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

Repeat buyers account for an increasing share of new vehicle sales and now represent 31% of all new vehicles purchased at a dealership, compared to 29% a few years ago. This trend is good news for dealers due to the lower cost of retaining vs. acquiring customers.

Unfortunately, this trend is expected to decline due to a lack of improvement in customer repurchase rates. Despite the greater share of repeat buyers, customer repurchase rates have stayed within a relatively stagnant 23.5% to 24% range over the past few years.

The flat repurchase rate trend is masked by the strong SAAR over the past 10 years, which has created a larger pool of buyers available to repurchase, thus creating more repeat buyers. As SAAR slows down, we expect the share of repeat buyers to drop unless dealers adopt a new approach to retaining sales customers.

Affinitiv recently performed an in-depth analysis of the underlying trends in repurchase rates and identified a unique opportunity for dealers based on financing trends for repeat buyers. First, we separated buyers into three distinct groups based on their initial purchase: cash, lease, or loan. Next, we followed those customers over a 5-year period and compared their finance choice on the original purchase to the next vehicle they purchased. As expected, most buyers chose the same financing option for their repeat vehicle purchase.

In fact, 77% of lessees, 87% of loan buyers, and 91% of cash buyers repurchased a vehicle using the same financing choice as their original purchase. The trend to use the same financing on the repurchase creates a significantly opportunity for automakers and dealers to better tailor their marketing to each individual buyer.

Based on an Affinitiv survey with 1,000 consumers who recently purchased a vehicle at an auto dealership, a customer’s financing choice also helped us to identify their unique preferences relating to buying habits. Since cash buyers pay in one lump sum, their only concern is the total price of the vehicle. Lessees primarily care about the payment amount since they are locking themselves into a monthly payment.

Loan buyers are mixed. However, we found a strong correlation between their preference and their down payment amount. Customers with a down payment amount below $10K had preferences in line with lessees presumably because a lower upfront payment leads to a higher monthly payment throughout the loan. However, customers with a large upfront payment of $10K or higher had preferences similar to a cash buyer.

In addition to price vs. payment preferences, we also found differences in the primary reason for the last vehicle purchase. Cash and loan buyers were more interested in buying a vehicle with the latest technology during their last purchase. Lessees were more likely to be motivated by a strong incentive compared to other buyers.

Dealers have an opportunity to dramatically improve their customer repurchase rates by aligning their marketing strategy with the unique characteristics of different types of buyers. Here are some key strategies to apply to each group of buyers:

Cash buyer or loan buyer with high down payment (>$10K): promote the total price of vehicles in inventory. Highlight the technology features of vehicles.

Loan buyer with low down payment (<$10K): promote monthly payments of loan. Highlight technology features of vehicles.

Lessee: promote monthly payments of lease. Promote dealer and factory incentives.

Ensure your marketing programs properly segment customers and deliver the right financing option and vehicle selling points. By adopting a more personalized approach to marketing, dealers have the opportunity to improve repurchase rates and lessen the impact of the projected declines in SAAR.

Cash buyers are an important but often overlooked segment of customers who pose a significant risk to auto dealers and manufacturers if left un-managed. In the first half of 2019, customers who purchased vehicles with cash accounted for 24% of all new vehicle sales. For some luxury brands, cash buyers are even more important since they can represent close to 40% of all new vehicle sales. However, their lack of loyalty to auto dealers often goes unnoticed, presenting a significant risk over time.

From a dealer’s perspective, cash buyers are composed of two distinct groups: customers who write a check with available cash on hand, and customers who financed their vehicle with a third-party. Since a dealer doesn’t have visibility into the personal finances of individual buyers, they can’t distinguish between the two groups and ultimately are forced to treat them the same. 

Based on Affinitiv’s analysis of over 200K vehicle purchases in 2018, we found cash buyers are unlikely to return to a dealer for service and are significantly less loyal than other buyers. In 2018, only 39% of cash buyers returned to a dealer for service in their first year of ownership, compared to 65% of lease buyers and 68% of loan buyers. Cash buyers are also less likely to repurchase at the same dealer. We found the 5-year repurchase rate was only 10% for cash buyers compared to 16% for loan customers.

Through our research we also identified unique behavior patterns of cash buyers, which create an opportunity for dealers to improve the relevance of their marketing and thereby win their loyalty.

