Retention isn’t an event. It’s earned over time
Over the last several articles, we’ve discussed the current and impending disruptions to the retail auto industry. We’ve speculated on the exciting potential of a soon-to-come golden age of auto sales fuelled by pent-up demand, cash-flush consumers, exciting new product, political agendas, and social pressure. We’ve concluded that the brands and retailers able to keep more of their customers over the next two-to-three ownership cycles will win this decade of change.
This conclusion has been reinforced by my last three conversations with national sales directors from different OEMs, each of whom asked me the same question: “How do we help our dealers retain and renew more of their customers, so they don’t defect to other brands?” Retention has undeniably become a hot topic in the industry, with recent studies showing a significant drop in consumer loyalty since the onset of the pandemic.
Invariably, strategic conversations about sales retention almost always focus on one thing: defection points. OEMs and research firms spend millions of dollars and countless hours analyzing customers who defect, and then they invest additional millions crafting offers and incentives targeted at “in-market buyers” to boost loyalty and stem defection.
Perhaps many OEMs are making the mistake many dealers do, focusing most of their loyalty marketing efforts on customers they’ve determined are ready to purchase. They’re reaching out to these customers too late in their ownership cycle, hoping that an incentive will attract and ultimately buy the in-market customer’s repeat business, while the customer might already be considering other brands or have purchased another product.
This can be seen in the vast number of OEM-driven loyalty marketing campaigns traditionally focused on lease and finance maturity. Because it has long been assumed that three-to-five years is the ideal trade cycle, dealers either think that it’s a waste of time to reach out to customers in the middle of their finance contract or they assume customers can’t afford to trade. While there is no doubt that a customer driving a three-to-five-year-old car is often in a “trade up sweet spot,” does that mean it’s the right time to reach out with a renewal offer? Or is it too late?
More than six years ago, Absolute Results began recommending that dealers invite customers driving two-year-old vehicles to visit their Appointment Driven Sale Events, and today it’s not uncommon for 21 per cent to 27 per cent of sales to be what we call “two-year trade ups.” While this statistic may appear to contradict the popularity of 84- and 96-month finance contracts over the same period, it’s not hard to believe, given the pace of change in our society.
So, is the answer to growing retention simply to reach out to customers earlier in their ownership cycle? I believe that’s only a small part of the answer. Certainly, there are sales to be made to customers driving two-year-old cars, but too aggressive an approach will seem inappropriate for many of these customers and might even drive them away.
I believe that it’s time for dealers and OEMs to consider a new retention-growth strategy, a strategy that begins with taking a portfolio approach to each customer. Each vehicle purchase should be viewed not simply as a single sales transaction, but also as the beginning of multiple sales and service transactions. The strategy should then involve creating a customer-communication plan that engages customers with regular messaging from both the sales and service teams appropriate to each stage of their ownership cycle.
An effective Customer Retention Strategy starts at delivery.
In the first 12 to 18 months of ownership, communication should focus on product satisfaction and service department engagement. Many dealers now hire a customer-care representative to follow up with customers to ensure that promises made at the time of sale are kept at delivery. With the number of pre-order sales and the supply challenges affecting accessories, this is especially important. Another best practice paying dividends to dealers is the offer of an optional second delivery experience after 30 days of ownership.
One of the most powerful retention factors is service engagement. In fact, studies have shown that customers who return after purchase for regular service are five times more likely to buy from the same dealer again. Many dealers understand the importance of booking a customers’ first service appointment, and many OEMs even offer the first service to consumers at no charge. But few dealers have CRMs that integrate sales and service follow up, and many use entirely different marketing systems, missing the opportunity for the sales team to engage previously sold customers in the service drive.
After 18 months of ownership, the communication from the sales team needs to include sharing new information and engaging customers in conversation, treating each as a brand enthusiast. They should be sent regular digital updates about new product, prefaced with a casual introduction, like, “We know you might not be in the market just yet, but we wanted to keep you in the loop on all our exciting new product.” Periodically, send each customer information about how to maintain the condition and value of their vehicle, and provide them with an annual market update that affirms their purchase choice.
It’s also crucial that each customer receives a “goodwill call” from a sales professional 18 months into their ownership to ensure that customers’ current vehicles are still what’s best for them. The conversation should focus on how customers’ driving needs have changed since their purchase. If customers have experienced a “big life change,” sales professionals should offer to meet for a no-obligation options review appointment.
Starting at 30 months of ownership, communicate with customers about renewal options. Regularly send them personalized upgrade offers, and invite them to experience and learn about new product at showroom events. Ensure that loyal customers receive special treatment at your events by making appointments with them, so the sales team can prepare with special offers on pre-selected models.
Dealers, retention isn’t a one-time event that can be sustained solely with incentives and offers. Retention is the product of relational equity earned over time by dealers who communicate with their customers throughout the ownership cycle, who commit to delivering exceptional customer experience, and who find strategic ways to add value to their customers, starting right at delivery.