A dealer in Washington state has taken a highly unusual - and unheard of - path to customer retention and loyalty. According to Automotive News, Denver Morford, dealer principal at Barry Chrysler-Dodge-Jeep-Ram in Ephrata, Wash., doesn’t believe in dealer reserve. Not only does he not believe in it but he also educates his customers during the buying process that he is legally allowed to mark up the buy-rate (the wholesale rate the bank has approved the customer for) by as much as 2 percent…and chooses not to. He allows each customer to view the responses from the banks and see the buy-rate that is offered. In his opinion, this transparency on the financing side of his business - and the loss of dealer reserve profit – contributes to his high level of customer retention and brings additional sales via word of mouth. He has no finance department, or used car managers, as he trains all of his sales staff to handle customer transactions from start to finish.

It’s certainly an interesting philosophy. The dealership’s combined sales in 2014 between the 3 stores were 160 new and 390 used vehicles, averaging roughly 46 units per store. Transparency in the buying process has been increasingly demanded by consumers, but I’m not aware of anyone else that has connected the dots between transparency and customer loyalty in this way until now. While we don’t have any numbers to compare (gross vs net profit per vehicle), one would have to assume that they are lower than average, as there’s little doubt that this dealership’s competitors are participating in dealer reserve, and offering other back-end products. Of course, the easy way to balance the loss of back-end profit is to increase front-end profit.  But, those same consumers seeking transparency, along with the many forms of information available on the internet, would probably dictate the vehicle prices.

Another theory to consider is that - just maybe - it’s his unusual sales process that’s helping him win customer loyalty and retention. Consumers traditionally don’t like the whole back-and-forth part of the sales process. Training all of his salespeople to assist a customer from the beginning of the transaction to the end may be the differentiator that is really bringing people back and leading to more referrals.

Whether the key to this dealership’s high customer loyalty and retention originates from the “no dealer reserve,” or from the entire customer experience itself is something that should be closely considered. It could be that empowering his employees to smooth out the sales transaction for his customers is all that was needed to raise customer retention, and it’s not just a matter of leaving money on the table.

With brand loyalty at its highest point ever, it’s time to take a new look at customer loyalty within your own dealership. According to IHS Automotive, as of the first quarter 2015, the automotive industry is sitting on a ten-year high of 52.8 percent in brand loyalty - mostly attributed to an increased diversity in model offerings and an increased popularity in leasing. While this is great news, it is important not to confuse brand loyalty with customer loyalty.

If a consumer is interested in buying or leasing another vehicle of the same brand, that doesn’t necessarily mean they will do so from YOUR dealership. So, the question then becomes what is your dealership doing to stand out from the crowd? Customers expect great customer experiences - especially if they are already loyal customers.

Customer retention and loyalty are key to the profitability and growth of a dealership. Yet far too often I see dealers that dismiss rewards programs as “too expensive.” Offering perks, incentives and rewards does not have to be this hugely expensive proposition. Yes, there are some incredibly successful dealers that have gone to amazing measures – even installing such items as movie theaters, or other luxury amenities, to entice customers and make their time at the dealership more enjoyable -- less a “waiting in the service lounge” type of experience. Some of these high ticket amenities are making huge returns for these dealers. But, what can you do if you don’t have the budget or space to replicate them?

Consider offering low cost perks of high perceived value to your customers. Perhaps offer to fix that first ding in their new vehicle free of charge. For many new vehicle owners there’s nothing worse than that first minor blemish -- and it can be very inexpensive to bring the customer into the service department and restore their vehicle to “as good as new.” It’s an excellent way to introduce your customers to your service offerings and can be the start of building a loyal customer.

On the opposite end of the buying spectrum, how about offering a free detail to those customers that haven’t visited your service department for some time. This is a service that has high perceived value to many customers – I have seen it successfully attract lost customers back into the service department. And it gives the opportunity to rekindle that relationship and win the customer back.

