Article

How to Build a Loyalty Program

Expert offers a five-step plan to build your service business, encourage existing customers to visit more often, and boost sales of service contracts and accessories.

November 2016, Auto Dealer Today - Cover Story

by Brian Schmid

I find loyalty programs to be such a fascinating topic. Done well, they can be great at creating advocates for your business. (Ask anyone with frequent flier miles which airline they prefer, and you’ll see what I mean.) But if you’re not careful, they’ll wind up along with all the other forgotten cards at the back of your customers’ wallets.

It takes a bit of effort to create a loyalty program that works. With vehicle sales on the decline, you’re going to want to start now so you can proactively improve customer retention, increase how often your customers come to you for service, and boost the value of your repair order tickets.

Loyalty is about building a relationship around positive interactions. How customers feel when they interact with you is a big deal, because you’re 14 times more likely to sell to a happy customer. Happy customers can help improve your CSI rating and brand reputation. That’s the power of a loyalty program.

So what makes customers happy?

In general, 62% of customers think the brands they’re most loyal to aren’t rewarding them enough for their loyalty. To make them feel appreciated, you have to appeal to their need for three things: instant gratification, progressive rewards, and personalization. The types of loyalty programs specifically designed to satisfy these needs include punch cards, points programs, and cash-back programs.

Punch cards are good for retention because they’re simple (81% of customers stick with programs that are easy to understand) and they give customers a compelling reason to return. On the other hand, points programs encourage customers to return more frequently by offering progressive rewards each time they visit. Cash-back rewards meet all the requirements: Customers get an incentive when they come in, they get more the more they spend, and the program is completely customizable.

To build a loyalty program that creates value for both you and your customers, follow these five steps:

1. Identify Your Opportunities.

Start by using your CRM to gather your customers’ contact information, sales histories and service histories, including when they came in, what they bought and how much it cost. This data will help you identify the following groups:

  • Retention opportunities: What resonates best with customers who stopped coming to you for service (or who never came in for service at all) are messages about the immediate benefit of being a program member.
  • Frequency opportunities: Customers who only come in a couple times a year need to know why it’s better to get all their maintenance and repairs done at your dealership.
  • Lift opportunities: Customers who come in more regularly, but only for the maintenance, should get messages about which extended warranties, service contracts, accessories, or other parts are worth purchasing.

2. Set Goals.

The key is to be realistic when setting the goals for your program — and make sure they align with your business’s broader goals as well. Worthwhile goals might be to:

  • Build relationships
  • Broaden your appeal
  • Collect information for other campaigns
  • Increase engagement
  • Boost revenue

Start by retaining customers, then getting them to come in more often, and then expanding what they buy when they come in.

Identifying customers who would benefit from an extended warranty or vehicle service contract is a key component of any loyalty program. 
Identifying customers who would benefit from an extended warranty or vehicle service contract is a key component of any loyalty program. 

3. Build Out the Process.

To build your program, you’ll want to include all of the other key players who will be involved:

  • The loyalty program manager, to manage and monitor the program
  • The finance manager, to determine the program’s impact on the dealership’s bottom line
  • The service manager, to give insight into which rewards would best appeal to which types of customers
  • The general sales manager, to ensure the sales team is promoting the program correctly
  • The campaign manager, to collaborate with the program manager on customer communications and promotional efforts

Together you’ll clearly identify what types of rewards are feasible, how they’ll be redeemed, and how they’ll affect your bottom line.

Before you launch your program, you should also assess your highest-liability scenario so you know exactly what you might be getting into. To do this, just calculate the total cost of the program — including rewards, staffing and promotion — based on your repair orders from the most recent full year. Then take that total cost, compare it to your goals and determine whether the program is worthwhile.

4. Promote Your Program.

Now for the fun part. You’ll want to announce your launch by posting instore signage, advertising, direct email communications, website banners and information on your Autotrader and Cars.com listings.

Make sure your salespeople are promoting the benefits of the program during the sale, too. And get the service reps to sign up customers prior to closing the repair order so they can immediately see the benefit.

Then, as customers sign up, send out a monthly email that summarizes the rewards they’ve accrued, reminds them how to claim rewards, and gives them examples of what they could receive.

5. Measure the Results.

This isn’t a three-day weekend sale; it’s a plan to boost long-term customer value. So it might take a little while to see the real payoff. That said, you should start looking for results within three to six months. Early indicators of success include a rise in repair orders and an increase in customer appointments.

At six months, review year-over-year growth and retention, frequency, and lift statistics. You can determine your ROI by comparing the additional service revenue from the first full year of the program to the service revenue from the previous year (minus operating costs). This will give you a clear picture of whether it’s working or if you need to make adjustments.

As I said before, these programs are a lot of work. But customer loyalty isn’t just an abstract feeling — it’s something you can actually quantify. A study completed in 2012 found that loyalty members visited service departments more often and spent almost double annually compared to non-members.

That’s the value of a loyal customer.

Brian Schmid is the digital marketing manager for VinSolutions. Email him at [email protected].

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