We analyzed the results of Affinitiv’s national consumer study with 1,000 recent car buyers and found cash buyers are significantly more likely to choose an auto service provider due to convenience of location, the ability to get service without an appointment and speed of the service. As a result, dealers are more likely to convert cash buyers to service customers if they offer and promote express service and have extra capacity available for walk-ins.

Dealers need to re-evaluate their retention marketing programs and ensure they deliver relevant messaging to cash buyers. By offering express service and promoting no-appointment service visits, dealers can dramatically improve the number of cash buyers who return for service and increase the likelihood of customers purchasing another vehicle at their dealership.

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.

A recent Affinitiv survey of 1,000 automotive consumers reveals that dealerships are falling short when it comes to delivering personalized, online shopping experiences to customers. In the same study, we analyzed a sample of 100 dealer websites to better understand the current level of personalization that dealers are offering.

Why the focus on website personalization?

Seventy-five percent of customers said they visited a dealer’s website prior to making their last vehicle purchase. Because this is often the first point of contact with your dealership, it’s critical that your website meets consumer expectations—and to understand how these expectations have drastically changed in the last few years.

Every day, consumers interact with non-auto retailers who provide a highly personalized online shopping experience. Amazon, Nordstrom and Apple are role models that consumers expect dealers to follow. Additionally, dealers must adapt to a new generation of buyers who have purchased virtually everything they ever needed online.

As consumer demand drives the growth of digital retailing, many dealers are being forced to retool a car-buying process that now begins on the website.

Personalization Gap

Our study revealed that 76% of recent car buyers said it was important for the dealer website experience to be personalized—yet only 26% of respondents agreed that dealers provide a highly personalized experience on their website. This large gap will have to be bridged in order to attract and retain car buyers who prefer to shop online.

Personalization is not as simple as remembering a customer’s name or giving customers the flexibility to search for vehicles with specific characteristics. Personalization requires a deeper understanding of customer preferences and an online experience tailored to each individual customer.

A key first step for dealers is to understand the specific aspects of the website that need to be customized. We asked customers what part of the website experience they wanted dealers to personalize and the top three items were (1) Vehicles of interest (2) Vehicle features and (3) Vehicles within my budget.

Vehicles of Interest

Sixty-five percent of consumers want websites to personalize vehicles of interest. In our website analysis, only 47% of dealer websites proactively recommend vehicles of interest based on a customer’s browsing behavior.

While some websites recommend “similar vehicles” to consumers when viewing a vehicle detail page, the recommendations typically relate only to the last vehicle viewed and did not reflect a consumer’s complete shopping history on the site or specific vehicles features they clicked on.

Vehicle Features

Fifty-eight percent of consumers said they want to be able to get vehicle recommendations based on specific features of interest, but in our sample not a single dealer website recommended vehicles based on features of interest.

Considering its high importance, recommending vehicles with relevant features is one of the single greatest opportunities for dealer websites to increase conversion rates and better meet the expectations of online shoppers.

Vehicles Within my Budget

Taking a consumer’s budget into consideration is critical to personalizing the online experience, since 52% of consumers expect a dealer’s website to help them find affordable vehicles. Additionally, 62% of consumers said that finding a vehicle with a specific monthly payment was as important, or even more important than finding a vehicle within a specific price range.

However, our analysis of 100 dealer websites found significant gaps when it comes to payments and the vehicle search.

* 9% of websites allow customers to search by payment range

* 55% of websites allow customers to estimate payments based on their true buying power, which includes the current equity position in their vehicle

* 11% of websites incorporated the credit score in the payment estimate

If websites aren’t dramatically improved to elevate the shopping experience and make personalized recommendations based on a consumer’s browsing behavior, dealers risk alienating potential buyers before they ever visit a showroom.

To remain competitive, dealers need to move beyond traditional approaches that attempt to optimize the same experience for every customer. Screen website vendors for personalization features and challenge vendors to demonstrate how their websites react to browsing behavior and deliver relevant vehicles with the right mix of features within a customer’s budget.

