In this video blog, Affinitiv CEO & Executive Chairman Scot Eisenfelder shares his opinion on why consumers choose franchise dealers for service over independents.

Have you ever noticed how the market values dealerships versus how it values Software as a Service (SaaS) businesses that derive income from the same automotive revenue stream? SaaS businesses such as CDK trade at mid-20x P/E ratios while dealers trade at 4-6x operating profit.

One major reason for this disparity is because SaaS business revenues are predominantly subscription based, while dealers are transaction based.

Subscription revenue is considered more valuable because it’s more secure during downturns. Over time, subscription margins grow as downstream revenue outpaces previous customer acquisition costs, as long as retention remains high.

Could dealers reposition themselves as subscription businesses in order to raise their market values? Absurd? Not really. Every customer acquired has a continuing revenue stream that often extends well beyond any subscription contract. 

What would have to change for dealerships to become subscription companies?

#1 Mindset. Stop selling vehicles and start acquiring customers. It’s the customer that decides where to purchase and service their next vehicle. If you spend money building and employing the best and largest customer and prospect database, market share will follow.

# 2 Accounting. The customer is the profit driver. Stores are merely the means to retain the customer. Tracking and maximizing customer profitability are as important, if not more important, than tracking store profits. See what gymnastics that requires from your DMS.

# 3 Organization. Stop behaving like a collection of individual stores. Groups have a unique opportunity to drive retention by actively and impartially serving customer needs across several brands. This gives the customer a wider range of choices while allowing the group to extend the customer’s subscription beyond the next purchase.

# 4 Pay Plans. Stop paying associates to maximize individual transactions. Maximizing F&I profits is a transactional mindset. Maximizing pre-paid maintenance and extended warranty penetration is creating long-term, valuable subscription revenue.

# 5 Process. Remove barriers that prevent consumers from returning. Eliminate service friction through customer-driven hours, make it easy for customers to set their own appointments and provide flexible transportation support. Make replacing a vehicle as easy and transparent as renewing a subscription.

# 6 Metrics. Stop measuring Per Vehicle Retail (PVR) and service absorption. These are outdated metrics that drive transaction results. Instead, measure dollars per units-in-operation ($ / UIO) and customer retention rates. These metrics create sustaining subscription revenue. You get what you measure.

The fact is, most healthy stores already derive a disproportionate percentage of their profit from subscription revenue, but don’t actively promote their superior business model and hence are not rewarded for it.

Several years ago, we did a study that showed a large dealer group obtained 69 percent of its gross profit from the top 20 percent of its customers. Much of that profit is from service loyalty, adding vehicles to the household fleet and repeat purchases over several years.

Stores should be highlighting owner base quality, service contract penetration and retention. They should also compare their subscription revenues to other dealerships. These are leading indicators of creating superior long-term value.

Dealers that make the above changes and can demonstrate steady subscription revenue that rivals a SaaS business should ultimately be financially rewarded for more attractive revenue streams.

 Imagine 20x bluesky!

CEO & Executive Chairman Scot Eisenfelder discusses whether a dealership's most profitable customers are created or made in this video blog.

Did you know the customer data sitting in your DMS is the most valuable asset you own—even more valuable than your real estate and inventory combined? Yet I don’t know any dealers that have a budget or defined strategic objective to invest in, increase and maintain the value of this asset.

When you have comprehensive customer data, you know something about every household in your primary market area (PMA). What if you had records of multiple contacts within each household, knew their contact information, what vehicles they own, where they get those vehicles serviced and what their buyer values are?

You would never have to purchase another television or radio ad again. You could simply engage in meaningful and personal communications with the few thousand most profitable households in your PMA.

The more knowledge you acquire about your PMA, the lower your marketing budget will be and the more success you will have. Good customer data makes it easy to identify your most profitable customers who are responsible for 70 percent of your gross profits. Once you know who they are and what their needs are, you can send them timely and relevant offers.

You can also build customer profiles and create conquest campaigns that target prospects in your PMA with similar profiles.

