As new vehicle sales profits become more difficult, it is important to increasingly turn your attention to growing your service business.  Dealers are rightly interested in finding new service customers to replace lost customers. However, service conquest is very difficult because you must overcome three challenges: reaching current driver, determining service need, and unhooking customer from a current service relationship.

While there are many potential databases and approaches to locate service conquest prospects, each has limitations that need to be explored to prioritize their use and extract the most potential, as follows:

1. Unaddressed Units in Operation.  Review your current marketing program business rules to assure all known UIOs are being addressed. The customers most often overlooked include older or non-CPO used vehicles; appraised vehicles not won on trade; same brand sold used vehicles sold within the group; fleet sales; and retail parts customers. For most of these customers dealers have a recent contact and the consumers have done business with or expressed interest in doing business with the dealership.  Furthermore, if actively managed from the beginning, service needs and timing can be predicted on equal footing with new vehicle sales.
2. Re-engage “lost souls”.  While not technically a conquest, lost souls represent a chance to grow the service base. Dealers usually know nearly as much about these customers as loyal customers, often including defection reasons.  Most dealers assume lost souls are non-responsive to previous marketing, when in fact they may have been unaware or uninterested in the offer provided. Given today’s fragmented media, it could be the message was not seen or that the type of offer presented was not compelling.  Before writing off these customers, vary the media, particularly by adding digital or social media and move from discount to convenience-based offers. If defection reasons are known, address early and directly before engaging in more marketing.
3. SEM/PPC.  Consumers responding to service-focused SEM/PPC ads are almost assuredly in market and open to new service relationships. Unlike new vehicle clicks, these are not service “tire kickers” and they are not wed to a particular service provider, or they would have googled them directly.  So even when “loyal” customers are captured through SEM/PPC, they are cheaters-in-waiting. Because service SEM/PPC is the true battleground between independents and franchise dealers, clicks can be expensive, so each click most be carefully nurtured by ad copy closely tied to each search term and compelling landing site content closing linked to scheduling. 
4. CRM No Sales.  While less is known about “No Sales” than active customers, it is known that many bought the same brand vehicle elsewhere and expressed an interest in doing business with the dealership. In addition, unlike other lists, the store already paid for the contact and knows the contact information quality based on previous dialogue.  In addition, many of these contacts will include appraisal information which can serve as another conquest source. Some consumers may feel funny returning to a store they rejected, so welcome back messaging and offers will likely enhance results.
5. Third Party Lists. There are several services which provide owner lists and contacts.  Lists vary significantly in quality due to challenges in following title transfers, differences between owner and operator and frequent contact changes.  Generally, lists are improving in quality, but few provide insights required to understand needs and media/message preferences.  I encourage dealers to review any list against their own database to check quality and derive insights which may change communication approach – e.g. whether a 5-year old vehicle has had one owner or more.  As a default use an approach that treats independents as the primary competition with messaging that promotes dealer services and addresses services typical for the vehicle cohort.  While such lists often provide low response rates, selecting the right media and message produces a solid lifetime value ROI, particularly if care is taken to rekindle the relationship.
6. Defectors.  Among third-party lists are those which provide insights into consumers who defected to independent service providers, sometimes including which services were purchased.  In aggregate, these provide valuable feedback on selling effectiveness, particularly for tires and other routine maintenance programs.  Realizing value from individual records is more challenging because the immediate need was just serviced, and you must re-establish the relationship.  Therefore, you may need to engage in a multi-step communication strategy, reminding the consumer of the dealer brand proposition while promoting additional service items, not covered by the most recent repair order.

There is no silver bullet for service conquesting.  I recommend that dealers continuously invest in building their actionable database, realizing the limitations with each data source and devising a communication strategy that recognizes the needs of each segment.

By many historical measures, service opportunities have never been greater for auto dealers. In the last decade auto sales have boomed, creating an unprecedented service opportunity tailwind for the next decade. More factory scheduled maintenance programs are driving initial service visits. Increased CPO volume has created more reconditioning and used vehicle service business. Additionally, a rigorous recall environment is driving many customers back to franchise dealers.

So why are dealerships losing service market share?

From 2010 to 2017, one- to three-year-old units in operation (UIO) increased 48 percent, yet franchise dealership service and parts sales increased just 41 percent. Today, franchise dealers only capture 20 to 25 percent of the revenue potential from their UIO.

