foster relationships with your existing customers in an attempt to transform into a low churn business? The only way to grow a business is to reduce customer defection. Failure to accomplish that will mean that your 100-car/month store will most likely always be a 100-car/month store.
The article suggests that the ideal scenario is to develop a low churn dynamic for a brand that resides in a high churn category (bring ‘em in and them keep them holding on).
This is certainly an ideal scenario but how do you accomplish this?
Pay attention to your customers. They’ll tell you what needs improving. Listen to them and take note of what they have to say. Your customers can then feel as if they are an important part of your business; that they have a reason to stay. This then helps to reduces turn rate. The fact is that the auto industry has a high churn rate. If you do not have a handle on who your customers are, if they’re staying, or where they’re going if they leave, it is a hard task to build up your business.
Make your customer feel valued during, before and after the sale. Don’t make a sale, high-five each other than go get another up. Be sure to keep in contact and nurture that customer who just bought a car from you. Walk them over to the Service Director to schedule their first appointment. Send them a thank you note and remember their birthday with a quick email or card. Ask if they have any friends, family or associates who may be in the market for a vehicle. That one customer could be worth hundreds of thousands of dollars to your dealership over their lifetime – or you could never see them again. Which outcome would you prefer? Once they’re gone, the only one getting paid will be your competition.
It’s no secret that dealerships have been in a crazy race to the bottom in terms of profit per vehicle. Consumers are always looking for the best deal and automotive Internet resources are providing them with more ammo to negotiate with. Dealers have been complaining for years about decreasing profit margins on vehicles, blaming manufacturers for lowering margins and third-party sites for information sharing. Yet many still offer discounts in a never-ending effort to move more metal.
According to an article by Internet site, Bitmatica, businesses should avoid offering discounts, as they can be more harmful to the business than many of us may think. I understand that loss-leaders, manufacturer rebates and trunk money are very tempting tools to use when closing a car deal. I also understand the typical thought-process of “If I don’t give it to the customer, my competitor will.” Dealerships do have to be competitive, especially in dense markets where consumers have the ability to shop multiple franchises, all within a reasonable driving distance. When you’re facing the consumer attempting to close the deal, the path of least resistance is to reduce the price – even if that reduction is minimal. You may close the deal and win the sale, but what else have you accomplished?
According to the Bitmatica article, this is what that discount accomplished:
- You’ve diluted the value of your brand. By selling that $50,000 truck for $40,000, you’ve essentially told your customer that your truck is only worth $40,000. How many customers have you given a deal like this just to find them back in your dealership 3 years later shopping for a new truck and expecting a similar price? That’s because you trained them that your trucks are worth less.
- You’re attracting the wrong customers. Think about it. That customer who grinded you through the Internet or in-person is not only more likely to give you a poor CSI review, but is also the one that probably won’t ever service with you. This is the customer who will drive 100 miles to save $500 and you’ll never see them again. Good deals are subjective by their very nature. Almost every dealer will tell you that the customers they make a good profit on are usually the happiest.
- You probably threw any loyalty out the window with the sale. Using the example from point 2, this customer who you gave the huge discount to most likely still thinking they left money on the table – that they could have negotiated an even better deal than they got. No matter how much you try to convince them you’re losing money, or not making any, they don’t believe you. And, without trust, you’ll never earn loyalty.
- Once you’ve discounted your product, they will expect discounts on everything. Theses aren’t the customers that are going to come in for a normal priced service when their car needs it. They’re the ones that are either going to wait for a coupon, or go to an independent to save a little money.
- The more times you discount your vehicles, the more times your competitors will have to. It’s a big circle of ever decreasing profit.
So, what’s the solution? Perhaps a strategy is to offer value to your customer in place of revenue. Customers who accept value over price are telling you that they are going to stick around. These are the customers who bring high lifetime values and are the foundations of your business. If a customer is willing to walk away from a deal over $100, he may not be the customer you want. There are many ways to offer value in place of giving up gross profit. Some dealers offer lifetime oil changes, free car washes, customer loyalty programs, or the same value discount but in dealer currency, for future products and services, etc. The next time you find yourself in a position whereby you need to dig a little deeper to make a deal, consider negotiating with value or services. If you succeed, you retain the immediate revenue and give your customer a reason to return. And those are the customers that you want to keep.