Customer loyalty and retention continue to rise in importance as vehicle loan terms increase -- consumers are choosing to hang on to their vehicles longer than ever before. If you rely on repeat purchases, you will have a longer wait period between visits. Take the time to analyze what your dealership is doing to offer value to your customers and give them a reason to keep coming back. Consider adding some sort of low cost perks, discounts and rewards. You’ll find that the customers feel appreciated and become more loyal to you without breaking the bank.

According to an article in Automotive News, one dealer in Illinois has come up with a pretty ingenious loyalty rewards program idea – to leverage taxpayer dollars to increase car sales, while also helping to support local businesses.

Glenn Bockwinkel, President of Acura of Libertyville, approached the mayor of his local town and proposed an idea that he pitched as a win-win for the village’s car dealers, local business, consumers and the city -- The Shop Libertyville Rewards program.

It works like this: Any customer that shops at a local car dealership is given vouchers which can be exchanged for $200 in gift certificates, redeemable at 86 local retail businesses. Or, the $200 can be used to purchase aftermarket products at the local dealerships themselves. The idea is to keep local customers from purchasing outside the area, which helps the dealers stay in business and provides the city with additional tax revenue. In addition, any local businesses that accepts these certificates can turn them into the city to be reimbursed through tax money set aside for the program.

The dealers in the city also donate $100 for each vehicle sold to one of nine local charities. According to the mayor, “68 cents of every dollar spent in a community stays in that community.” He attributes 60 percent of all sales tax receipts received by Libertyville to auto-related businesses. The city runs the program for just one month each year and budgets $70,000 in tax dollars towards the program.

Customer loyalty programs and incentive-based rewards, such as dealer cash, are certainly a value-add for any dealership customer. This particular dealer expanded his dealer loyalty program by taking a community-based approach. He worked out an amazing deal with the city to promote - and reward - the local purchase of vehicles using tax dollars. It includes cable TV commercials (which they plan to run 1,600 times), along with newspaper and radio ads to promote awareness. It is, quite simply, brilliant! The combination of supporting local businesses and charities, while also increasing tax revenue, all wrapped in one big package, couldn’t be any better.

While I don’t have specific data on how these certificates are actually being used, other than what was included in the article, the option for the consumer to use the certificates for aftermarket accessories at the dealership is also a very smart move. How many times have you closed a deal and, while the customer waited to go into the finance office, threw a hat, shirt or some other item, into the deal for free? With these certificates, you would no longer have to eat the costs in the front end gross, but rather the consumer could use their gift certificates to purchase them.

This dealer’s innovative and outside-of-the-box thinking will almost certainly pay dividends through increased sales and future service work. Hopefully, they’ve trained their sales staff and finance managers to suggest to their customers that they spend their gift certificates on accessories. But even if the customer does not do this, the dealership ends up building a more positive brand image within their community, which can only keep them top-of-mind when a local consumer decides to buy a car.

In a recent press release, Amazon announced that, in celebration of its 20^th birthday, July 15 will be “Prime Day” – a day on which Amazon claims it will offer more deals to its loyal Prime members than Black Friday. Amazon promises, “new deals starting as often as every ten minutes,” with the ultimate goal to make this a global shopping event. For non-members, Amazon is offering free 30-day trials of its paid loyalty program.

Amazon has steadily increased the value of its Prime membership by adding movie and music streaming services, in addition to its free 2-day air shipping. And, that’s not all -- to increase the buzz and introduce the new Prime Photo service, social media contests are being held, with a rather enticing $10,000 gift card as the prize. The hype surrounding Amazon’s announcement, along with its offer to non-members of free trials, will almost certainly result in a membership enrollment spike.

Well … this is all very interesting, but how does it apply to the auto industry?

Dealers who use loyalty programs gain two valuable assets:

1)    A customer that enrolls in your loyalty program is telling you that they will be returning. This mental commitment in the customer’s mind increases with each visit, as they progress towards a reward, or use the membership for savings. As long as you consistently provide a good customer experience, the chances of defection by that consumer decrease. In addition, members of loyalty programs tend to visit more often and, on average, spend more when they do, which increases revenue in all departments.

2)    These programs usually have robust reporting tools. As such, you gain access to valuable data that can be used to market better. You can also identify customers who are likely to defect through such data as time between visits, or decreased spending. Loyalty programs also help identify – and reward – those customers that are the most loyal. These customers are the most likely to refer friends and family, as well as to become brand advocates.

Innovative dealers that think outside-the-box usually trump the competition. Perhaps it’s worth taking a page out of one of the most successful retailers on the planet – Amazon. Consider holding loyalty events, or days similar to the one Amazon is employing. These events don’t have to be costly. It could be something as simple as “Free Member Car Wash Day,” or an additional savings day in service.  This could help to keep your loyalty members loyal AND drive in more members.

Amazon’s “Prime Day” sale is likely to be a success. Whether or not it trumps Black Friday in the eyes of consumers is yet to be seen. One thing it will probably accomplish, however, is to add a whole new group of consumers to their membership base, anxiously awaiting the next deal – and there is no business that wouldn’t want that.

A recent article in Automotive News relayed the story of Obi Obeke and how he had sold 39 cars to world-famous boxer Floyd Mayweather. The article explains how Okeke has been willing to do whatever it takes for his client to keep him satisfied. There’s little doubt that Floyd Mayweather probably gets what he wants when he wants it. And Okeke has delivered. Okeke has received phone calls at 3am requesting a brand-new Bugatti delivered to his house within 12 hours – a feat in and of itself in the exotic car business. And he has always delivered, even when it meant jumping on a plane and driving it to the champ’s house himself. According to the article, Mayweather hasn’t been Okeke’s only famous client – his customers have included the likes of Arnold Scwarzenegger, Jessica Simpson, Ellen DeGeneres, and Chris Tucker – to name a few.

The volume of vehicles Mayweather has purchased from Okeke begs the question as to why Mayweather continues to purchase vehicles from Okeke when he could easily seek out the vehicle himself (or have an assistant do it for him.) He could quite easily carry out the transaction with the dealer who has the vehicle, rather than insist on doing business through Okeke. Bugatti Veyrons aren’t discounted. This means that, in order to make a profit, Okeke marks up the vehicle over the asking price of the dealer who has it in inventory. Mayweather could pay less and, more than likely, get the same result: a new Bugatti Veyron in his driveway in 12 hours. Especially if you consider the fact that Okeke’s dealership is in Chatsworth, CA, and Mayweather lives in Las Vegas – about a 4+ hour drive.

Certainly, dealing with celebrities has its benefits. They can purchase expensive cars that typically do not get discounted and can produce pretty good profit. That being said, how many typical car dealers (i.e.: non exotic) would go to these lengths to satisfy a normal customer? I’m not necessarily talking about taking calls at 3am, jumping a plane and driving the vehicle 4 hours to a customer’s house. But more about going above and beyond.

My guess is that Okeke sold a vehicle to one celebrity who then referred him onto another celebrity due to his excellent customer service and willingness to do whatever is needed. Then the referrals snowballed into the celebrity-selling machine he is today. Whether these high-profile clients originated with Mayweather, or whether he was simply a referral somewhere in the chain of celebrity referrals, isn’t really relevant. What’s relevant here is that Okeke built his business of selling to celebrities through 30-years of word-of-mouth.

There’s really no difference between a celebrity and a “normal” customer. Regular customers operate under the same natural principles. Namely, they appreciate great customer service. And, when appropriate, will share their experiences with their network of people and refer them to that dealership.
 

My advice, treat every customer you have like a celebrity.

If you were to ask today’s consumers if they’d like to hang out at a car dealership, chances are that the majority would respond “no.” When consumers do visit a dealership to purchase a vehicle or get their vehicle serviced, many times the process can be longer than desired and is not always a great experience for the consumer. Dealerships have been attempting to streamline the sales and service process through the use of technology to make the entire process faster and more efficient so as to be more consumer friendly.

Some dealerships are going a little bit further to make the customer experience more enjoyable with the addition of delis, Starbucks, movie theaters and hair salons, as permanent fixtures. And thinking even further outside the box, a recent Automotive News article highlighted a Fort Worth, Texas dealership that chose to open a 250 square foot wine store inside their dealership. It has been so popular with their customers that it has actually added $700,000 to the dealership’s annual bottom line.