Of the vehicles that are brought in for service work, less than half of the potential service revenue is captured. This can be attributed to many factors, including:

• Too much focus on maximizing revenue with “dealer recommended services,” which undermines consumer trust
• Inconsistent inspection processes
• Slow service initiation and delivery
• Failure to match independent service centers in operating hours and product and service offerings
• Failure to offer loaners and other incentives to increase value
• To increase revenue per UIO, the focus must move from a scheduled maintenance mentality to one that provides customers with complete vehicle care.

This requires the ability to identify, communicate and capture all service needs. To accomplish this, dealers may need to review and make some changes to the following processes:

Write Ups
The importance of write ups cannot be underestimated. When the future success of your dealership hinges on its ability to analyze and use data, the data has got to be good. During the write up process, the more information that can be entered, the better.

The use of mobile tablets in this process is critical. Many dealers complain tablets take too much time, but the reality is, a paper process is no longer acceptable. Instead of measuring the process as fast vs. slow, measure it as informed vs. uninformed.

Here’s a good guideline. If your process is poor, it will take more time to complete it using technology than it did with paper. If your process is good, it will take less time to complete it with technology than it did with paper.

The Multi-Point Inspection (MPI)
In addition to a MPI, advisors need to check the following, every time:

• Is there an open recall?
• Are there declined services from last time?
• What are recommended services/repairs on a vehicle like yours?

The answers to the first two questions can easily be found using a mobile tablet integrated with your DMS and OEM communications.

The answer to the third question is a bit tricky.

As an industry, we rely heavily on MPIs to identify necessary repairs. The problem is technicians aren’t paid to do MPIs, they are paid flat rates per job. Is it any wonder they don’t always take the time to perform a thorough inspection?

As a result, technicians rely on their learned knowledge base and memory to check for repairs commonly needed for your vehicle brand, based on mileage. However, their knowledge base isn’t as helpful when servicing other brands.

Today you should be leveraging data to provide customers with recommended repairs in a vehicle similar to this. It’s possible for techs and advisors to receive these types of notifications right on their tablets, regardless of the year, make or model of the vehicle. This greatly increases upsell opportunities.

Service Recommendations
Dealers can no longer expect to see customers every 3,000 miles. Today’s average length between service visits is closer to 10,000 miles. When your customer leaves, plant the seed for the next visit.

A complete MPI process will identify potential service opportunities within the next 10,000 miles. Before your customer leaves, email or print out and hand them a list of service recommendations for the next 10,000 miles.

Additionally, ask the customer is they’re planning any trips with their vehicles, which may shorten the expected time of their next visit.

Leverage Data
At every step of customer interaction, the data you collect and store should be integrated into a marketing strategy designed to drive the customer to the next stage.

From needs notification, you should have the ability to track how many customers scheduled an appointment. During the scheduling, write-up and in-service notification processes, customer interactions and preferences are gathered.

All this data can be used in the post service follow-up process to lay the groundwork for the next needs notification. The use of predictive analytics to create highly targeted and relevant offers will further maximize revenue potential.

Capturing more service from current customers is simple in theory but requires diligence to execute. These processes have been around forever and your service staff “know” how to do them, which is why it can be extremely challenging to make any changes. The only way to ensure the necessary change is with the use of data and accountability.

Lately I’ve heard the terms omni-channel and multi-channel marketing used interchangeably. Yet there’s a distinct difference between the two terms, and several reasons why I believe omni-channel marketing is a more effective approach for auto dealers.

Years ago, we realized that not all customers can be reached by a single channel such as mail, email, television, radio or social media. Multi-channel marketing pushes messages out across all these channels in order to increase audience reach.

However, this fragmentation of channels presents a challenge. Reach is only one part of the marketing equation. When you factor in frequency, the cost of increasing frequency across all these channels becomes prohibitively expensive.

One way to address this challenge is to ask customers what their preferred method of communications is, and to market to them exclusively on that channel. The problem with this approach is that the channel the customer gives you may not be where they actually spend their time.

For example, a customer might give you an email address but only check that email a couple times per week. Or, they may tell you to put them on your mailing list knowing full well they throw most of their “junk mail” right into the trash.

When it comes to communicating, we are all omnivores. We consume different messages on different channels at different times. Your marketing communications should match the way that people personally communicate.

I know I can get hold of employees through the week via their work email address; but I have less confidence I can reach them that way on the weekend, so a text or phone call is the better approach. A lot of people spend time on Facebook at night or on weekends, but (hopefully) not while they are at work during the day.

An omni-channel strategy focuses on how your customers communicate with your brand at various stages of the car-buying journey. This is a more effective approach for several reasons.

Omni-Channel is Omnipresent

Omnipresent means to be in all places at once. Multi-channel marketing can fall short because you are pushing messages out at your convenience, and not necessarily when it’s convenient for the customer to receive it.

Not all consumers follow the buyer’s journey in the same way at the same pace. We’re all different, so the key is to be able to reach your customers with the right message over the right channel at the right time.

Instead of pushing out your messages across all channels at random times, you are pushing them out strategically on one channel or another, so the message is waiting for your customers when they show up.

This approach increases both reach and frequency without the prohibitive cost.

Omni-channel is Omniscient

Omniscient means “all knowing” and an omni-channel strategy requires knowing how to leverage your data with predictive analytics. The data is used to create a seamless, consistent experience with your brand, regardless of the device the customer is using or where they see your message.

How does this work? Most dealers have used retargeting ads. A car shopper views a vehicle on your website and that same vehicle is displayed to them later as they surf the Internet. Retargeting is a strategy that integrates your website and search marketing channels.

With omni-channel marketing, you can take this strategy a step further by delivering an email to that same car shopper that advertises a sale price or leasing special for the exact vehicle they were viewing. Later on, that same person may receive a text with a link to a video test drive for that same vehicle.

What happens when a service customer ignores your service reminder email? With multi-channel marketing, you send another email. With an omni-channel strategy, you can drop an ad for an overdue service reminder right into their Facebook news feed so the next time they are on Facebook they will see it.

Because it leverages predictive analytics, omni-channel messages are typically automated, requiring less time commitment from dealership staff.

Omni-channel is Omnipotent

Omnipotent means having unlimited power. Omni-channel marketing provides deeper insights into both your marketing spend and your customers’ journey, giving you the power to better service them.

An omni-channel strategy collects data from online and offline touchpoints and evaluates consumer patterns of behavior at a granular data. It measures everything.

Every time a customer interacts with your dealership, regardless of what device they’re using or the channel they are on, that interaction is noted and affects future messages going out on other channels. In other words, it shows the customer that you’re listening to them, improving their experience with your brand.

It also allows you to identify wasteful marketing spend. Did you know that Apple does not have a presence on Twitter (other than for support)? Twitter doesn’t help them reach their customers at critical points on the buying journey.

That doesn’t mean Twitter isn’t right for you, but wouldn’t it be helpful if you could identify one or more channels that you’re wasting marketing spend on?

Multi-channel marketing is far more effective than single-channel marketing. An omni-channel strategy takes your marketing to another level because it provides insights that improve your results and your customer relationships.

eBook offers a detailed guide on how to grow service profits using revenue per units-in-operation

Chicago, IL—March 13, 2018—Affinitiv, a leading provider of marketing and technology services to automotive manufacturers and dealerships, today announced the release of a free eBook for auto dealers, titled Why Service Absorption is a Dangerous Number: An Auto Dealer’s Guide to Growing Service Revenue Using Revenue per Units-in-Operation. The eBook presents a compelling case for why dealers should ditch the outdated service absorption metric and use revenue per UIO to guide their service revenue growth strategy.

“Service absorption is dangerous because it doesn’t measure a store’s achievement relative to its potential. Your service department can be at 100 percent service absorption but still be losing market share,” said Scot Eisenfelder, CEO of Affinitiv. “Using revenue per UIO as a metric forces effort on activities that grow market share and increase customer retention.”

To grow profits in today’s automotive environment, auto dealers are focusing on growing service department revenue. Achieving this goal requires overcoming a number of challenges, including declining vehicles sales, more replace than repair work and aggressive competition.

To grow revenue, auto dealers need to increase service yield from their current customers (UIO) and increase market share. The best metric to measure and track these two goals is revenue per UIO.

“A focus on maximizing revenue per UIO creates a fundamentally different strategic and operating mindset where the dealer does not concede any revenue to the aftermarket,” said Eisenfelder. “When dealers calculate their revenue per UIO it’s an eye-opening experience, and not necessarily in a good way.”

Using revenue per UIO as a metric better represents a service department’s true potential and provides dealers with a better understanding of their strengths and weaknesses.   

To download the free eBook, click on this link: Why Service Absorption is a Dangerous Number.

