July 2011, Auto Dealer Today - WebXclusive
Sometimes dealers and managers conjure up ideas to improve their stores, and then the day-to-day grind gets in the way of implementing said new idea. Such was the case at Ken Shaw Automotive in Toronto, Ontario.
Paul Shaw, vice president and co-owner, said, “We had thought about [implementing a rewards program] for quite some time and felt it was something we wanted to include in our business model.” He wanted to provide “extra value to our customer base” and create loyal customers. However, he knew implementing it would be a large project, and large projects sometimes “get deferred.” Shaw, who co-owns the dealership with his brother, said, “Finally, after a number of years, we said to ourselves, ‘We need to make this happen.’”
In April 2010, Shaw’s idea of implementing a rewards program for loyal customers finally came to fruition. During the six months prior to that, the dealership worked to set up the program with the help of the re:member group. He said, “There are really two facets when you’re setting up a program like this.” One is the technology behind the program, and the other is how the program will be structured to reward customers for their loyalty.
In late 2009, the owners of Ken Shaw Automotive decided it was time to implement a customer rewards program, an idea they'd been considering for years. The program was up and running by April 2010, and by April 2011, the dealership had sold about 50 vehicles to customers who applied their rewards points and received a discount.
“Over those six months, we worked on the technology to make sure the info would pull properly from our computer system,” he said, “so when a customer came in to get work done on their car, [the system] would automatically pull the correct points we were rewarding.” Customers can monitor their points online, so the dealership had to be certain all background systems were calculating accurately to avoid point discrepancies. Shaw didn’t want to start the program with any technological flaws in the system that might frustrate customers, causing them to avoid the program.
Shaw said he and his brother had no clue when approaching the next facet, how to structure the rewards program, and relied heavily on their third-party provider for guidance. He said, “They were able to throw suggestions and best practices our way, and we were able to find a program that works best for us based on our needs.” The dealership implemented a two-level program that rewards both service and sales customers.
Level one allows fixed operations customers of Ken Shaw Lexus and Ken Shaw Toyota to earn points toward the purchase of a new or used Toyota, Lexus or Scion. They earn 10 percent of what they spend in service and parts and two percent of what they spend in the body shop towards their next vehicle purchase. The body shop percentage differs because it “is an insurance-driven industry [and] the margins are much different.”
He added, “Of course, the repairs are much more significant. You are not coming in for an oil change for $29; you’re coming in for a collision repair for $5,000.” Two percent of $5,000 is significantly higher than 10 percent of $39. Program members must accrue a minimum of 10,000 points (which equates to a savings of $100) to receive a discount on a vehicle purchase, and they can redeem no more than 75,000 points at once (a savings of $750).
Level two is for customers who purchase a vehicle from Ken Shaw Automotive. In addition to accruing points based on how much they spend in fixed operations, they’re considered VIP Rewards members and have access to discounts from a network of 200,000-plus participating retailers. He said there are several “big rewards like Disney World, car rentals [and] hotel discounts.”
The network is mostly comprised of merchant services and discounts acquired by the re:member group. However, Shaw said most of them are in the U.S., so he actively sought out local Toronto businesses to join the network in order to create more value for his customers. While he personally went out to ask local businesses to join their network, he also offered all his employees the opportunity to add merchants to the network. He said, “Everybody knows someone who owns this or that, so we’ve opened it up.” Additionally, he hired a university student in the summer of 2010 as an intern to go out to local businesses and try to further build the VIP Rewards program’s merchant network.
He estimated the dealership added about 50 local businesses to the VIP program and plans to add more. He said there are “merchants in Toronto … like a local flower company that gives a 15-percent discount” and a Canadian chain restaurant called Swiss Chalet that offers 25 percent off. “We needed to create a little bit of Canadian content for the rewards program.”
Local companies have been very receptive to joining the dealership’s VIP Rewards network, he said, because there is no charge to be added to the network, and there are even advantages for businesses in the network. It exposes them to potentially new customers, as there are over 10,200 people registered for the dealership’s rewards program. “This program allows [businesses] to have access to over 10,000 of our customers. And they are able to measure it because they know how many coupons they redeemed,” he said, “And it doesn’t cost them anything unless a customer comes in to do business with them.”
While most of the 10,200-plus members of the program were rolled into the program from the dealership’s database, the dealerships are adding new customers to the program every day. “Approximately 10,000 of our customers had valid email addresses,” he said, and “when people come into the service department, they are automatically enrolled if they have an email address.”
"Our customers love it because now there is an extra reason to buy a car from us. They get discounts on things they are already doing. It really is a win-win for everybody."
- Paul Shaw, vice president and co-owner, Ken Shaw Automotive
More than 60 percent of the program’s members are active, which means “they have come in and done business with [the dealership] within past year,” said Shaw. While he doesn’t track how the members are using the merchant network, he does “incorporate some of our local merchants” in the dealership’s email marketing “so our customers get exposed to that.”
Currently, the only rewards program promotion the store does is in its quarterly email newsletters. The dealership isn’t doing any targeted email marketing to their active members yet, but plans to in the future. “One of the things [the re:member group] can provide is the top tier of customers who have the most points … We can go to them and say ‘Give us the top 500 customers’ and they can provide that information to us for marketing.”
Just because he’s not asking for that data for marketing purposes yet doesn’t mean he’s not regularly monitoring it. “We go to a website and see how many points everyone has, and managers can go into that and redeem points for people when they purchase a car.”
When the program first went live in 2010, he wasn’t exactly sure what to expect. “We didn’t really set a parameter other than let’s embrace it and move forward,” said Shaw. Another thing that made setting program expectations difficult is there aren’t many dealers with similar programs. “There are dealers who have some kind of rewards programs, but nothing as robust … It’s hard to know [what to expect] when you are starting something new. How will staff be about talking about it? How receptive will customers be to the program?” He added, “They have been very receptive.” The dealership has fielded several inquires from customers regarding how the program works and how points are accumulated and used.
Currently, he’s very happy with the program. In the past year, the dealership has sold 50 vehicles to customers who redeemed points from the rewards program. In fixed operations, the dealership awarded points on more than $2.3 million worth of work in 2010. Shaw said it’s “hard to quantify” how much of that is a direct result of the rewards program. “We believe [the program is] having an impact because people are paying attention and it’s given our business a lift, but it is kind of difficult to know how much is because of that. The challenge is … [knowing] if customer would’ve done business with you anyway.”
The ultimate goal, however, was not to immediately increase sales and service. Such a program needs a little TLC and time to blossom. The dealership hopes to grow a loyal customer base of repeat sales and service customers. In such a competitive industry, the Ken Shaw Automotive rewards program can provide the edge needed to sway customers on the fence about choosing where to buy from and keep them returning for service. Shaw said, “The market is very competitive and we encourage customers to shop around, but they get these extra reward points that come off their car purchase, giving them savings.”
Of course, the program needed some restrictions. “You have to have a cut off and say how long points are valid for.” Points are good for five years. If a customer bought a car today and serviced it at the dealership for seven years before buying another vehicle, the first two years’ worth of points drop off, and points from the most recent five years would be used to determine the customer’s discount. “Usually, when [customers] have a car that’s getting older, they are spending more money on it in the seventh year than the first. So it’s always fair to the customer,” said Shaw.
One thing he’s not hearing is complaints. “Our customers love it because now there is an extra reason to buy a car from us. They get discounts on things they are already doing. It really is a win-win for everybody.” He is planning on continuing the program long-term and expects the percentage of active members grow over time. “We believe this program has been very successful and is an important part of our business in the future.”
Vol. 8, Issue 5