Live from NADA 2020, Doug Van Sach shares how AI helps dealerships become more efficient and saves money.

When it comes to email marketing, frequency of communications plays an important role in getting customers to open your emails AND in getting them into your showroom.

However, flooding their inboxes with daily communications poses risks. Too many emails and your customers will lose trust in your business and unsubscribe from future marketing. Based on a 2018 Affinitiv survey, 56% of customers unsubscribed from a retailer’s promotional emails because they were contacted too many times. In a market saturated by digital promotions, how often should you contact your customers and how much is too much?

Affinitiv recently analyzed over 23 million emails sent to auto dealer customers to see what the impact of marketing frequency is on open rates and response rates. We calculated these at a customer level, meaning unique customers contacted made up the denominator for both of these metrics, while the numerator consisted of unique customers who opened at least 1 email, or had at least 1 RO after receiving a communication. Customers were segmented based on the monthly average number of communications they received.

Unsurprisingly, unique open rates see a steady trend upward as number of communications per month increases. On the other hand, unique response rates follow a similar upward trend but start to see a significant decrease starting at 7+ emails per month. This suggests that customers may start to lose trust in dealerships who they feel may be abusing their right to reasonably market to them.

Furthermore, we analyzed the impact of frequency on opt-out rates. The highest opt-out rates occurred for those receiving only 1 email per month. Since over communication can be ruled out, these customers likely fall into the category of those who find the content irrelevant.

Interestingly, increasing the number of communications has no significant impact on opt-out rates until customers start receiving 7 or more emails per month. 

For maximum response, dealers should target their customers no more than 6 times per month with relevant content. Marketing strategies that pinpoint customers with targeted messaging based on where they are in their life cycle yield much higher returns compared to non-strategic approaches.

Dealers also have an opportunity to leverage targeted and relevant marketing through platforms that utilize artificial intelligence (AI). Getting in front of your customers is imperative for continual growth of your business but it’s equally imperative to maintain a balance, so as not to sacrifice their trust and loyalty.

Includes contributions by Jeff Giere, Strategy Analyst at Affinitiv.

Every day, dealers are faced with multiple decisions about various facets of their business. Among them: constantly trying to decide if they should invest in buying leads to conquest more consumers or if they should spend more to retain existing customers. At the same time, they often lack the information required to choose the best course of action. In fact, due to an absence of a complete view of the lifetime value of their customers, many dealers are hard-pressed to answer even the most basic questions about them.

It may be surprising, then, to learn that dealers who over-invest in leads can actually harm their business, as has been demonstrated by AutoLoop’s analysis of buyer behavior over a 5-year period. Performed to determine how much business is generated from first-time vs. repeat customers, our 2018 analysis covered a national sample of over 400 auto dealers. Consisting of approximately 800K first-time customers—including those with no previous transactions at a dealer—and approximately 600K repeat customers, we specifically analyzed those who’d purchased a vehicle or had a service visit in the past.

Our findings? First-time customers accounted for 56% of a typical dealer’s sales units and 64% of their gross margin dollars, as shown below. However, while dealers may be tempted to invest even more money in acquiring leads to attract new customers based on these results, this is only part of the picture. To understand the true impact of these buyers on business growth and profitability, auto dealers should consider all aspects of the customer’s behavior over the entire 5-year period, as well as the role leads play in the overall scope of their business.

Two primary issues are key here: first, with less than 10% making a purchase at a typical dealership, leads have proven increasingly more difficult to convert to buyers. The second—and perhaps most important—issue is that leads who are successfully converted to first-time buyers are less loyal and less profitable over their lifetime. In fact, first-time buyers are 60% less likely to repurchase at a dealer than customers with at least one prior vehicle purchase or service visit. They also spend 10% less than repeat customers when they do eventually repurchase.

So for every 100 deals from repeat customers, the average dealer will also gain 10 more vehicle purchases and $2,660 more gross than they’ll earn from the equivalent number of first-time buyers over their lifetime.