For more information about Affinitiv, visit Booth #3174C at the NADA Convention & Expo in Las Vegas, or visit: www.affinitiv.com

About Affinitiv:

Affinitiv is a leading marketing technology company serving automotive manufacturers (OEMs), dealership groups, and individual dealers. Affinitiv’s Connectiv1 Platform is designed to provide a 360° view of customer, vehicle, dealership and marketing campaign effectiveness all in one place. Connectiv1's advanced predictive analytics engine makes it easy for auto dealerships to leverage data and target customers with the right message at the right time on the right communications channel.

Affinitiv enables dealerships to produce, manage, measure and optimize omni-channel communications to drive brand loyalty and increase revenue. Affinitiv’s digital and analytic capabilities support a consistent customer experience through the entire ownership lifecycle. Affinitiv was formed in 2016 and is headquartered in Chicago, IL.

A ‘tentpole’ event at your dealership is one of those big-deal events that you really want to be successful. It could be a sale, holiday event, new product promotion or a community event that you’re sponsoring.

Tentpole marketing is a strategy that generates social buzz around your event that drives traffic to your dealership or to the event you’re promoting.

The most effective way to promote tentpole events is with an omnichannel strategy that includes digital channels such as email marketing and display ads; and may or may not include traditional media such as television, radio and direct mail. 

Social media is of course, is one of the best ways to generate social buzz. Facebook has a number of tools that are ideally suited for event promotion, including:

Facebook Live
Facebook Live is a highly successful way to drive excitement around a live event such as a new model reveal or promotion. Or, you can try creating a live event where your sales or service managers answer customer FAQs.

These videos are live streaming and best suited for events where the audience wants to interact and ask questions. For that reason, don’t plan your Facebook live video with a rigid editorial format. Keep it fluid and respond to customer comments and questions. 

According to a study by Newswhip, 98 out of the top 100 performing posts by brand pages on Facebook in January 2018 were native videos. Facebook live videos are an ideal way to gain a lot of exposure for your event on the big day, and also in the days after the event.

360 Photos and Videos
Did you know the Facebook app can be used to take panoramic photos and/or videos, then upload them to Facebook? This is a very captivating way to share immersive stories, places and experiences with your fans. Users must swivel their phones to view the entire photo or video.

Facebook’s 360 photos and videos create an experience that’s similar to virtual reality, except that it doesn’t require any special equipment or third-party apps.

What better way to showcase the interior of a vehicle? Or you could share videos of your showroom, service department or a community event that you’re sponsoring.

Canvas
Canvas ads are designed to provide mobile users with a full-screen ad experience that brings your brand or products to life. According to Facebook, a remarkable 53 percent of users that open a Canvas ad view at least half of it, and the average view time per ad is 31 seconds. That’s a lot of exposure!

Canvas ads are easy to create and versatile. Use videos, photos, image sliders, text and call to action buttons to generate excitement around your event.

Local Awareness (geo-targeting)
The ‘reach’ objective on Facebook gives you the chance to connect with local audiences and drive foot traffic to your dealership’s event. Facebook allows for narrow targeting and is very effective at connecting you with in-market shoppers within a specified geographical radius.

Upload your current customer list in your DMS database and use Facebook to target them with specific messages. Create lookalike audiences to expand your reach even further.

T-Minus Countdown
Start building momentum for your event several weeks, if not months beforehand. First, create the event on your dealership’s Facebook page. Then create the content. The more content you can create—especially videos—the more successful your campaign will be.

Start with a canvas ad featuring photos or a video to tease the event. If you are partnering with another organization, create co-branded content that can be shared on both of your brand pages. 

One to two weeks before the event is the time to really ramp up your content and targeting efforts. Use at least five of the following Facebook tools to maximize reach and frequency, and to ensure that your content is being seen by your intended audience:

·        360 photo/video

·        Regular photo/video ad

·        Canvas ad

·        Carousel ad

·        Co-branded content

·        Lead ads

On the big day, stream a video of the event on your Facebook page with Facebook live. Continue to use local awareness ads to build brand awareness through the event. Also use lead ads to encourage people who missed the event to come in at a later date and take advantage of the offer.

Not all Events Have to be Sales
One of the most successful tentpole events for a dealership I know of was hosted by Fort Bend Kia in Rosenberg, TX. Owner Virgil Skinner partnered with a local organization called Pets Alive to promote a pet adoption event at his dealership.

Skinner made a simple 30-second video that was posted on the dealership’s Facebook page. You can view the Pets Alive video here.  

The video went viral in Rosenberg and nearby towns, generating over 11,000 views. On the day of the event, hundreds of people visited the dealership. Fort Bend Kia covered pet adoption fees for everyone who adopted a pet. So many pets were adopted out that two of the shelters ran out of animals and had to go back to their shelters to pick up more pets.

