Create Customer Loyalty - Vol 4- Issue 2 February 2007

The thrill of gambling is exhilarating. Am I going to win? Am I going to hit it big? Let me put it all on the line and see what happens. Living close to Atlantic City NJ gambling has always intrigued me, but I must confess I am not a gambler at all. I am a realist, I am a numbers person. I don't feel comfortable just hoping on the long shot. So, where am I going with this? Well this is exactly what is going on in our industry today, gambling. We as dealers are advertising on a long shot. There is no science, no reason, just hoping that our initiative sells some more cars.

It's all in the statistics, but is anybody listening. We head down the road of spending tons of money to bring new customers into our dealership or to our website, and then we do not do a value proposition for the dealership. From there we sell the vehicle, have no plan to bring that customer into service and we do very little to create a relationship that will lead to valuable service business and the inside track to the customers next vehicle purchase.

Let's talk about some numbers; NADA tells us that the average store spends over $500 in advertising for each new vehicle we sell. That number is actually incorrect because we know a large percentage are repeats, referrals or came to us because of our location/brand. This means we probably spend closer to $800 - $1000 for each vehicle we sell off of our advertising. We only close at 22% on our Ups, 40% of those never create a cash RO and a full 2/3 of these customers are gone by the time they truly become valuable, which is when they reach 30,000 miles. The customer that does remain loyal is 7 times more likely to repurchase and on average will have a gross of an additional $900. Oh yeah ... by keeping them loyal we pick up amazingly profitable service business. Let me break it down further, Smart Tech Enterprise research states that a prior customer closes at 60% versus 22% for a fresh Up, with a gross profit increase of over $900. But most dealers don't allocate any budget for owner retention efforts and the dealerships that do, only allocate minimally.

Let's say we should at least spend 10% of our ad budget on loyalty for our customers. Create a custom value proposition, leverage it during the sales process and apply it to customers to keep them happy in service and allow your customers to earn toward their next vehicle purchase. Airlines, hotels, rental cars, grocery stores and thousands of retail establishments already know what we refuse to learn. Any one transaction has little value compared to the loyalty of a customer.

In working with CRM and database marketing for years, it is also amazing that we ignore our database. We do garage predictors to try and find people who may or may not have the money, inclination to your brand or even be in the market for a vehicle yet we ignore a gold mine in our own database. Again, it goes back to dealer's gambling mentality. We choose to take a shot in the dark versus science and math. NADA again tells us 2% of the people in our database purchase a vehicle every month. A typical store has an active database of 6,000 - 10,000 customers. Think about the potential and then get sick over the fact that we have not created loyalty with these people. 120 to 200 people from these stores every month purchase and we have done little to say buy from me less they get that generic mailer via the garage predictor.

Let's claim our customers as our own. Glue those that have been in within the last 6 months with a rewards program. Go after the inactives for service aggressively and let everybody know we want to sell them their next vehicle. The good news is we can do all of this for the 10% of the ad budget discussed earlier. I am always amazed when I talk to dealers who will not commit 10% of their ad budget to what makes the most sense. It goes back to gambling. I am personally not a gambler however if you are, at least be a smart gambler, play the odds. What makes more sense putting all of our money on a 22% shot or at least some of our money on a 60% shot with the opportunity to make $900 higher gross profit per unit?

I was going to end this article after that last sentence but I was thinking about a conversation I had recently with another industry expert and we were discussing the fact that a lot of articles are written that have good surface content. They will explain the issue but not go too deeply into the how to solve or the how to actually do it. In my opinion that's for two basic reasons. Either A: They don't want to give away the farm for free. After all we are all here for business. Or B: They don't want it to look like they are trying to plug their products and or services through the magazine or journal. I hope you would feel that I have covered some useful content and information. But now I am going to take it to the next level. I want to give you some strong take aways. Things that you can put into effect immediately at your dealership and see some great results.

Let's start with an example of a customer loyalty program: