With service departments finally getting the credit due to them for contributing to the growth and profit of dealerships, pre-paid maintenance programs (PMP) are starting to make a huge impact on the overall profit of dealerships as well.
I think it is well established that most PMPs are being sold in the F & I department. But is that the only place that they can make the dealership money? Pricing your pre-paid maintenance program is a big part in whether a customer will even consider purchasing a plan. Recently we noticed that dealerships were overcharging their maintenance plans, arguing “what’s the point if we can’t make profit on the program?”, which made us realize that some dealerships are taking the wrong approach to their PMP.
When selling a maintenance plan to a customer, you tell them that they are saving money in the long-run and that they will not have to worry about the maintenance on their vehicle for 2 -5 years, depending on the length of the plan they choose. But when looking at the benefits from a dealership standpoint, there are several things to look at, and not just the profit. If you are concerned about losing your shirt when selling PMPs, then consider building your own PMP through a third-party provider like UltraCare and keep more profit for yourself. By cutting out some of the costs associated with most PMPs, you can lower your prices and still come out ahead.
What should you consider when looking for a pre-paid maintenance program?
Pre-Paid Maintenance programs, when delivered effectively, increase customer loyalty and create repeat business for your service department AND sales department. A customer is seven times more likely to return to your dealership if they have purchased a maintenance program from you. In addition, customers are 83% more likely to purchase their next vehicle from you if they visit your service department regularly.
Try to keep the bigger picture in mind. By stepping out of the box of profit and stepping into the one of loyalty, you can start to see the forest and not just the trees right in front of you. PMP are a great tool for dealerships, but if not used correctly, they will be unsuccessful and can actually hurt your reputation with your customers.
So, it is not just about adding to the profit of the sell. It is about adding a loyal customer that will return multiple times and more than triple that number. Price your programs competitively and to the advantage of the customer. In the long-run you will make much more profit. Not to mention you will have a happy customer who will bring more customers to your business through word of mouth.
What successes have you had with your PMP?
What are some of the frustrations you have with the PMP that you offer?
- Average/unconflicted: 61%
- Spendthrifts: 15%
- Tightwads: 24%
Each of these types responds differently to different marketing messages. So, how can you identify which is which, and how do you sell to them?
Tightwads tend to feel pain associated with buying; they tend to avoid spending money even in situations where most individuals would find the expense to be justified and of good value. Tightwads are differentiated from ‘frugal’ people, as frugal people don’t tend to feel pain at buying, they just enjoy saving more. Tightwads tend to carry little credit card debt and have more money in personal savings accounts than the “average” or “spendthrift” buyers.
To sell to tightwads, you want to minimize their buying pain. One way to do this is to appeal to the utilitarian or practical aspect of the purchase. For instance, if they need a pick-up, don’t try to sell them the luxury model; to a tightwad, paying extra for luxury features is unnecessary. Another way to minimize their buying pain is to watch how you use language: avoid saying things like “immediate payment in full,” or a “fee of $100.” Instead, say things like, “small down payment,” or “only a $100 fee.” Also, tightwads don’t like per-item pricing; bundling features together in package pricing works better.
Spendthrifts are three times as likely as tightwads to have credit card debt, and they are likely to have less in savings. This means that right up front, although they are willing to buy, financing will be more of an issue. Spendthrifts tend to derive great pleasure from buying; these are the types that respond to the “luxury” pitch, or the emotional satisfaction of immediately driving off the lot with a new car (unlike tightwads that don’t respond to that type of sales pitch). Spendthrifts want instant gratification.
“Average” buyers fall somewhere in the middle and are susceptible to both types of marketing messages and pitches.
Identifying what type of buyer is in front of you can be accomplished with casual conversation; ask a consumer about past purchases, and what they did or didn’t like about cars they have previously owned. Tailoring your marketing messages to different types of buyers can help boost sales and customer retention, especially to the 24% of the market identified as “tightwads” – but please don’t use that term in front of your customer!
Do you segment your customers into buying “types”? If so, which types?
What have you found to be effective for selling to tightwads, spendthrifts and “average” folks?
What is the difference between Customer Satisfaction and Customer Loyalty?
First, we will define each term. Customer Satisfaction is a measurement of customer attitudes regarding products, services, and brands. Customer Loyalty on the other hand has two definitions. Customer Loyalty consists of loyalty behavior (also referred to as customer retention) which is the act of customers making repeat purchases of current brands, rather than choosing competitor brands. Secondly, Customer Loyalty encompasses loyalty attitudes which are opinions and feelings about products, services, brands, or businesses that are associated with repeat purchases. At times, customers display loyalty behavior without having loyalty attitudes. Vice versa, occasionally customers show loyalty attitudes without exhibiting any loyalty behavior.
Customers are the link to your business success. Your business simply cannot afford to lose customers to your competition. Customer satisfaction and customer loyalty should be incorporated into the long-term goals of your business. Your business can do this by creating a plan for customer satisfaction feedback into the overall business plan. A plan to survey customers to measure customer satisfaction can be a simple and easy way to keep the loyalty of your customers. Asking customer satisfaction and loyalty questions can help your business gather the insights you need to keep your customers happy.
The difference between customer satisfaction surveys and customer loyalty surveys is that customer satisfaction surveys are focused on measuring customers’ current attitudes, where as customer loyalty surveys focus on predicting customer behavior and attitudes. As you begin your plan to measure customer loyalty, consider online survey software. With online survey software, you can either create a separate customer loyalty survey or include customer loyalty focused questions within a customer satisfaction survey. Regardless of your survey research method, having an understanding of customer loyalty is an indispensable piece to the success of your business.
Source: Snap Survey Software, June 26, 2012. Author, Unknown
What loyalty attitudes do your customers have? How do you know this?
Do you think customer loyalty surveys or customer satisfaction surveys are more useful for your business? Why?
Auto Dealer Monthly | By Daryl K. Tabor | January 2, 2013
The service department is the lifeblood of your dealership, driving receipts and carrying you through those dicey periods when car sales suffer under the weight of a weak economy. Even in good times, the profit margin from new-car sales is likely overshadowed by that of service and parts. Including staff behind the parts counter, the service department probably employs as many people as all other areas of the dealership combined. Without it, your store is simply a car lot where customer retention is based on little more than the price on the windshield and a friendly handshake.
Despite their importance to auto retailers’ survival, it’s only been in the past few years that service departments have been taken seriously as a way to not only drive retention but also capture the most coveted prize in any business: customer loyalty. While fidelity cannot be bought, many automakers and dealerships have found that retention, the unemotional cousin of loyalty, can be bargained for. Retention often begins with a simple invitation to visit your service drive every 5,000 miles or so. And who knows, it might even be the start of a long-lasting relationship.
Prepaid maintenance (PPM) plans and courtesy service packages have started to blossom as customer retention tools for automakers and individual dealerships, whether they be franchise or independent lots. Today, nearly one-quarter of Americans are driving with some type of plan, which generally covers routine maintenance as prescribed in the owner’s manual. “It’s one of the most powerful loyalty tools at a dealer’s disposal,” said Mike Martinez, chief marketing officer at DMEautomotive (DMEa).
Dealers have been slow to embrace the retention and income possibilities of PPM, claims Mike Gorun, CEO at Performance Loyalty Group a subsidiary of MediaTrac that provides myriad customer retention tools for numerous industries, including UltraCare for the automotive sector. However, the implementation rate of PPM plans has begun to improve in recent years, driven in part by the rise of technology that allows dealers to more efficiently administer, manage and customize programs. A quarter-century ago, maintenance programs were troublesome to implement, requiring the use of analog methods like books of coupons redeemable for specified services. The plans were virtually all run at a high cost to retailers by third-party administrators, Gorun said. “The way that it was packaged was very cumbersome for the dealer,” he said. “In the last 10 years, everything has gone electronic and is integrated into the DMS (dealer management system),” he continued. “It’s all automatic on the back-end side. It makes it very easy for the dealer.”
Are you offering your customers a prepaid maintenance plan in your F&I and service departments?
What are some of the elements of your plans? What appeals to your customers the most?
What are other customer retention tools that your dealership is using to retain customers?
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
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?