It was a special event and a cause near and dear to Skinner’s heart. Of course, they also sold cars as a result of the event, but that wasn’t the purpose. The amount of goodwill they generated from this event cannot be bought at any price.

The next time your dealership plans a big event, don’t overlook Facebook as a marketing tool. Effective tentpole marketing requires a lot more than just posting event information on your Facebook page. It requires a strategy, content and knowing how to take advantage of the incredible tools that Facebook offers.

To manage and motivate their service advisors, most dealers use highly variable pay plans based on gross margin. I believe such plans are counterproductive because they change the service advisor focus away from customer retention and those behaviors required to maximize dollars per units-in-operation.

This type of pay plan changes the focus along three dimensions:

1. From the important to the immediate. Retention requires dealers to compete for all vehicle maintenance items, not just the most profitable one. For example, tires, while low margin, are significant defection points. Consumers replacing tires through other channels often defect for other maintenance and light repairs. Today’s pay plans discourage advisors to compete rigorously to defend strategically important, but less profitable business.
2. From relationship to transaction. Advisors are encouraged to maximize $/RO, asking for the whole business today out of fear the consumer will not return. To better match consumer readiness and affordability, break work into immediate needs, near-term follow up items and longer-term requirements.
3. From “what works for you” to “what works for me.” Scheduling is a prime example. Advisors often guide consumers toward openings in their calendars, not the consumer’s, frequently leading consumers to find more convenient or timely options. Advisors are also tempted to push more expensive options or “dealer recommended” products, undermining consumer trust. In fact, if consumers better understood advisor pay plans, defection would likely be higher.

Most importantly, highly variable pay plans are not working; too much work continues to escape the dealer channel and advisor turnover remains unsustainably high.

So, what should dealers do?

First, pay plans should place more emphasis on consumer retention, rewarding advisors when a consumer returns to the store, regardless of who serves them next. Such an approach would focus advisors on consumer experience elements, such as meeting delivery times and Fixed Right the First Time, which are better predictors of customer satisfaction than surveys, which can be coached or manipulated.

Then the focus should shift to actively managing advisors, rather than relying on pay plans to manage people. Service managers need to look beneath the numbers, insisting on advisors presenting multipoint inspection results and properly noting declined services.

Managers should review penetration rates among strategic commodities such as tires, batteries and brakes, to assure these items are being retained within the dealership. Advisors could then be rewarded for achieving desired penetration in these commodities.

Active management should also include “RO reviews” where managers review specific situations and coach on missed opportunities to uncover any deficiencies in product knowledge and selling skills. Ultimately, advisors should be expected to grow service dollars from their VINs managed. Advisors who achieve a higher level should be rewarded more, while those who do not achieve the standards should be exited. The bottom line is that to maximize service revenue potential, emphasis must move away from a transactional gross focus.

When a person wants to buy a vehicle, a dealership is the first place they think of. When a person needs to get their vehicle serviced, a dealership is not necessarily the first place they think of. For service, there’s plenty of choices and competition for dealers.

That’s why service marketing is more important than ever. Historically in dealerships, service marketing has taken a back seat to sales marketing. According to NADA, fixed ops is responsible for 47 percent of a dealer’s gross profits. Yet service marketing is less than 10 percent of the average marketing budget for many dealers.

However, I do see this changing. Service marketing is currently going through a transition that reminds me of what was happening on the sales side back in 2005 and 2006. If you recall, it was during that time frame that many dealers adopted digital sales marketing strategies.

The transition was not always smooth. In the beginning, both dealers and marketing companies spent a lot of time and money on strategies and search terms that didn’t produce results. It took several years, and plenty of trial and error, before consensus was reached on what works.  

For service marketing, dealers have long relied on direct mail and email marketing as two primary channels to draw customers in. Both of these channels have their place, but if that’s all you do, your reach is limited. Consider expanding your service marketing repertoire.  

The good news is, you won’t have to repeat the same mistakes that were made in 2005 and 2006. Digital marketing attribution has come a long way since then, and fortunately we already know what works.

For service marketing, the more personalized the message, the better. The following digital channels are ideal for sending out targeted campaigns:

1)   Search Engine Marketing (SEM)

Search can be very cost effective for service because consumers search using very specific terms. On the sales side, a customer may use terms like “Ford Focus” that are very broad. With service however, longer search terms come into play such as “brake pads Ford Focus near me.”