Due to its popularity, the dealership then opened a full size retail wine bar in downtown Fort Worth… with a catch. Not only does the dealership display new Cadillacs inside (and outside) the bar, the bar also serves as a satellite service drive that allows wine bar customers to have their vehicles serviced while socializing and enjoying some wine. The wine bar is 20 miles from the dealership so there are employees on-site who transport customers’ vehicles to the dealership for service, then back to the wine bar upon service completion. This provides a very unique customer experience. It also makes service much more convenient for the many downtown Fort Worth employees who would otherwise have to drive 45-minutes to an hour to have their vehicle serviced at the dealership.  In addition, the wine bar produces at least one vehicle sale per month, to say nothing about the increased service business.

Regardless of whether you decide that a wine bar within your dealership is a good idea, creating an excellent experience for your customers certainly is. If your customer experience is less than great, it won’t matter if you have an amusement park in the back lot, your customer could still leave.  Customer loyalty is a fickle creature that can be lost much faster than it can be gained. Give your customers a reason to choose your dealership. Then ensure that the experience they have is one that they would want to repeat. Only then can you really build that relationship and transform your customers into loyal customers that will return because they want to – not because they have to.

“When Coca-Cola changed their secret formula in 1983, loyalists were outraged. Coca-Cola received 1,500 calls per day and more than 400,000 angry calls and letters. A psychiatrist Coke hired to listen in on calls told executives that customers sounded as if they were discussing the death of a loved one.” [Fox Business]

Wouldn’t it be something to have customers so loyal that they became upset about a change your company made? Perhaps a customer can be too loyal and then it becomes a double-edged sword, as it was for Coca-Cola. If you made a major change, would your customers care?

Auto dealerships spend a huge amount of money every month on different forms of advertising. Most advertising focuses on customer acquisition in sales. Why? The basic thought process is as follows: “In order to sell cars next month, we need to bring in new customers.” While that is certainly one strategy, it may or may not be the best one for your dealership.

Churn rate is the rate at which a business loses customers to a competitor or different brand, compared to how many customers are acquired and/or shifted from competitors. A high churn rate would typically benefit from a marketing strategy of customer acquisition. While a low churn rate means that your customers are staying with you. No business has a zero churn rate.

The auto business, for the most part, is a high churn industry. Most dealers scramble every month to acquire new customers, simply to stay at their current unit levels in sales, with the hope that they will do better. Churn rate is important because, unless you know whether your dealership has a high churn or a low churn, you won’t know the most strategic way to spend your marketing dollars.

An article in the American Marketing Association suggests high churn brands can attract new customers relatively inexpensively, but their lifetime value will be low. Whereas, new customer acquisition costs will be high for low churn brands, but the lifetime value of a customer, once attained, will be worth it.

This all circles back to deciding what your goals are. Do you want to attract new customers each month to replace the ones that left? Or would you rather foster relationships with your existing customers in an attempt to transform into a low churn business? The only way to grow a business is to reduce customer defection. Failure to accomplish that will mean that your 100-car/month store will most likely always be a 100-car/month store.

The article suggests that the ideal scenario is to develop a low churn dynamic for a brand that resides in a high churn category (bring ‘em in and them keep them holding on).
 

This is certainly an ideal scenario but how do you accomplish this?

Pay attention to your customers. They’ll tell you what needs improving. Listen to them and take note of what they have to say. Your customers can then feel as if they are an important part of your business; that they have a reason to stay. This then helps to reduces turn rate. The fact is that the auto industry has a high churn rate. If you do not have a handle on who your customers are, if they’re staying, or where they’re going if they leave, it is a hard task to build up your business.

