November 2017, Auto Dealer Today - Feature
Lester Glenn Auto Group’s group director of fixed operations, Kerry Monica (left), stands with John Perillo, the company’s group director of variable operations. Photos by Matthew Costanzo
For years, auto dealers have used a wide variety of programs and products to reward or otherwise incentivize customers for doing business with them and encouraging their repeat business.
These efforts can be an effective business practice. Airlines, hotels and restaurants have used the strategy for decades. Most of us have one or more of these rewards program cards in our wallets — and we favor those companies when needing those services.
Not every such program said to drive customer loyalty or dealer satisfaction is a winner. A recent report from Fidelis PPM, for instance, notes that customer loyalty and satisfaction do not necessarily translate into repeat business. Similarly, AutoLoop indicates that 45% of consumers who say they’re loyal automotive service center customers go elsewhere to conduct that business.
It would seem important then that dealers evaluating programs to help grow their business would search out those designed to increase customer retention specifically.
Rolling on the River
A case in point is the experience of the Lester Glenn Auto Group of Toms River, N.J. Founded in 1956, the group today includes eight dealerships representing 13 brands, including Chevrolet, Buick and GMC, Chrysler, Dodge, FIAT, Jeep and Ram, Ford, Hyundai and Genesis, Mazda and Subaru. It sells 13,000 vehicles a year, of which 60% are leased.
The group had provided free, lifetime oil changes to keep buyers returning to the dealerships for service and future vehicle purchases. That strategy did not, however, generate the long-term repeat service traffic and customer retention management had hoped for, according to John Perillo, group director of variable operations.
“We found that customers didn’t value something for nothing, and as a result, free lifetime oil changes did not drive them back into our service departments as often as we had expected, nor did we retain that business long-term,” Perillo says.
That is not an unusual outcome of many loyalty programs, noted retention expert Ryan Williams, founder and president of Fidelis PPM.
“For dealers — and for their clients — it’s not loyalty or satisfaction that necessarily results in repeat business, but rather retention initiatives purposely designed to keep customers returning to the dealership for routine maintenance,” Williams says. “This repetition builds a habit they continue with the dealership for many years.”
The Lester Glenn family includes eight dealerships representing 11 brands and selling 13,000 vehicles per year. The management team decided to invest in a new service campaign after a free lifetime oil program failed to retain enough customers.
PPM for ROI
Hoping to correct what Lester Glenn’s original free lifetime oil-change program failed to deliver, Perillo and his fixed operations counterpart, Kerry Monica, replaced it with a modified, free and cost-based dealer-branded prepaid maintenance program.
This new program offers every buyer two years of free oil service and an offer to upgrade that to full synthetic oil service, or a multiyear retention providing full synthetic LOF services, tire rotations, key replacement services and various discounts.
A little more than a year into the program, return on investment has been significant, Monica reports.
“We spend approximately $90,000 per month to support the PPM program for about 2,500 incoming customers per month companywide, and in turn, we upsell 55% of them with an average customer-pay upsell of $190 per repair order.
“That translates into $274,000 in additional parts and labor sales per month,” Monica adds, “not to mention the extra traffic it drives back to the dealership for future new and pre-owned sales. Our Hyundai store alone converts about 70 service customers per month to new or pre-owned sales, and that fuels our used-car lots with incoming well-maintained trades.”
At its one-year mark, plan penetration is on its way toward a goal of 20% to 25%.
“Not bad in a substantial lease market as ours is,” Perillo notes. “It’s a proven fact that where people service their cars is where they buy or lease their next one, so we want to be sure that is at a Lester Glenn dealership.”
He reported these results: The program retains lease customers’ routine maintenance services for at least two years and retains finance customers’ routine maintenance services for up to five years. And by putting a retention-by-design strategy in place, the Lester Glenn group is growing its incremental customer-pay service business and increasing its overall customer retention — plan use is 85% at Year One, 65% for the following years.
“We’re always at the top of our zone for customer retention,” Monica notes.
Perillo agrees. “It is for these reasons we put this retention plan into place, to get customers back in the door. It works.”
Jim Leman has been writing about automotive variable and fixed operations since 1992. Reach him at firstname.lastname@example.org.