Did you know that on average, the top 20 percent of customers produce 69 percent of a dealership’s gross profits? These are your most profitable customers (MPCs). Meanwhile, the bottom 20 percent of customers are unprofitable. If you could replace just half of your unprofitable customers with MPCs, your gross profits would increase 40 percent.
While many dealers do focus on customer retention, not all have clearly identified their MPCs. Hardly any dealers design marketing programs to identify and attract potential new customers in their primary market area who have similar profiles to their MPCs.
Not all customers are created equal. To boost sales and thrive in any market, you need a strategy to find, attract and retain inherently profitable customers. This strategy requires investing in your customer data and growing your MPC market share.
Invest in Your Customer Data
The data that you have right now in your database is worth more than your real estate and fleet of inventory combined. Yet many of you don’t even realize what a gold mine you are sitting on. Do you know the percentage of households in your primary market area (PMA) you can contact right now? How much do you know about your MPCs? At a minimum, I’d want to know their physical address, phone number, email address, income range, media preferences and what cars are sitting in their garage, including year, make and model.
If you had this data on your customers, you would never have to buy broadcast media again. You would simply engage in a dialogue with these customers, sending them the right offers at the right time.
If you don’t have this data, it’s worth investing in resources to obtain it. Do you have a budget for increasing knowledge of your local market? You have a budget for maintaining your real estate and your inventory, so why not for maintaining your customer database?
The other part of this equation involves ascribing value to this information. We’ve always struggled with having salespeople collect email addresses, but do we even know how much that email address is worth? Is it worth $10 or $50? Is a phone number worth more or less than an email?
Identify the Most Profitable Customers (MPCs)
Your customer data is important because it can be used to identify not only the current MPCs you have in your database, but other MPCs who live in your primary market area (PMA). These are the best customers to target because they:
- Trade in their vehicles every few years for better equipped vehicles
- Drive lots of miles
- Buy into the franchised dealer proposition
- Frequent your service department for repairs
- Are willing and able to pay for a better selection of vehicles and services
Additionally, the vast majority of your MPCs are “created,” meaning they exhibit their behaviors and affinity towards dealerships regardless of input from you or other dealerships. When they show up at your store, all you have to do is treat them right. If you lose these customers, they become another dealership’s MPC.
Many dealers believe that their best customers are “made.” That is, they can turn any customer into a good customer. Data shows this is not necessarily true. It can be difficult to persuade average customers to spend more. Thus, it’s a better strategy to identify and court MPCs versus trying to increase profitability from a segment of customers that aren’t likely to respond in the way that you want.
Grow Your MPC Market Share
Once you have built up your customer database, and you have identified both your MPCs and the customers you’re losing money on, create a marketing strategy that leverages all this knowledge.
In general, MPCs respond better to value proposition marketing than to discounts and coupons. Focus on improving their customer experience. Don’t think about loaner cars as an expense; think of them as a strategic tool and retention driver. Additionally, focus your team’s efforts on capturing more data from these valuable customers.
To find new customers with profiles similar to your current MPCs, curate new audiences on social media, buy third-party leads and invest in local community events. Make the most out of manufacturer programs to partner with schools and other organizations in your PMA.
Most dealers today spend heavy on traditional and digital purchased media, not because they want to but because they don’t know any other way to reach consumers. Imagine if you had the contact information and media preferences for every household in your PMA. Imagine if you knew exactly what their vehicle and service needs are.
Armed with this knowledge, you could engage in meaningful, regular dialogue with the few thousand households who drive your business and profits.
Scot Eisenfelder is CEO of Affinitiv, a leading marketing technology company serving a dozen automotive manufacturers (OEMs) and more than 5,500 franchise dealers. Prior to Affinitiv, Eisenfelder held positions as Senior VP Strategy at AutoNation and Senior VP, Product Management, Strategy and Marketing at Reynolds and Reynolds. Eisenfelder has an MBA from Wharton School and attended Mannheim University in Germany as a Fulbright Scholar. Scot graduated summa cum laude in Economics from Princeton.