One of the biggest hurdles dealerships face when attempting to create a personalized experience for every customer is breaking down their data silos. Data silos are common in virtually every auto dealership today. They occur when information is accessible only to certain employees or only within one technology application. While many leading, non-automotive retailers have spent the last couple of decades integrating disparate systems to improve their customer experience, many dealers have fallen behind. Driven by the allure of small, startup tech companies, they put too much focus on continually adding non-integrated technologies that typically over-promise and under-deliver. As a result, dealers are facing the harsh reality of a significant digital-experience gap. We covered this––as well as the solutions––in our recent Mind the Service Experience Gap white paper.

Not only do data silos make big-picture decisions––like which customers to target to grow your business––harder, they can negatively impact individual customer interactions in the showroom and on the service drive, leading to poor online reviews and risking the alienation of new customers. So it makes sense that eliminating data silos can increase your customer experience, CSI, and even your store’s revenue. And luckily, there’s a fix.

The Low-Down on Silos

The most noticeable data silo for dealerships is online data collection. All too often, when customers submit a lead form, schedule a service visit on your website, or value their trade online, their data gets buried in a single application managed by one of your vendors. Unfortunately, this crucial customer data is not typically shared with any of your other systems. Then, when those customers come in for their test drive or service appointment, the dealer associate assisting them has an incomplete picture of the customer or their vehicle. The unsurprising results are a sub-standard experience for the customer and missed revenue opportunities for the dealership.

Worse yet, the next time a customer makes a transaction online, the website doesn’t recognize them.  They are then forced to provide the same information with every visit. Obviously, this practice is a problem and alienates customers as soon as the interaction starts. Every additional hurdle you create for a customer––an extra keystroke, tap, or click––leads to more frustration and abandoned transactions. And yet this situation occurs every day, resulting in lost sales and missed service revenue. That’s why it is so important to consolidate your vendors and centralize your customer data in one system. You also need to employ smart systems that continually recognize customers and eliminate unnecessary effort on their part.

One Customer, Fragmented Information

The best case scenario involving data silos is that all your customer information exists somewhere, scattered in the different applications used throughout your dealership. But unfortunately, “best case” doesn’t always equal “best practice.”

This kind of “data disconnect” can affect everything from sales interactions to marketing communications. In fact, a 2019 survey of 1,000 customers by AutoLoop found that 88% of customers value a personalized experience when visiting a dealership. If your customer information is siloed into different platforms and products, however, that crucial personalization data may be inaccessible or incomplete.

Say “So Long” to Data Silos

The immediate effects of eliminating your data silos include higher CSI scores, trust, and transparency and a significant lift in repeat business. And in the long run, it adds up to a lasting positive impact on your dealership’s revenue and profitability.

The solution is clear: integrate your data to enable a smarter customer experience. Your store might have the best individual technologies in the world, but if they don’t work together, they’re not much use at all. That’s why the best strategy for eliminating data silos is to adopt a seamlessly integrated sales and service solution. The ideal platform will do more than share valuable information across applications. It will also use the information intelligently, saving customers and employees time and effort.

Any sales or service professional knows the importance of a flawless first impression. Eliminating data silos in favor of a smart, integrated approach can upgrade that first interaction from “Hi, how can I help you today?” to “Hi, Bill, let’s test drive that F-150 Platinum you’re interested in” or “Hi, Diane, do you want to book your next service appointment at your usual time on Monday morning?”

In the automotive industry, the ability to earn a greater share of a customer’s spend is the key to driving higher customer lifetime value. To that end, many dealers utilize flawed retention strategies designed to achieve a minimum number of service visits rather than maximize the revenue potential from every customer.

Unfortunately, today’s automotive retention measurement and marketing programs are often severely limited, and most only tell a partial story about a dealer’s retention performance. For example: a typical retention program used by dealers will identify which customers have exhibited some minimum level of activity in the last 12 to 18 months––e.g., made a service visit––vs. those who have shown no activity. The typical reaction is to invest more in the no-activity customers with the hope of converting them to a loyal customer.

However, this strategy has two key risks: first, inactive customers are often defecting for reasons outside of a dealer’s control––a factor corresponding directly to the frequent disconnect between a customer’s wants and a dealer’s value proposition. Second, and perhaps more surprising, if you are lucky enough to reactivate a customer, they are significantly less likely to return again for the next visit. We analyzed a national sample of over 2M dealer customers and discovered customers who were once inactive and recently visited a dealer are 50% less likely to be retained than a customer who was always active.