The challenge is that most dealers do not treat market knowledge as a strategic asset, and hence do not invest in purposeful knowledge accumulation.

Type of Data to Collect

The more you know about your customers, the better. Set a goal to acquire as much information as possible. Start with answering these questions.

How many households are in your PMA? This number can be obtained from census records.

What is the percentage of households in your PMA that you can contact right now? Ideally you want contact information for 100 percent, but shoot for 90 percent as a minimum.

Set a goal to gather the following information on each household, so that you can identify which households to target:

* Physical address

* Phone number

* Email address

* Income range

* Media preferences; where they get their news, are they on Facebook or Instagram, do they respond to snail mail, emails or texts?

* Cars owned; year, make, model

 Assign a Value to Your Data

It’s important to assign value to your customer data so that you can establish a current benchmark, set a goal for improvement, and provide motivation to keep staff accountable for collection efforts.

Too often dealers measure money spent on a campaign only as it relates to how many car sales can be immediately attributed to that campaign. When they purchase third-party leads, they measure how many leads were purchased that month vs. how many cars were sold that month. That should not be the goal.

If you have an opportunity to acquire knowledge about a household in your PMA, such as a name and email address or phone number, what is that worth to you?

Would it make a difference if you knew that every email address was worth ten dollars? How about twenty dollars? Fifty dollars? Is a phone number worth more or less than an email address? We know that a second form of contact is far more valuable than a birth date.

Create a method for assigning a value to this data. It doesn’t matter if the value you assign is 100 percent accurate. Start somewhere, even if it’s arbitrary.

Remember, the data you collect today is valuable even if it doesn’t turn into a sale this month. Once you have assigned value to your data, you might discover that paying $30 for a third-party lead in your PMA is a bargain, even if that person doesn’t purchase a vehicle from your dealership.

Data Collection Strategies

Collecting data is a challenge. Dealers have always struggled with having salespeople and service advisors collect email addresses. Gathering actionable data requires a two-part strategy:

1)   Conduct marketing and media campaigns that generate knowledge

2)   Focus your team’s efforts and measure what you manage

Strategies to update your customer data include quarterly appending of your database, buying third-party leads and investing in conquest campaigns.

Additionally, leverage the power of social media to curate new and lookalike audiences. Invest in community events and hold prize drawings as a means to gather contact information.

Does your manufacturer have programs to partner with schools and other organizations in your community? Take advantage of these programs to collect data on potential prospects and referrals.

Offer free trade-in appraisals and a used-car purchase program with no obligation to buy new. Create an incentive or spiff for employees that enter the most customer data every month.

Purchase vehicle registration data from Experian and invest in mobile and SMS technologies that make it easier for your employees to collect data.

Also recognize that data is a depreciating asset, therefore some effort is required just to maintain the status quo.

By no means is this a comprehensive list of data collection strategies. Be creative and figure out which strategies add the most value to your data gathering efforts.

The effectiveness of your sales and marketing campaigns depend entirely on how much actionable customer data is in your DMS. Start treating your data like the valuable asset it is. If you invest in your data with the goal of growing its value, it will return a far greater ROI than any other asset you currently own.

Affinitiv CEO & Executive Chairman Scot Eisenfelder shares the 80/20 rules and why it's important for marketing & revenue.

Today one of five vehicles on the road are under recall. This year alone there have been 46 million vehicle owners notified of a recall; seven million of which are not related to the Takata airbag issue.

Recalls represent a significant revenue opportunity for dealership service departments. Whenever a customer comes in for a recall repair, there’s an opportunity to identify additional needed repair work. Our data shows that an average recall RO is $695, more than double the average RO amount of $335. Clearly that’s incentive to bring in recall customers.

Yet, the current completion rate for recalls is 75 percent. Manufacturers are not happy about it and dealers shouldn’t be either. As an industry we can do much better.

