How the Recession Hurt Brand Loyalty

How the Recession Hurt Brand LoyaltyMany consumers who are finally ready to buy a new vehicle after waiting out the recession are up for grabs.

The longer an owner keeps a vehicle, the more likely the owner is to replace it with a product from a competing brand, according to data from R.L. Polk & Co. The decline in loyalty, though gradual with each passing year, means that many automakers and dealers will need to work harder to retain customers.

Job losses, wage cuts and general economic uncertainty in recent years caused many people to delay buying a new car or truck. Leasing, which puts buyers back in the market every two or three years, became almost nonexistent during the downturn.

As a result, Polk says the average American now keeps a new vehicle for about six years, up from around four years before 2007.

“They’re almost like a first-time buyer when they return to market, and they become a conquest opportunity,” says Brad Smith, director of Polk’s loyalty management practice. “It’s going to be a situation where everyone’s going to be scrambling for every tenth of a point of market share as these customers are returning to market.”

Polk’s latest data show that 46.2 percent of consumers who go three years between buying new vehicles choose the same manufacturer for their next purchase. Loyalty rates decline steadily for each additional year, dropping to 39.8 percent at nine years.

Adding to that trend, dealers and analysts say they have seen more consumers willing to cross-shop domestic and import brands recently, particularly after last year’s earthquake in Japan caused vehicle shortages at many U.S. dealerships.

Big differences in market

The market has changed significantly since many people last bought a vehicle: Brands such as Pontiac and Mercury are kaput, while Korean and domestic companies that many shoppers ignored in the past now offer much-improved lineups. Toyota and Honda have even lost some of the magic that used to bring buyers back again and again.

“Overall, the general consumer realizes that cars are better today than they were in the past,” says Arthur Henry, manager of market intelligence for Kelley Blue Book. “It emphasizes that you can’t rest on your laurels. There are others around to take your place.”

On average, loyalty rates are likely to decline across the industry as pent-up demand from the recession is released, Henry says.

Erich Merkle, chief sales analyst at Ford Motor Co., says the company has “a great opportunity” to get on more people’s shopping lists, given how much the Detroit 3 have struggled to overcome negative perceptions.

“I’m happy that we’ll have more customers out there doing that homework and comparing us to other automakers,” Merkle says.

Analysts say Hyundai, Kia and Volkswagen, brands that have become more prominent in the past decade, are among those expected to have the most success attracting shoppers who want a change.

“Five to seven years ago, people would come in and we’d have to explain why a Sonata is worth buying rather than a Camry. They had to be convinced of that,” says Scott Falcone, owner of World Hyundai in Matteson, Ill. “Now, the product is just so good.”

‘Too many options’

In addition, people’s lives can change considerably over six years, altering their vehicle needs in the process. A couple with a small sedan might now have several children and want a minivan, or empty nesters could be ready to ditch their SUV for a luxury vehicle or a sports car. They could find that their current brand is less competitive or does not offer a vehicle in the segment they now desire.

Shoppers also might discover that the salesperson they liked in the past is gone or even that the dealership closed, further reducing their attachment to that manufacturer.

“When you lose that connection, you’re creating a scenario where the consumer can go cross-shop,” Smith says. “The consumer has too many options.”

Toyota, whose customers have been among the most loyal in the industry, says dealers shoulder much of the burden to keep buyers from looking elsewhere because that is where the relationship with the company is formed. Having a fresh, appealing vehicle lineup is the other big factor, says Nancy Fein, vice president of customer relations at Toyota Motor Sales U.S.A.

“If you’ve got both of those things, your customers are going to stay loyal to you,” she says.

Kelley Blue Book ranked the Toyota brand first in shopper loyalty in the second quarter, as it has for five of the nine most recent quarters. Of the Toyota owners shopping with the help of its Web site, 52 percent were considering the brand again, up from 48 percent during its recalls but below the 56 percent that it had registered before that. The industry average, Kelley Blue Book says, is 35 percent.

Service builds loyalty

Toyota’s complimentary two-year maintenance program, begun after its recall crisis in 2010 and formalized as Toyota Care in early 2011, is one way the company is helping to strengthen the bond between dealers and customers. Fein says getting buyers to visit their Toyota dealership for service three to five times doubles the likelihood they will stay with the brand.

“It’s absolutely the dealership’s relationship with the customer that keeps them coming back,” Fein says.

Dealership service departments play a greater role in sales today, says Smith, the Polk consultant. Encouraging customers to go there for oil changes and repairs — which are needed more with the average vehicle now about 11 years old — instead of an independent garage is critical to promoting loyalty.

“If a dealer isn’t seeing their customers twice a year, you can almost bet that those customers will defect,” he says. “If they can get them back in for service, they’ve got a better opportunity to get them back for their next new vehicle.”

In some cases there is nothing an automaker can do to stop consumers from switching.

“They say, ‘I really enjoyed this car for 10 years, but now I’m ready for something different,'” says Neil Kopit, director of marketing for Criswell Automotive in Gaithersburg, MD.

Criswell, which has Chevrolet, Honda, Nissan and the full family of Chrysler Group franchises, trains its sales staff to sell vehicles from any of those brands. Says Kopit: “That is very important, because you keep the customer loyal to you even if they’re not going to remain loyal to the brand.”

Small gains and losses in a company’s loyalty rate can have a big sales impact. General Motors says an improvement of 1 percentage point means about 25,000 vehicles and $700 million in revenue annually.

GM says attracting a new buyer costs five times as much as holding onto a past customer and now factors customer retention into annual bonuses for salaried employees. It has set a goal of increasing its loyalty rates from the middle of the pack to the highest in the industry by the end of next year.

Speaking last week at an event highlighting retention efforts, Alicia Boler-Davis, GM’s vice president of global quality and U.S. customer experience, said: “Customers who are engaged with General Motors — if they have OnStar, a GM card or other services — those customers are the most loyal.”

Mike Colias contributed to this report

Read more:

Source: Automotive News, September 24, 2012. Author, Nick Bunkley

How is the recession hurting your dealership? What are you doing about it?

What are you doing to build customer loyalty? 

Does your dealership have a loyalty program? What about a pre-paid maintenance (PPM) program?

Email This Post  

Leave a comment

MediaTrac In The News


  • collapse2018
  • expand2017
  • expand2016
  • expand2015
  • expand2014
  • expand2013
  • expand2012
  • expand2011