The predictable result: over-investing in inactive customers may eventually lead to a downward spiral of performance, where high-potential customers are replaced with lower-value customers over time. Dealers are then forced to find even more low-value customers in order to replace the lost revenue of their best customers, and the unproductive cycle continues.

What should dealers focus on instead?

Dealers can offset the limitations of retention management programs by shifting some of the focus (and marketing dollars) to capturing a greater share from their active customers. Identifying the untapped potential for each customer is a crucial first step. This is determined by evaluating an owner’s complete transaction history over the lifetime of their current vehicle. From there, dealers can determine a service share of visits, which compares a customer’s actual lifetime visits to the number of expected service appointments based on the manufacturer’s maintenance requirements. The service share of visits score is one of the most important metrics available for measuring a customer’s potential.

To provide a specific frame of reference and determine the real percentage of expected maintenance visits that dealers are currently capturing from vehicle owners, AutoLoop analyzed the service transactions from over 1,000 dealers. We found the average share of actual service visits was just 50%. Translation: dealers are only netting half of the existing service opportunity from their active customers.

By employing the service share of visits metric, dealers can identify which customers in their database offer the best potential (such as customers with a score below 50%), along with which services they’re missing. Although they may have had just one service visit in the last 12 months, the low-share customers are still active and receptive to marketing messages, and they provide the greatest possibility for service growth. In other words, since these owners are currently splitting their service spend between dealers and aftermarket service centers, dealers who can successfully recoup all the revenue potential instead of simply a small portion stand to see the most profit increase. 

As well, dealers can further maximize their retention initiatives by pinpointing the particular service(s) a customer is missing. We analyzed the service history of consumers from a national sample of dealers who purchased new vehicles and discovered that in the first 5 years of ownership, only 25% bought tires from a dealer and only 13% bought brakes. Knowing and using the full history of each customer enables dealers to strategically target their marketing with messaging geared toward every individual's specific service opportunity.

The automotive service industry’s existing retention measurement and marketing programs, while useful to a point, only solve part of the problem. A more comprehensive approach would empower dealers with the information needed to make the most of their marketing investment. By utilizing share of services in combination with the current retention measurement offerings, dealers can capture the full potential from their most profitable owners and avoid the downward cycle of overinvesting in lost customers.

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.

When your customers decide to trade in their current vehicle, you know exactly what to do first: make sure they get an appraisal as quickly as possible, since that’s the number one priority for most buyers. Right?

Not so fast.

AutoLoop recently surveyed 1,000 recent car buyers and analyzed over 100,000 leads from various trade-in valuation companies—and we discovered a significant gap in what consumers expect and what dealers think consumers expect. Accordingly, even though many dealers are making significant investments in digital retailing, the trade-in tools on their websites are actually turning away some of their best prospects. In fact, the typical online trade-in tool on dealer websites falls dismally short of consumers’ expectations, resulting in a poor customer experience and lost sales.

It’s all about the guarantee

Case in point: over half of customers surveyed said the most important factor for them in an online trade appraisal is receiving a guarantee of value for the trade. But countless dealers are still focusing primarily on the benefits of a fast appraisal—which, in reality, very few customers care about. In fact, only 1 in 5 customers said they wanted a quick appraisal.

However, many trade-in tools don’t offer guarantees because the process requires more time and intelligence. More specifically, it requires intelligence from a live person, rather than just a machine. Consumers are already distrustful of trade-in valuations from dealers—and our research indicates that without some type of guarantee, many consumers simply move on to another dealer.

Raise rates with the right tools

The good news? Dealers can still get a dramatic jump on the competition by migrating to consumer-friendly trade-in tools that deliver what buyers want most. We analyzed the conversion rates achieved by trade-in tools from various companies and discovered that those offering a guarantee of value have 3x to 4x higher conversion rates. That means dealers who are using a less intelligent trade-in tool are losing 10-15 deals per month! And that’s just the start—according to our survey, consumers who utilize the smarter trade-in tools with guaranteed values also convert to buyers in 10% less time than customers using outdated resources. Since faster conversions mean less time chasing down consumers with phone calls and emails, staff can spend more time selling.

With trade-in tools, the “work smarter, not harder” adage is key. By simply improving the intelligence of your trade-in process, you’ll avoid wasting money on leads and hours lost from your employees. In return, you’ll ensure your dealership is in sync with the real preferences of your customers—and the one they’re more likely to choose when it’s time to purchase.

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.