If the ultimate goal is long-term growth and continuous profitability, then it stands to reason that pouring more resources into acquisition would be extremely risky at best. This is demonstrated repeatedly by dealers who buy leads that are less loyal. When those leads don’t turn into repeat business, they tend to buy even more leads to make up for declining loyalty over time. As you can see based on the data, this over-investing in leads actually results in lower profit in the future, thereby reducing the total value of a dealer’s business.

To break the cycle, drive real growth, and improve profit in the long run, smart dealers will shift some of their investment from costly acquisition to retaining customers for a second and third purchase. For instance, revamping sales processes and investing in digital tools will better accommodate and retain digitally minded customers who demand transparency and flexibility at every stage of the purchase process. As well, auto dealers can implement strategies and utilize tools that drive higher customer engagement in their stores and throughout the ownership period, since engagement has proven to be the most important predictor of customer loyalty. So ultimately, dealers who invest more in their repeat customers will yield a better return on their investment over a 5-year period—and they’ll reduce their costly dependency on buying expensive leads.

It’s a common scenario: drivers eating, texting, talking on the phone, taking care of personal grooming, or even reading while on the road. Loosely termed “distracted driving,” it includes any activity drivers engage in when they’re behind the wheel, according to the National Highway Traffic Safety Administration (NHTSA).

A recent AutoLoop study identified the most common of those activities among morning commuters while driving. With a remarkable 48% of survey participants qualifying as distracted drivers, we discovered that 25% ate breakfast, 17% checked Facebook and 13% of commuters used the drive time to read the news on their phone. Others made purchases, brushed their teeth, shaved, put on makeup, even changed their clothes–and a full 5% actually put in their contact lenses while en route.

Scary statistics–but surprising opportunities

Although our current findings might motivate some to start seriously considering public transportation, they also provide unique opportunities for dealers. Ironically, even as drivers try to make the maximum use of their drive time through constant multitasking, they are also simultaneously seeking vehicles with more features to help them stay safer on the road. This, in turn, gives dealers an ideal place to start trade-up conversations during in-person visits.

Safety features: better technologies for worsening trends

While interest in safety features overall has increased, blind spot warning alerts, lane departure warnings, and voice control are among the most popular in-vehicle technologies sought by recent buyers. Dealerships can take full advantage of this rising interest not only to showcase those particular features but also to highlight the many other safety capabilities in new models—and compare those to the customer’s current vehicle. Dealers should also help prospective buyers understand how these latest enhancements, although never a substitute for good driving practices, can certainly help drivers be safer on the road, especially those who are less experienced. Ideally, these conversations will raise awareness of distracted driving and its potential impacts while increasing your bottom line.

Doug Sach, VP Analytics & Data Services for AutoLoop discusses how driverless cars could affect the auto industry in this short video blog.

AutoLoop VP, Analytics and Data Services shares findings about the best predictor of customer loyalty from AutoLoop's recently published white paper, "Life After Loyalty."

AutoLoop VP Analytics & Data Services Doug Van Sach shares some gaps between Millennial expectations and reality in this video blog.

AutoLoop VP, Analytics & Data Services discusses the importance of follow-up in generating revenue in this video blog.

Today, the Big 3 automakers account for only 44% of the market – a 26% decline from 2 and a half decades ago. In this short amount of time, consumer loyalty is no longer within reach, as the average customer retention rate across the industry has sunk below 50%. This amounts to dealers losing more than half of their customers each year.

Why the sharp decline in loyalty?

Carl Sewell wrote his ground-breaking book “Customers for Life” in 1990, changing how many dealers viewed their customer relationships and paving the way for the industry to drive higher levels of service and loyalty. While increased competition and online pricing is partially to blame for the decline in loyal consumers, a critical factor is the changing mindset of the U.S. consumer. The hard truth for dealers is most consumers have redefined what it means to be loyal in the digital age.

How the meaning has changed.

AutoLoop surveyed 1,000 vehicle owners from across the U.S. to better understand their mindset towards loyalty. We were surprised to learn 62% of consumers actually consider themselves loyal to an automotive service center despite the low retention rate for the average dealer. To better understand the gap between consumers’ attitudes and their actions, we dug deeper. When we asked customers to tell us what loyalty means to them, we found a split among generations.

