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Jared Hamilton
From: Jared Hamilton
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Mark Tewart

Mark Tewart President

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The Death of the Traditional Dealership: Part 7

 “The more things change, the more things stay the same.” This quote can be an accurate reflection of most industries. With all the massive changes underway in the automotive industry, the majority of the industry operates in much the same way as it did 50 years ago.

 

One small part of an industry begins to change and reaches what Malcolm Gladwell termed in his book the “tipping point.” That tipping point allows the change to gain momentum and become norm for an industry. This change usually occurs in one small segment and can be isolated. If you examine the business or industry as a whole, you find that even with the change being influential, the rest of the industry or business remains intact adhering to traditional thoughts and norms.

 

With dealerships there are a couple of old sayings: “The front-end sells the first car and the back-end makes the next one,” or “the frontend gets the customers and the back-end keeps them.” There is a lot of truth to both of those sayings and to the importance of understanding the roles both areas play in your business.

 

I find the majority of emphasis is still placed on customer acquisition in most dealerships. If you want to build a solid business, you must emphasize acquisition and maintaining — this is how to experience exponential versus linear growth. Here are a few tips in making that happen:

 

Tip No. 1 - Create continuity, loyalty, rewards, VIP or recognition programs with enough real teeth in it to motivate a customer

Every time I shop at Kroger’s grocery store I love putting in my reward number and then watching the total bill go down as my rewards points are deducted. At Panera Bread when I give them my rewards card, I usually get something free and build redeemable rewards for the future. I love when I make flight or vacation reservations for free using my airline and credit card rewards. I love when I get a free car wash after my tenth visit.

 

Do you get the point? People love to be rewarded with free bonuses and will be motivated more to get that free bonus than to get a discount on something. Rewards and loyalty programs influence shopping patterns and behaviors — bottom line, end of story. Stop making lame excuses like “rewards programs get expensive,” “loyalty programs take away my profit” and “I am giving away profit I don’t have to give away.”

 

Most dealers spend vast fortunes on getting customers and little on keeping them. It would be hard to spend too much effort and money on customer retention. Your profit creation for long term is so great from continued business and referrals that the amount spent on retention is paltry compared to a typical dealerships advertisement budget.

 

Tip No. 2 – Create forced continuity programs

A forced continuity program is a program that forces your customer to use your service department in exchange for something of value they receive at no charge. Over the last several years I have asked more than 100 dealers what their long-term service retention as a percentage of their sales are, and only one dealer knew the answer. The answer to that question a vital sign to the future of your dealership.

 

When conducting sales training sessions, our trainers tell salespeople that in the beginning of their sales career they should spend 80 percent of their time on customer acquisition and 20 percent on customer retention. However, as time progresses, salespeople should work on flipping those percentages. A dealership is no different than a salesperson.

 

A product our company provides for dealerships is lifetime power train coverage. I have witnessed firsthand that with the right underwriter for this product, lifetime power train programs are worth their weight in gold. It is simply amazing how much this forced continuity program provides in increases to sales to service retention, new and used sales, gross and net profit, vehicle maintenance and vehicle service contract penetrations and repeat sales. Just like the loyalty and retention programs mentioned earlier, I have heard every fear-based excuse dealers have for not having programs like this in their dealership, but nothing in well-executed experience proves those fears are real.

 

To quote one of the greatest marketing lessons I have ever learned, “You must put an iron cage around your customers.” If what you do and what you provide is exceptional, your customers will want to continue to do business with you. Your goal must be to stop further commoditizing a commodity business and become a category of one.

 

To receive my free Special Report, “Putting an Iron Cage Around Your Customers,” e-mail me with the term “Iron Cage” in the subject line at the address below.

Eric Miltsch
Mark, I'm enjoying this series tremendously, thank you. RE: Tip No. 1 - Create continuity, loyalty, rewards, VIP or recognition programs with enough real teeth in it to motivate a customer - do you have an specific recommendation with regards to the tools that can be used to help make this a reality?

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