The primary reason consumers don’t bring their vehicles in for recall work is because they don’t know that a recall has been issued. This is proof enough that the current method for notifications is highly inadequate. Manufacturers are required to send first-class mail to vehicle owners within 60 days of notifying the NHTSA.

But addresses change frequently so many vehicle owners never receive their notifications. If they do, the mailer is set aside as non-urgent and soon forgotten.

Dealers can and should take a more proactive stance in marketing recalls to their own customer base. Our data shows that when recall messages are delivered across all channels; e.g. mail, email, social media, phone and display ads, there’s a 5X better response rate.

Recall Marketing Best Practices

Dealers can find out about recalls as soon as the NHTSA is notified, which allows them to alert their customers ahead of the manufacturer notices. Here’s what we recommend:

Send the first email to your customers before they receive the manufacturer notice. Alert them to a recall, include a “save the date” message and encourage them to look for the recall notice in the mail.

Send a mailer. The manufacturer’s mailer won’t mention your dealership by name. Send your own mailer that does.

Send a second email. Wait a couple weeks until after your mailer goes out, then send a follow up email. Ratchet up the urgency and safety precautions.

Phone Calls. Recall notifications by phone are not regulated by the FTC in the same way as other types of phone solicitations. As long as there is no offer and you’re simply trying to get the customer to schedule an appointment for their recall, these calls are allowed.

Social Media. Drop recall notice reminders into the news feeds of your customers on Facebook and Instagram. When they log in, they will see a notice with your dealership name and phone number on it, or they can click directly on the post and be taken to your online scheduler. This is a very cost-effective method of delivery because only the vehicle owners with recalls are notified.

Display Ads. Create visual display ads with a recall notice reminder that will follow recall customers around the Internet. Again, very cost effective because you’re only advertising to a small percentage of your customer database with a specific need.

The Right Offer

Another reason why customers don’t bring in their vehicles for recall repairs is because the issue is non-urgent. The inconvenience factor for most people is huge. Bundling a recall repair with another offer is an effective way of overcoming this obstacle. According to our data:

·        52% of loyal customers say they would come in for a recall if it was bundled with another service

·        51% of lost and older customers say they would come in for a recall if it was bundled with an oil change

Not all manufacturers allow offers in your recall notices, however, so check guidelines.

It also helps to set customer expectations in your messaging. Let them know how long it will take to complete the service. If you have a pick-up/drop-off service for their vehicles so they can stay at home or work, let them know. Promote your waiting room amenities such as free WiFi and refreshments.

If you decide to conduct a recall marketing event, keep in mind that the average response time is 45 to 90 days. Don’t measure the campaign’s effectiveness in one month; wait 90 days to calculate your ROI. Dealers that follow these recall marketing recommendations can expect to see a $17 ROI for every dollar spent.

Affinitiv CEO & Executive Chairman Scot Eisenfelder explains why dealers need to own their market in this video blog.

Do you know your customers’ lifetime value (CLV)? CLV defines the monetary value of your customer relationship by how much gross profit they have generated for your dealership.

If you divide your customer database into quintiles, you’ll discover that the top 20 percent is responsible for 79 percent of your gross profits, while the bottom 20 percent are net losers. Knowing how to identify these customers allows you to develop operational and marketing strategies that significantly impact your bottom line.

If you can replace just half of the bottom 20 percent with customers similar to those in your top 20 percent, your dealership’s gross profits will increase 40 percent.

CLV is an important concept because it encourages you to shift your focus away from monthly revenue goals to the long-term health of your customer relationships.

In marketing, CLV also helps you define how much you’re willing to spend to acquire new customers. If you’re going to spend $1,000 to acquire a new customer, you shouldn’t be indifferent to the value of that customer.

The use of CLV has two applications for dealers. Historical, rear-facing CLV scores can be used to develop operational customer retention and marketing strategies. Predictive, forward-looking CLV scores are most useful from a marketing standpoint.

Historical CLV

In auto dealerships, CLV scores are used to determine what benefits and level of treatment a customer receives. If you assign a CLV score to every customer and tag them in your CRM, your salespeople and service advisors will know at a glance whether they are dealing with a VIP.

