Are you thinking you need a retention program to move your business model to the next plateau but you’re not sure what to expect? I have been training and installing retention programs for dealers for close to 10 years and I’ll share with you what I know.
The Golden Rule in creating a loyalty program is to never start a retention program unless you are 100 percent committed to it. What I mean is that you need to go into it with realistic expectations, look at it as a long-term program and work to ensure it becomes a culture in your business. When you open the doors each day, it will be a priority and the way you conduct your business.
Let’s talk about the realistic expectations. There will be immediate short-term gains, but you must be patient to realize the long-term success of your program. There are three categories where you should be looking: sales, service and repeat buyers.
Immediately, you will be offering a greater value to your customer in the buying experience which, if properly implemented, should result in higher front-end gross profits, added sales volume, higher CSI scores, more referrals and additional tools to make it easier to close more deals. You want to think of the benefits you offer as a “Why buy here instead of from my competition?” Most importantly, it will set you apart from your competition. They simply will not be able to compete with you on value.
Some common components that make up the benefits you could offer each sales customer are an engine guarantee, oil changes, tire rotations and car washes. These each have a highly perceived value and help to overcome price objections. Couple these benefits with what you already are providing — such as gourmet coffee and snacks, children’s play area, shuttle service, pick-up and delivery service, etc. — and you have just moved to a new plateau in how you value your customer. Just as it says in the Bible, “Give, and you shall receive.”
If you are like most dealers, you probably fall somewhere in the range of a 30 to 40 percent retention rate (as measured only by new vehicle sales and reported by your OEM based on two service visits within the first year after purchase). A properly designed, value-added retention program will double your current percentage of sales customers who are using your service department.
Rewarding your customer each time he or she services with you gives you a great opportunity to up-sale at the next visit through “found money.” It is a more honest way of conducting business in that customers begin to feel that you have a vested interest in taking care of them by keeping them safe and operational. Each visit is an opportunity to prepare for the next visit and set realistic expectations on what services will be needed. You can expect your absorption rate to move closer to the gold standard of 100 percent, an increase in the number of repair orders daily and more customer dollars spent per RO.
In every case where we have conducted an audit of who spends more, we find that the customer who is a member of your retention program spends anywhere from $12 to $226 more per visit than a non-member customer. An increase in repair orders results in more labor hours and more parts being sold.
A customer who bought from you and serviced with you during their ownership cycle will return to you for their next vehicle approximately 86 percent of the time, versus a customer you sold and who never serviced with you; that customer returns to repurchase less than 25 percent of the time.
The reality is that it’s much easier to resale to a customer who you originally sold to new and serviced. You want this trade-in, as it is much more valuable than an auction vehicle; the typical time this type of vehicle stays on your lot is approximately two weeks. By installing a well-thought-out retention program, you are guaranteeing that you will increase your percentage of resales and receive a highly valuable trade-in as a part of the deal. You have created your own “pre-owned vehicle factory.”