Try pairing services, parts and accessories with your brand makes and models. Target customers within a 15 to 20 miles radius. Identify the search terms that perform well and review them on a regular basis, as there is likely to be seasonal fluctuation.

2)   Display Ads

Display ads can be generated based on the same search terms and location criteria as you use for SEM. Additionally, you can factor in demographics information such as age and income.

Retargeting is an effective strategy for people who have visited your dealership’s website service page, and for your customers who are due for service.

3)   Social Media

Thanks to big data, predictive analytics and automated marketing, Facebook is incredibly effective at generating service leads. However, posting generic promotional messages on your Facebook page won’t cut it. Consumers don’t respond to messages that are irrelevant to them, regardless of where those messages appear.                  

Use Facebook to create service offers that are highly relevant. Facebook has access to Oracle/Polk data, which means you can target people who own a certain make/model based on when they registered their vehicle. Try creating offers for OEM recommended services at certain mileage intervals.

Facebook tracks virtually everything its users do. When a Facebook user visits a Discount Tire website, Facebook knows that person may be in the market for new tires. Take advantage of this information to serve up a tire ad, as well as other ads for service keywords.

4)   Who to Target

The primary goal of service marketing is to retain your new vehicle sales customers through the ownership lifecycle. Your secondary goal is to reach new customers that have never visited your store.

Facebook and Google properties allow you to serve up ads to existing customers in your DMS. They also have tools that can be used to create look alike audiences within a defined radius of your store.

Another source of new prospects is in your CRM. Most dealers close about 50 percent of their new vehicle lead prospects. What about the other 50 percent? Many of them may have purchased from another dealership.

They gave you a shot at the sale, so maybe they’ll give you a shot at the service.

Try creating an unsold report of all the customers you didn’t close in the last six months, and create campaigns designed to re-connect and bring them in for service.

Service marketing can be highly effective for generating service appointments. But it requires moving beyond direct mail and oil-change coupons to an omni-channel approach using personalized and highly relevant offers.

Chicago, IL—Feb 19, 2018—In 2017, Fort Bend Kia added more than $416,000 to its bottom line with Affinitiv’s Social Roots™ 1:1 Facebook campaigns. Social Roots 1:1 is a unique digital advertising solution that leverages DMS data and trigger-based algorithms to drop targeted sales and service messages right into Facebook newsfeeds.

Last year, Fort Bend Kia generated $109,240 in sales revenue and $146,950 in service revenue from its Facebook ad campaigns. Since starting with Social Roots, Fort Bend Kia has also reduced its annual advertising expenses by more than $160,000.

“From a marketing standpoint it’s the most effective, least expensive thing we do,” said Virgil Skinner, Owner/Principal of Fort Bend Kia. “The other thing I like is that it doesn’t require a lot of time or involvement on my part.”

Rosenberg, TX is a small town about 35 miles southwest of Houston. Six years ago, Virgil Skinner opened Fort Bend Kia here with a mission to bring a luxury car-buying experience to a mass market store. Skinner’s primary marketing challenge is to convince car shoppers in the nearby Richmond and Sugar Land suburbs to drive south to his store. “Most of the people I want to attract drive north into Houston to work, shop and play, so it’s tough,” said Skinner.

Until two years ago, Skinner’s marketing strategy consisted of cable television spots, direct mail, email marketing, ads in civic association newsletters and ads in local HOA magazines. “We had a Facebook page at the time but I didn’t have anyone talented enough to use it for direct and targeted marketing,” said Skinner. “It was mostly me posting photos of customers buying cars and photos from local events we sponsor.”

Skinner was always frustrated with his advertising’s ROI. “One problem with this area is that the cable company only had 40 percent of the market, while the other 60 percent is split between various dish providers. And, trying to reach Houston through broadcast TV is too expensive,” he said. “Untargeted direct mail was bad. Every time I sent something out, half of the pieces came back. As much as I try, it’s almost impossible to get the service advisors to update customers’ physical addresses.”

Two years ago Skinner contacted Affinitiv, a leading marketing technology company. Affinitiv’s Social Roots product uses predictive analytics to drop highly targeted offers into Facebook newsfeeds.

Social Roots 1:1 campaigns leverage DMS customer data and trigger-based algorithms to generate a variety of messages and offers. In service these include service reminders, past due service reminders and second overdue service reminders. In sales, offers are created for customers with leases about to expire, and messages are sent for after-purchase check ins, and six-month sales follow up to ask for referrals.