Of course, this knowledge is never an excuse to treat someone poorly. But it’s useful to know what benefits you are willing and authorized to confer in order to keep a customer happy.

Similar to how airlines use status to confer benefits such as seat upgrades and priority check-in, dealers can use a high CLV status to offer benefits such as free loaner vehicles, preferential service appointment times or invitations to events.

In marketing, a rear-facing CLV score is used to identify customers that are vulnerable to defection, and to ramp up efforts to retain them. For example, if you have a customer with a high CLV who has not come in for service in 12 months, we’ll recommend spending more money and/or using more channels to reach these customers, and create targeted offers designed to keep them loyal.

Predictive CLV

The use of predictive CLV scores in marketing is still an emerging practice. We already recognize that even before someone becomes a customer, we can determine from their behavior whether or not they will be a valuable customer.

This allows dealers to focus more of their marketing resources on acquiring potential customers with high potential CLVs. After all, your real goal in marketing is not to win the most customers. Your goal is to win a disproportionate percentage of the most valuable customers.

This goal is achieved by customer modeling. First, you identify the top 20 percent of your customers and analyze the traits they share. In the car business, you’ll probably be looking at customers with multi-vehicle households, families with teenagers, and households in certain zip codes that indicate a degree of affluence.

It’s also helpful to gather data from third-party sources so you know what types of vehicles your customers previously owned, what their credit scores are and other purchases they have made recently.

Finally, you’ll need to know which media channels and types of offers your high CLV customers are most responsive to.

Once you have this data on your own customers, you can use it to create conquest lists of prospects in your primary market area that share similar traits. You’ll be able to reach and engage them with campaigns that are extremely targeted and tailored to their needs, greatly increasing marketing ROI.

Ignore the Grinders

Negative CLV can also be used to identify and ignore the “grinders.” You know the ones I’m talking about. These people go to 16 different stores searching for the absolute lowest price on a car. When they buy from you they never return for service.

Not only are the bottom 20 percent of your customers unprofitable, but they grind your salespeople down, waste their time and reduce their commissions.

Using the same methods of customer modeling, you can pretty much ignore these customers when it comes to your marketing efforts. Why waste your time and money? Also, if they are appropriate tagged in your CRM, your salespeople will have a heads up on how to treat them. That is, they shouldn’t waste their time and energy haggling with these people.

Ultimately, your goal is to weed the grinders out of your database and replace them with high CLV customers.

Assigning a CLV score to your customers is the first step in developing operational and marketing strategies designed to increase customer retention; not for every customer, but for the high-value customers that drive the most profits to your bottom line.

Scot Eisenfelder explains the differences between personalized and broadcast media and how engaging with consumers on multiple media channels will benefit your dealership.

There’s a lot of buzz around subscriptions as a new ownership model, with various industry pundits forecasting major disruptions for dealers. I see things differently.

I believe there are several major barriers to subscription growth for non-dealers, and opportunities for dealers to thrive, should subscriptions break through as a significant ownership model. Let’s review the two types of subscription models emerging.

Pool Models

In a pool model, consumers purchase access to a pool of vehicles and can switch vehicles depending on the availability of vehicles in the pool. This model resembles a daily rental fleet where the pool owner absorbs the asset utilization and remarketing risk, albeit with less frequent remarketing events, since there is no need to remarket after each owner.

The pool model appeals to consumers who have very divergent vehicle needs, e.g. small commuter car during the week and large pick up on the weekend to pull the boat.

OEM subscription models such as Access by BMW, Book by Cadillac, and Porsche Passport are pool models. Dealers launching subscription models are also pool models.

It’s difficult to find the details of how these pool models work, but OEMs would likely be much more strict on mileage and age restrictions. Dealers, on the other hand, would likely be willing to keep vehicles in the pool longer. For example, an OEM might keep vehicles in the pool up to two years and 24k miles, whereas a dealer might keep vehicles in the pool up to four years or 48k miles. 

