“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.
I recently had the pleasure to work with a very innovative dealer who implemented the concept of “dealer currency” in his dealership with great success. Dealer currency allows you to eliminate cash discounts on sales (in both Variable & Fixed Ops) by instead issuing a form of “dealer dollars,” redeemable anywhere in the dealership for the future purchase of parts, service, accessories, or towards a future vehicle purchase. This creates a true “win-win.” It satisfies the customer — as they feel they have received the value of the discount. And the dealer — because it ties the customer to the dealership for future purchases, without having to give away any profit up front in the deal.
For example, instead of discounting a vehicle sale as follows:
|Adjusted Selling Price||$19,250||$38,500||$57,000|
Dealer currency replaces those cash discounts with a dealer’s own currency instead:
|Dealer Currency Issued||$750||$1,500||$3,000|
|Selling Price Remains at||$20,000||$40,000||$60,000|
|Dealer Currency Cost of Sale||$750||$1,500||$3,000|
|Commissionable Gross Based On||$19,250||$38,500||$57,000|
With dealer currency, you retain the maximum selling price on a much larger percentage of the sale. Not only does your gross profit increase on each deal — you’ve also now guaranteed yourself hundreds or, in some cases, thousands of dollars in future sales from customers that you have retained to do future business with your dealership.
This program goes beyond the sales floor. Dealer currency can be implemented in any department of a dealership where discounting is commonplace and/or you want to increase retention. For example, in most dealerships, service advisors give away money every day in the form of cash discounts because they have no other tools at their disposal. By issuing dealer currency, instead of a cash discount, gross service revenues increase and the odds are much more in the dealership’s favor that the customer will return to do business with the dealership in the foreseeable future.
The dealer dollars will accrue on your balance sheet just like a reserve account. Adding to them on a sale and reducing them on customer redemption. But you don’t have to worry about a negative balance sheet item getting too large because the dealer dollars are only good for the period of time you designate. They can then be written off as expired “dollars” and your gross on the deal just grew because the customer did not redeem the dollars. This raises your adjusted selling price, while reducing the internal actual cost to those dollars.
By using dealer currency, other expenses that dealers have traditionally absorbed 100% of can be reduced by upwards of 70 percent. Dealer currency can be used to resolve any policy issues with sales, service or F& I customers; to help launch and support service enrollment programs; to replace customer referral program cash; and even to supplement or replace promo dollars issued for local events (think golf tournaments) and charities. There are a lot of untapped possibilities here. This is a great alternative to the traditional points based loyalty programs.
What do you think about this? I’d really like to hear any comments or feedback you may have.
We all want new customers. And it’s certainly mandatory to retain a customer to create a loyal one. But how we market our dealerships is increasingly important — as each form of marketing will deliver different results. The three terms: loyalty, retention and acquisition marketing, all have their own distinct meanings and should be used to satisfy different goals and objectives. While they are often not distinguished differently within most dealerships, they truly have different meanings, and will generate different results.
According to the experts at the Cambridge Dictionary, the definition of customer loyalty is as follows:
“The fact of a customer buying products or services from the same company over a long period of time.”
According to Wikipedia, customer retention is defined as follows:
“Customer retention is the activity that a selling organization undertakes in order to reduce customer defections.”
And acquisition marketing is defined as the act of bringing in new customers. Sounds similar, right? Which one is more important to your store? Isn’t it true that the less customers you retain the more you must acquire?
It can be a never ending battle. But, it doesn’t have to be. And the real point is that retention and loyalty marketing should drive how much acquisition marketing you will need to do. All three should be an equal focus, hand-in-hand, one complimenting the other. It could be said that they are all dependent on each other.
Customer retention is about preventing defections and the preservation of existing customers. You can’t generate customer loyalty without having some form of retention. And you can’t have retention without first acquiring them.
Retention marketing is different than loyalty marketing. It involves looking at past customer behaviors and analyzing the transactional histories to identify and get customers who have been potentially lost, back in the door. Retention marketing examples include such things as identifying customers who used to come in regularly for service, but have not been in for a few months. Or identifying services that a customer may have previously purchased, but no longer does. In short, it is the act of getting a customer to purchase again, without the cost of acquisition.
In growing your retention, it is critical to be aware of who these customers are; to make the effort to reach out to them; identify why they are no longer coming in and take steps to win back their business. If you fail to do so, the chances are great that you will never see them again.
Loyalty marketing, or relationship marketing strategies, are designed to continue to earn the business of your existing customers while making it personal. For example, a hand written thank you card from the General Manager after a new vehicle purchase. A special occasion recognition, birthday or purchase anniversary — again, hand written. Special offers, designed for a particular group or subset of customers, that are engaging and valuable enough for the customer to feel recognized. Whatever you choose, it should be engaging and have the purpose of making your customer feel valuable. Combine these actions with providing an excellent customer experience, each and every time, and you will watch your loyalty grow.
Loyalty and retention should go hand-in-hand. You cannot build loyalty without retention. And it’s nearly impossible to retain customers without creating loyalty.
Remember, your goal should be to keep your customers engaged and happy while spending and acting as advocates for your dealership. What more could you want?
When will I see you again? No, I am not talking about the 70’s pop song, although the lyrics just may fit the content here. I am talking about the continued trend in customer defections from our dealerships.
Customer’s defect for many reasons and the longer an individual owns a car, the harder it can be to keep that customer. It’s not necessarily because the dealer does a poor job of providing an acceptable level of customer experience. Let’s face it, everyone’s life changes. The college student who bought the entry-level economy vehicle graduates, gets married and, perhaps has children. And, while they may have been very happy with their vehicle, they may now need one that better fits their current lifestyle. Manufacturer lineups and vehicles also change. The simple fact that the customer chose a different brand vehicle doesn’t mean they were unhappy with you as a dealer.
A recent Automotive News article shared an Experian study concerning length of vehicle ownership and how it effects brand loyalty. According to the article, “consumers who owned their vehicles for 12 months would purchase their next vehicle in the same brand 57 percent of the time. But for consumers who owned a vehicle for 12 years, the loyalty to the brand dropped an additional 23 percent to only 34 percent.”
So, what can a dealer do about this trend? Well, according to Brad Smith, director of automotive market statistics for Experian Automotive, “the increase in time between dealer interactions, whether they are for sales or service, increases the probability of a consumer defecting to the competition.”
Mr. Smith hit the nail on the head with his simple statement. A consistent, ongoing relationship is vital to creating and retaining a loyal customer base. Absence doesn’t necessarily make the heart grow fonder. In fact, quite the opposite happens. A customer without continual, meaningful engagement is very likely to become an ex-customer.
The solution to keeping your defection rate as low as possible is quite simply quality, informative and timely communications. But not just any communication – and especially not those marketing communications that are sold to you as “retention tools.” In reality they are perceived by your customers as nothing more than advertisements. While they do serve a purpose in the marketplace, they are surely not going to engage and retain your current customers.
A bit more on this: Having just walked the NADA show a few weeks ago, I could not help but notice how many of the exhibitors claimed their products and services were now focused on providing the dealership with loyalty and customer retention solutions. While this may be a good marketing claim for companies that obviously feel the need to jump on the retention bandwagon, many of them have little, or possibly even a negative influence on your customer retention and long term customer loyalty. Why is that? Simply put, many of the products and services being peddled really don’t offer the retail customer any true value. And without real value, you can’t have meaningful customer engagement. Without engagement, you are only adding to the clutter already being received by the customer from the many marketing companies and OEM programs. The result? The customer becomes numb to your marketing efforts and your communications become more and more insignificant as time goes on.
So what is the answer? If we want to grow a customer’s loyalty and elongate their lifespan as a revenue producing customer, we must interact and communicate with them differently than we do when trying to attract a new customer to a weekend sales event. That’s where the engagement factor is a key and crucial element to keeping those customers on your team. Try connecting with your existing customers through different styles and types of communications. For example, this past Holiday Season, a Honda dealership created a Holiday cookie recipe contest that generated hundreds of entries. They then sent a dealership branded cookbook to each of the participants, which contained all their favorite recipes. From this point forward, every Holiday Season, hundreds of the dealership’s customers will get a subtle reminder of the dealership every time they use their cookbook. Now, that is real customer engagement!
Another effective tactic is from a from an Ohio Chrysler store that sends out a Thanksgiving recipe every year to its customers. Imagine sitting around the Thanksgiving table and your customer tells everyone that the sweet potato recipe came from her local dealer. Customers actually ask the dealership year after year when the recipe is coming out. They look for it with anticipation — you can’t buy that type of ongoing positive connection to your store.
There are many other communication components that can build a tremendous following. And they don’t all have to be expensive phone apps, or video text messages –they just have to be engaging and meaningful to your customer.