Make your customer feel valued during, before and after the sale. Don’t make a sale, high-five each other than go get another up. Be sure to keep in contact and nurture that customer who just bought a car from you. Walk them over to the Service Director to schedule their first appointment. Send them a thank you note and remember their birthday with a quick email or card. Ask if they have any friends, family or associates who may be in the market for a vehicle. That one customer could be worth hundreds of thousands of dollars to your dealership over their lifetime – or you could never see them again. Which outcome would you prefer? Once they’re gone, the only one getting paid will be your competition.

It’s no secret that dealerships have been in a crazy race to the bottom in terms of profit per vehicle. Consumers are always looking for the best deal and automotive Internet resources are providing them with more ammo to negotiate with. Dealers have been complaining for years about decreasing profit margins on vehicles, blaming manufacturers for lowering margins and third-party sites for information sharing. Yet many still offer discounts in a never-ending effort to move more metal.

According to an article by Internet site, Bitmatica, businesses should avoid offering discounts, as they can be more harmful to the business than many of us may think. I understand that loss-leaders, manufacturer rebates and trunk money are very tempting tools to use when closing a car deal. I also understand the typical thought-process of “If I don’t give it to the customer, my competitor will.” Dealerships do have to be competitive, especially in dense markets where consumers have the ability to shop multiple franchises, all within a reasonable driving distance. When you’re facing the consumer attempting to close the deal, the path of least resistance is to reduce the price – even if that reduction is minimal. You may close the deal and win the sale, but what else have you accomplished?

According to the Bitmatica article, this is what that discount accomplished:

1. You’ve diluted the value of your brand. By selling that $50,000 truck for $40,000, you’ve essentially told your customer that your truck is only worth $40,000. How many customers have you given a deal like this just to find them back in your dealership 3 years later shopping for a new truck and expecting a similar price? That’s because you trained them that your trucks are worth less.
2. You’re attracting the wrong customers. Think about it. That customer who grinded you through the Internet or in-person is not only more likely to give you a poor CSI review,  but is also the one that probably won’t ever service with you. This is the customer who will drive 100 miles to save $500 and you’ll never see them again. Good deals are subjective by their very nature. Almost every dealer will tell you that the customers they make a good profit on are usually the happiest.
3. You probably threw any loyalty out the window with the sale. Using the example from point 2, this customer who you gave the huge discount to most likely still thinking they left money on the table – that they could have negotiated an even better deal than they got. No matter how much you try to convince them you’re losing money, or not making any, they don’t believe you. And, without trust, you’ll never earn loyalty.
4. Once you’ve discounted your product, they will expect discounts on everything. Theses aren’t the customers that are going to come in for a normal priced service when their car needs it. They’re the ones that are either going to wait for a coupon, or go to an independent to save a little money.
5. The more times you discount your vehicles, the more times your competitors will have to. It’s a big circle of ever decreasing profit.

So, what’s the solution? Perhaps a strategy is to offer value to your customer in place of revenue. Customers who accept value over price are telling you that they are going to stick around. These are the customers who bring high lifetime values and are the foundations of your business. If a customer is willing to walk away from a deal over $100, he may not be the customer you want. There are many ways to offer value in place of giving up gross profit. Some dealers offer lifetime oil changes, free car washes, customer loyalty programs, or the same value discount but in dealer currency, for future products and services, etc. The next time you find yourself in a position whereby you need to dig a little deeper to make a deal, consider negotiating with value or services. If you succeed, you retain the immediate revenue and give your customer a reason to return. And those are the customers that you want to keep.

I recently had the pleasure to work with a very innovative dealer who implemented the concept of “dealer currency” in his dealership with great success. Dealer currency allows you to eliminate cash discounts on sales (in both Variable & Fixed Ops) by instead issuing a form of “dealer dollars,” redeemable anywhere in the dealership for the future purchase of parts, service, accessories, or towards a future vehicle purchase.  This creates a true “win-win.” It satisfies the customer -- as they feel they have received the value of the discount. And the dealer -- because it ties the customer to the dealership for future purchases, without having to give away any profit up front in the deal.

For example, instead of discounting a vehicle sale as follows:

Dealer currency replaces those cash discounts with a dealer’s own

currency instead:

With dealer currency, you retain the maximum selling price on a much larger percentage of the sale. Not only does your gross profit increase on each deal -- you’ve also now guaranteed yourself hundreds or, in some cases, thousands of dollars in future sales from customers that you have retained to do future business with your dealership.