In addition to the 1:1 campaigns, Affinitiv runs a custom sales campaign for Fort Bend Kia every month. These typically promote leasing offers or offers from whatever national campaign that Kia is currently running. Custom sales ads are created for three separate audiences: Fort Bend Kia’s current customers, in-market Kia shoppers within a 50-mile radius of the store, and a lookalike audience of in-market shoppers. Each list excludes contacts on the others, so there’s no overlap with advertising.

“I quickly realized we were reaching a lot more people on Facebook than any other media we use, so it wasn’t long before I quit doing television and untargeted direct mail altogether,” said Skinner. This allowed him to cut his annual cable budget of $128,000 and direct mail budget of around $60,000. Fort Bend Kia spends $20,000 to $30,000 annually for Social Roots 1:1, resulting in a total advertising expense reduction of more than $160,000.

The most successful campaign in 2017 was a SUV Clearance initiative that Kia ran in July and August. The campaign generated 2,603 clicks, 17 sales and service conversions, and $49,572 in revenue.

In addition to revenue, Social Roots 1:1 delivers other results that Skinner finds valuable. “We quickly became one of the most Liked Facebook pages on the freeway, we have the highest dealer rating of any dealer on the freeway, and the highest Facebook and Google ratings of any Kia dealer in the Houston metro area,” he said. “All of our reviews are absolutely unsolicited and unpaid for. I have a strong policy here, I don’t pay a single customer for a review.”

However, Skinner can’t give all the credit for his ratings to Social Roots 1:1. “The marketing gets them in here, then it’s up to us to close them. Our goal is to treat every client like family.”

For a Social Roots demo or more information about Affinitiv, visit Booth #3174C at the NADA Convention & Expo in Las Vegas, or visit: www.affinitiv.com

About Affinitiv:

Affinitiv is a leading marketing technology company serving automotive manufacturers (OEMs), dealership groups, and individual dealers. Affinitiv’s Connectiv1 Platform is designed to provide a 360° view of customer, vehicle, dealership and marketing campaign effectiveness all in one place. Connectiv1's advanced predictive analytics engine makes it easy for auto dealerships to leverage data and target customers with the right message at the right time on the right communications channel.

Affinitiv enables dealerships to produce, manage, measure and optimize omni-channel communications to drive brand loyalty and increase revenue. Affinitiv’s digital and analytic capabilities support a consistent customer experience through the entire ownership lifecycle. Affinitiv was formed in 2016 and is headquartered in Chicago, IL.

Whenever a need arises in the marketplace, inevitably an entrepreneurial spirit finds a way to fill that need. However, in the last few years there has been a need in the retail automotive industry that nobody seems to be filling. First, some backstory.

Auto dealer consolidation is increasing at a significant rate. Between 2014 and 2017, an estimated 1,080 dealerships sold to a total of 612 different buyers, according to The Banks Report and Kerrigan Advisors. Since 2011, the number of private dealer groups with greater than 10 dealerships has risen to 141, a 57 percent increase.

One of the major reasons for this frantic buying spree is the economy of scale that larger dealer groups can achieve. The more stores a group owns, the lower their operating expense is per store, on a percentage basis. In a large dealer group franchise, sales, general and accounting (SGA) expenses are 13 percent less than in the average single store.

Once this type of economy of scale is achieved, a large dealer group can be more aggressive with their pricing, which can hurt single stores that remain in the neighborhood.

Yet, not all single stores and smaller groups want to sell to a larger group. How are they to compete? Is their demise inevitable?

Hardly. If you don’t want to sell your dealership, don’t. However, to stay competitive will require lowering your operating expenses. Of course, that is easier said than done, and it may in fact be quite impossible without some help.

Here’s the need: Why isn’t there a business that offers single-store dealers a way to consolidate and outsource some of their internal functions?

Look to the BDC as an example of how this works. Many dealers choose to outsource their BDC because it’s 25 to 30 percent less expensive than operating an internal BDC. That doesn’t even include the reduction in headaches. If the same cost savings can be achieved by outsourcing back office functions, single stores would be in a much better position to compete with large group franchises in their area.

Accounting, financing and human resources activities could all be easily outsourced, for example. Any function that does not require an on-site presence is game.

Once this “consolidated services provider” has a number of dealer clients, the opportunity also exists to leverage their combined purchasing power to negotiate better prices for outside services. For example, Internet and phone carriers give better rates (and service by the way) to larger clients. This would require a group of dealerships to agree to sign with the same carriers, but I doubt this is cause for complaint if the cost savings are significant.

