July 2010, Auto Dealer Today - WebXclusive
Three Strategies to Consider
There are many strategies that have developed over the past several years to positively influence customer retention. Customer loyalty programs with a points reward system and special discount pricing on select dealership services provide some level of success. There are also discount coupons that can be used for savings on the purchase of the customer’s next vehicle. In the end, there are three key areas you should focus on to get your customers to come back and buy from you again and again.
The first is to make sure you maintain a high penetration on your service contracts for both new and used vehicles. Maintaining over 50 percent penetration on parts and service agreements is the first standard to establish at your store. Make certain your metrics are designed to ensure this outcome. Compensation programs for your entire staff, salespeople, sales managers and F&I managers must reflect your commitment to this outcome. Why?
Nothing will kill your next sale to a current owner like having to inform them that you have diagnosed the problem with their vehicle and the estimated cost of repair is $1,258! Oh and by the way, we will need to keep the vehicle overnight since the part is not in stock. Compare this with your service manager informing the customer that their rental car is ready (at no additional cost) and that the $50 deductible has been waived since the work is being completed at the same dealership where they purchased the vehicle.
The second strategy to implement is a pre-paid maintenance program. NADA concluded that buyers establish their vehicle maintenance habits during the first 18 to 24 months of ownership or during their first six to eight maintenance visits. The numbers go on to further indicate that a small percentage of people currently return to the selling dealership for routine maintenance. The numbers are often well under 50 percent.
The interesting element as it relates to customer retention is that almost 70 percent of your service customers will strongly consider purchasing their next vehicle from your dealership. The key is to set your program up to make the sale of the pre-paid maintenance (PPM) coverage easy. Price the product appropriately. Remember the goal here is not to jump-start PVR on your back end (that is why you offer service contracts) nor is it to bolster immediate profits in the service lane. The strategy is customer retention.
Many vendors currently offer self-implemented programs that can be handled for a small administration fee and which offer claims processing via the Web. Approvals for repair orders are generated easily and the process appears seamless to the customer.
The third retention strategy is one that appears to come and go with favor every few years, depending on the brand you sell—leasing. While acknowledging that the most successful leasing programs are in part underwritten by the manufacturer, ask yourself this question. Out of the last 10 deals your desk worked how many were leases? Two, maybe three? Why not consider offering a lease to every new car buyer? The option could be included on the first or second pencil or even both. While not every buyer is going to take advantage of the lease offer, how many might?
In menu selling, the old adage is to simply present 100 percent of the products to 100 percent of the customers 100 percent of the time. What might happen to your lease penetration if you applied this same strategy for lease purchase options?
Bear in mind that if you increase your lease penetrations, you will need to reconfigure your F&I menu to maintain back-end PVR. The product mix will need to include a security recovery system as well as a comprehensive paint and fabric program. The PPM will also help F&I profit and should be priced with that in mind, since the retention strategy will be accomplished by using a lease. Inclusion of a tire and wheel program would also help keep back-end profits up.
Replacing the $1,000 you normally earn on a service contract from a conventional finance transaction is going to require some work. Strategize with your current F&I product suppliers to create a winning combination of protection options that allows you to make up for the lost revenue from your top-grossing product.
Good luck and good selling.
Vol. 7, Issue 5