This program goes beyond the sales floor. Dealer currency can be implemented in any department of a dealership where discounting is commonplace and/or you want to increase retention.  For example, in most dealerships, service advisors give away money every day in the form of cash discounts because they have no other tools at their disposal.   By issuing dealer currency, instead of a cash discount, gross service revenues increase and the odds are much more in the dealership’s favor that the customer will return to do business with the dealership in the foreseeable future.

The dealer dollars will accrue on your balance sheet just like a reserve account.  Adding to them on a sale and reducing them on customer redemption. But you don’t have to worry about a negative balance sheet item getting too large because the dealer dollars are only good for the period of time you designate. They can then be written off as expired “dollars” and your gross on the deal just grew because the customer did not redeem the dollars. This raises your adjusted selling price, while reducing the internal actual cost to those dollars.

By using dealer currency, other expenses that dealers have traditionally absorbed 100% of can be reduced by upwards of 70 percent. Dealer currency can be used to resolve any policy issues with sales, service or F& I customers; to help launch and support service enrollment programs; to replace customer referral program cash; and even to supplement or replace promo dollars issued for local events (think golf tournaments) and charities. There are a lot of untapped possibilities here. This is a great alternative to the traditional points based loyalty programs.

What do you think about this? I’d really like to hear any comments or feedback you may have.

We all want new customers. And it’s certainly mandatory to retain a customer to create a loyal one. But how we market our dealerships is increasingly important -- as each form of marketing will deliver different results. The three terms: loyalty, retention and acquisition marketing, all have their own distinct meanings and should be used to satisfy different goals and objectives. While they are often not distinguished differently within most dealerships, they truly have different meanings, and will generate different results.

According to the experts at the Cambridge Dictionary, the definition of customer loyalty is as follows:

“The fact of a customer buying products or services from the same company over a long period of time.”

According to Wikipedia, customer retention is defined as follows:

“Customer retention is the activity that a selling organization undertakes in order to reduce customer defections.”

And acquisition marketing is defined as the act of bringing in new customers.  Sounds similar, right?  Which one is more important to your store? Isn’t it true that the less customers you retain the more you must acquire?

It can be a never ending battle. But, it doesn’t have to be. And the real point is that retention and loyalty marketing should drive how much acquisition marketing you will need to do. All three should be an equal focus, hand-in-hand, one complimenting the other. It could be said that they are all dependent on each other.

Customer retention is about preventing defections and the preservation of existing customers. You can’t generate customer loyalty without having some form of retention. And you can’t have retention without first acquiring them.  

Retention marketing is different than loyalty marketing. It involves looking at past customer behaviors and analyzing the transactional histories to identify and get customers who have been potentially lost, back in the door. Retention marketing examples include such things as identifying customers who used to come in regularly for service, but have not been in for a few months. Or identifying services that a customer may have previously purchased, but no longer does.  In short, it is the act of getting a customer to purchase again, without the cost of acquisition.

In growing your retention, it is critical to be aware of who these customers are; to make the effort to reach out to them; identify why they are no longer coming in and take steps to win back their business. If you fail to do so, the chances are great that you will never see them again.

Loyalty marketing, or relationship marketing strategies, are designed to continue to earn the business of your existing customers while making it personal. For example, a hand written thank you card from the General Manager after a new vehicle purchase. A special occasion recognition, birthday or purchase anniversary -- again, hand written. Special offers, designed for a particular group or subset of customers, that are engaging and valuable enough for the customer to feel recognized. Whatever you choose, it should be engaging and have the purpose of making your customer feel valuable.  Combine these actions with providing an excellent customer experience, each and every time, and you will watch your loyalty grow.

Loyalty and retention should go hand-in-hand. You cannot build loyalty without retention. And it’s nearly impossible to retain customers without creating loyalty.

Remember, your goal should be to keep your customers engaged and happy while spending and acting as advocates for your dealership. What more could you want?