With bargaining power gained through a group alliance, single-store dealers could potentially pay less for:

• Carrier services
• Parts
• IT products and services
• Third-party software and services

To my knowledge, nobody is filling this need at a time when more and more dealers are wrestling with the tough decision to sell, or not to sell. If I’m wrong and there is a business that provides consolidated services to single stores, let me know. If I’m right and nobody is doing this, why not?

Industry consolidation is a trend that will remain strong for some time to come. I get a lot of calls from investors, and one of their most frequent questions is about market capitalization; specifically, why market cap values for large, public auto groups are low (relatively speaking) to other retail models.

Carmax, for example, has a market cap of $12.8 billion with just over 180 locations. Compare that value to AutoNation, which has a market cap of $5.2 billion with over 300 locations; Penske Auto Group with a market cap of $4.4 billion and over 320 locations; Group 1 Automotive with a market cap of $1.5 billion and over 270 locations; and Lithia with a market cap of $3 billion and over 160 retail locations (all figures circa Feb 2018).

Large auto groups have several significant advantages over individual stores, such as economy of scale and negotiating power. Yet clearly, there is still room for improvement in terms of increasing value for shareholders.

A share re-purchasing program can help, but increasing value requires an emphasis on brand building along with a shift in how stores are managed. Carmax’s brand is based on the customer experience. It’s unambiguous—every customer knows exactly what they’re getting.

Carmax also manages its brand as a network, not as individual stores. For large auto groups to increase market capitalization, they’ll need to stop managing their business as a collection of stores and start managing them as a branded network of locations, similar to other retail models.

Some auto groups are already doing a pretty good job of this, but there’s more to building market value than economy of scale. Here are five strategies that large auto groups can try:

1) Lower operating expenses

Large auto groups inherently achieve some economy of scale compared to individual stores.

In an average, private dealership, Sales, General and Administrative (SG&A) expense as a percentage of gross profit is close to 88 percent, according to a recent Kerrigan Advisors Analysis. In public auto groups, SG&A expense as a percentage of gross profit is 74 percent. That’s nearly a 14 percent differential, which is significant, but there’s still room for improvement.

Many functions in dealerships can be shifted into a shared services model. Accounting, financing, information technology (IT) and human resources are the obvious ones.

AutoNation, for example, has created a $150 per vehicle advantage simply by consolidating back office functions.

2) Leverage bargaining power

When I worked with AutoNation, it was the largest advertiser in the Miami Herald, which meant it got better advertising rates. As a group, are you leveraging your bargaining power across the board with all vendors? Getting all stores onto the same DMS, CRM and third-party service software can significantly reduce costs. In the same manner, you’ll be able to negotiate better prices with marketing vendors, parts suppliers and Internet and phone carriers.

3) Customer management

Large auto groups are in a stellar position to increase customer retention. As we know, all dealerships lose a percentage of customers to brand defection every year. Dealers can do everything right in terms of marketing and retention strategies, yet still lose a customer because the customer simply wants to buy a Toyota instead of a Honda.

As an auto group, you have the ability to funnel this defector to another store so you won’t lose the revenue. This requires the use of predictive analytics across all your stores to identify which customers are most vulnerable to defection, and to create marketing strategies designed to retain them within the group.

4) Asset Management

This is an area with a lot of upside potential. Even in large auto groups, many stores still make inventory management decisions on an individual basis. A Ford dealer takes in a Toyota on trade, then decides to sell it at wholesale or send it to auction. If that dealer is part of a large auto group, that vehicle can be transferred to a Toyota store in the same group. The Toyota store is better equipped to maximize revenue on that vehicle by selling it at retail, versus accepting the auction price minus the transportation expenses and auction fees.

5) Explore New Business Opportunities

If your auto group has 20 to 30 stores within a metro area, start thinking about getting into the mobility business. Establish a fleet of vehicles and/or form relationships with Uber and Lyft. Start a subscription ownership model that fills the gap between short-term rental cars and long-term leases. You could run your own auctions. Start a rental car business or finance business. Find partners for new service opportunities; for example, AutoNation recently struck a deal with Google’s Waymo to service its self-driving minivans.

Large auto groups are primed to take advantage of a changing industry. There’s no reason to fear disruption; instead, embrace it. Increase market value by using the latest technology to lower expenses, leverage bargaining power, better manage customers and assets, and explore new business opportunities.