I envision a world with luxury and non-luxury tiers…but also nearly-new and aged tiers. Less expensive tiers could offer vehicles that are three- to six-years old with up to 70k mile vehicles.

Serial Ownership 

The second subscription model is serial ownership, which is a speed dating version of leasing. Consumers can swap out their vehicle every few months for another vehicle offered by the fleet operator. The fleet operator absorbs the risk of finding a new owner for that vehicle either within its subscriber base or elsewhere.

The only company I know pursuing the serial ownership model is Fair, Scott Painter’s new venture. Fair is basically a flexible, used vehicle lease. The payment on Fair actually goes down over time, encouraging consumers to stay in the vehicles longer. This makes a lot of sense with the lower depreciation curve, switching costs and remarketing costs.

At end of ‘lease’, Fair sends the vehicle back to a dealer for a regular lease remarketing cycle. Dealer has first right to purchase before upstream and downstream remarketing. 

Barriers

The primary barrier for the pool model is driving utilization; actively finding subscription holders or consumers to utilize idle vehicles.

For serial ownership, the primary barrier is the high remarketing cost associated with frequent vehicle turns. For example, in traditional leasing the vehicles turn in 36 months, so the associated $1200 hard and soft remarketing costs amounts to less than $40 per month and can usually be recovered in the next vehicle sale.

If under a subscription model, vehicles turn every three months and similar remarketing techniques are used that would amount to over $400 per month, reducing subscriptions to a “rich person’s toy”, as Edmunds rightly stated.

Dealer Preparation

Under either scenario, dealers can take steps immediately to strengthen their capabilities in four areas that will be critical for subscription success.

1. One-to-One Relationships. Dealers need to proactively match buyers and sellers every time a vehicle changes or becomes idle to replace traditional marketing costs or stimulate utilization. To do this, dealers need to expand their contacts beyond subscribers and active customers to others in their PMAs who may be interested in available vehicles.

2. Loaner Fleet Management. Most dealers do not efficiently manage their loaner fleets, with vehicles poorly matched to service completion. Few dealers have the infrastructure to efficiently handle consumers signing in and signing out vehicles like daily rental companies. Integrating loaner and subscription fleets would be one way to solve utilization and remarketing costs.

3. Diversifying Used Vehicle Sales.  Increased used-to-new ratio, particularly CPO and previous loaner vehicles, provides more internal remarketing options, reducing outside expenses and providing opportunities to recapture potential subscription losses through future sales on the same asset. Expanding used vehicle sales broadens the dealership appeal, more precisely satisfying the needs of existing customer while attracting new prospects.

4. Update Service Model. Subscription models will place a premium on managing unscheduled down time, allowing maximum revenue generation from each unit through expanded service hours and a stronger throughput focus. While consumers do not explicitly measure unscheduled down time cost, the associated inconvenience is a large service venue selection driver.

Implications for Dealers

Serial ownership is the most likely model to emerge at scale. It is unclear how a pool model is going to improve on the existing daily rental model and places the availability risk on the consumer, undermining the core value proposition.

However, many studies indicate consumers would like to churn vehicles more frequently but are prevented by economics and an unpleasant sales experience. While serial ownership does not inherently fix the economic challenges, it encourages OEMs and dealers to collaborate on finding a solution and does facilitate a frictionless vehicle transfer from the consumer perspective.

Should serial ownership subscription emerge as a viable ownership model, we see dealers, particularly multi-franchised groups, advantaged to provide the service.

First, dealers have more options to drive remarketing costs and utilization by integrating subscription fleets into their used vehicle inventory and loaner fleets. Secondly, multi-franchise dealers can offer subscribers the broadest possible vehicle access. Finally, dealers have the infrastructure to cost effectively service the vehicles over and between subscription terms.

While we see many hurdles to overcome before subscriptions go mainstream, dealers can invest in the core capabilities to succeed should that time come, and doing so will reap more immediate rewards today.