Article

Developing A Lifetime Revenue Stream

August 2006, Auto Dealer Today - WebXclusive

by Sandra Zabek - Also by this author

You have customers coming through your dealership doors every day. Some are repeat customers while others are fresh faces. So how do you turn those new customers into satisfied, loyal customers? It’s essential to understand what drives a customer to return to your dealership, how to keep them happy and the resulting importance of the revenue stream you receive from that relationship.

Research indicates that there is a tenuous link between satisfaction and repurchase for high involvement products—such as a motor vehicle. It is also prevalent in situations in which satisfaction is measured a long time prior to the next actual repurchase event. Even though the Customer Satisfaction Index (CSI) is measured soon after the purchase of a new vehicle and many years before the purchase of the next, there seems to be a correlation between satisfaction and willingness to recommend both the vehicle brand and the dealership.

With this in mind, it is important for a dealership to develop an ongoing relationship with a customer with the intent that the customer will purchase again from the business. The dealership must develop a customer-oriented business process—with achieving a continual dialogue across all points of access and contact as the main goal. The dealership must be involved in the analysis of its findings and also be in control of the business’ role in customer relationships.

The purchase cycle varies for different market segments: the average of two years for government fleet customers to an average of five years for retail customers. Customer retention is about ensuring, that at the end of this cycle, the customer visits the same dealership and buys the same brand.

Customer retention relies heavily on continuing contact with the customer. The vehicle service cycle provides opportunities for this. Of dealerships that do follow-up on sales, the most common period of regular contact is three years. The customer retention for these dealers is above the average of 45 percent.

In order for customer retention to occur, there needs to be a mutually satisfactory exchange of value between customer and dealership for the transactions to continue into the future. Value is defined as the ratio of benefits received to the investment needed to obtain those benefits.

The benefits of the relationship to both parties can be understood more completely when looking at the functional and emotional elements of the customer's relationship. Functional elements include: the need for mobility, lifestyle needs, and budget constraints. Emotional elements include: the desire to project a certain image, the desire for status, and the recreational needs and wants of the customer.

The management of the customer relationship on a continual basis must involve both the functional and emotional level so that the customer continues to receive value from the relationship and will return for all future purchases.

Looking at the Customer Lifetime Value (CLV) and Industry Profit Pool shows the value of customer retention and the revenue stream for motor vehicle customers. If a retail customer is buying a first used vehicle at the age of 18 and the last new vehicle at the age of 65, then the referred vehicle sales from that customer amounts to a Net Present Value (NPV) of $420,000. The NPV of the gross profit stream is $51,000. This means that keeping a customer from the first sale through to the last sale is equivalent to earning a gross profit of $51,000 today.

There are many successful ways that dealerships have developed this relationship and therefore, a continual revenue stream:

Using customer satisfaction surveys along with the findings from them.

Development of a customer database that includes both customer details and customer purchase history over at least 7 years.

Networking and involving the entire staff in the customer relationship development.

In addition, the best dealerships have a number of common attributes that contribute to successful relationship development with customers:

Measuring both customer satisfaction and customer retention levels.

Collecting information on referrals.

Customers are also asked if they would recommend the dealership. Negative answers are considered an opportunity for improvement.

Separating expenditures on customer relationship programs and events from expenditures on advertising and marketing.

The culture of customer focus must be driven from the top. It must include building reputation, involvement, customer relations, knowledge and history to create customer value and a climate for value exchange.

Each contact point within the organization must understand the importance of customer relationships and contribute to the development and growth of these relationships. By implementing this as part of the training program for new and existing employees, dealerships can successfully reinforce these values as part of the organization’s culture. This commitment to customer retention can lead to a healthy lifetime revenue stream for the dealership.
 
Vol 1 Issue 6

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