• Baby Boomers were most likely to say loyalty equates to always visiting the same store when they have a need for service.
• The younger generations are more likely to cite loyalty as a “sometimes” rather than an “always” behavior.
• Slightly more than half of Millennials actually believe they are loyal even though they frequently visit competitors.

In other words, loyalty is more of a convenient activity rather than a commitment. Given this discovery, dealers are faced with a new challenge – prevent their best customers from going elsewhere even if they show no signs of disloyalty.

Our research shows that dealers lose close to $1M per year of service spending from their current customers. To address the lost revenue opportunity, dealers need to dramatically rethink their marketing strategies. Many dealers are using outdated, disconnected marketing programs with little to no coordination across media and touch points.

Engagement is key.

Given the constant threat of losing business to competitors, progressive dealers need to use a variety of integrated programs to stay top-of-mind and continuously engage with their customers. At AutoLoop, we are leading the charge by integrating more programs and touch points to ensure dealers stay relevant at all times. From appointments to inspections, newsletters to maintenance reminders, and loyalty programs to mobile apps, AutoLoop has the fully-integrated platform dealers need to stay ahead of the competition and keep their customers coming back time and time again.

On-demand driver services such as Uber are on the rise. The approaching disruption of driverless vehicles shouldn’t come as a surprise, but dealers need to find a way to keep up with customers who want alternatives to owning a vehicle. It comes down to this: complacency can cause suppliers to lose touch with their customers. To remain successful and compensate for declining vehicle owners, it’s time to face the facts.

What’s driving demand?

In a recent study of 1,000 consumers, we found that 1 in 4 U.S. drivers said they always or typically prefer someone else to drive them. This is not a new demand. Transportation options have remained the same for nearly a century, so it’s likely that this preference has existed for quite some time. Rather, the disappearing driver phenomenon stems from a lack of innovation around supply.

Sudden increases in supply

Vehicle manufacturers, dealers, and leasing companies had little reason to change until the Great Recession of 2008. When our economic bubble burst, consumers suddenly stopped buying cars and started looking for less expensive transportation. As major automotive manufacturers teetered on the brink of extinction, a couple of guys decided it was time to fulfill an unmet need and forever change the industry.

Cue: Garrett Camp and Travis Kalanick. These two started Uber in 2009 after the last straw with an age old problem—trying to hail a cab.  In just seven years, they created a business worth more than Ford and General Motors. Multi-billion dollar disruptions like this don’t go unnoticed. Uber quickly got the attention of large technology companies like Google and Apple, who are determined to reshape transportation as we know it with self-driving vehicles.

Measuring the impact

Given the growing popularity of Uber—which currently racks up over a million rides per day—and the emergence of driverless vehicles, we felt compelled to answer an important question for dealers: how much will mobility alternatives impact vehicle sales?

To find the answer, we went to the most reliable source: vehicle owners. In our survey, we asked them how they expect driverless vehicles will impact the number of vehicles they own in the next five years.

• 16% of drivers said they would own more vehicles in 5 years
• 21% of drivers said they would own less vehicles
• 10% said they won’t own any vehicles[1]

As a result, as much as 15 percent of vehicle owners will disappear—virtually guaranteeing an unrecoverable decline in sales.

What does this mean for dealers?

The 15 percent of drivers without vehicles still need ways to get around; yet they won’t need the same number of vehicles to support them. Consider this: a typical driver spends an average of 46 minutes per day in their car[2].  So if 50 percent of vehicles are used for ownership alternatives (e.g. driverless cars), we estimate that one vehicle will soon support up to 15 former drivers—which means the majority of the 15 percent decline in drivers will translate directly to a drop in SAAR.

And that’s only the beginning. It’s uncertain how the majority of vehicle owners will respond once they see their friends and family members enjoying the perks of going vehicle-less.

Dealers can’t afford to sit idle and watch their vehicle sales erode in the wake of on-demand driver services and self-driving vehicles. Instead, they need to work on new revenue sources to make up for the decline in vehicle owners. They should also consider ways to enhance the experience of customers with new, more innovative options for owning a vehicle. Now is the time for dealers to embrace the inevitable—disappearing drivers—and find their place in the new mobility economy.