For any business, success can be measured by the increase in their profit and loss or revenue, or by their customer base continuing to grow. To help retain customers between purchases, many industries have created a structure or system to reward long term customers. Every business is capable of creating and measuring this Long Term Value (LTV) to help reward and retain their best customers, yet for many automotive dealerships there does not seem to be a focus on this metric.
Hotels and airlines do a fantastic job creating programs for customers. Most travelers are part of an airline’s rewards program which offers increased benefits the more you spend. Many of my fellow travelers and I track our progress, hoping to get to the next level, even just to board a few minutes ahead of time or get the elusive upgrade to first class.
Hotels also reward those who spend more or stay more often with free upgrades or points that can be used towards free rooms in the future. Some chains go as far as offering reserved parking spots for upper echelon members. Customers will often switch programs due to customer service issues or better rewards for their loyalty.
Retail stores like Banana Republic send customers coupons for their next purchase based on how much they previously spent. Packaged up in a carefully laid out special envelope, customers can find coupons worth $20, $50 or even $100 to use at any location. Armed with their “free” money, consumers choose to go back and spend more money at the store when they otherwise would not have returned. This is a huge win in retaining loyal customers.
Why Don’t Dealers Do This?
Despite the well-documented successes of customer retention programs across multiple industries, auto dealerships shy away from loyalty programs, feeling the purchase cycle is so spread out over multiple years that customers would lose interest once their purchase is made. This misguided thought process is an unfortunate result of compartmentalizing the fixed operations and sales departments. By implementing a loyalty program at your service center for customers who have purchased a car from you, you are effectively doing the same thing as hotels, airlines, and retailers. Could there be a rewards system where the customer earns points for each dollar they spend, which then could be used for services in the future?
I am sure there are programs out there currently in use, but they are far from ubiquitous. Sending out an impersonal coupon for 15% off the next oil change is not the same as letting customers know you appreciate their consistent business and loyalty to your dealership.
Implement an LTV Program
What could a dealership do if they choose not to go that route? First, they should track the LTV of their customers. Work with their DMS partner to take the data and create a scoring grid to assign a “tier” to customers. Subsequently, your marketing efforts could be targeted by tier. On-site experience could also be developed so if a top tier customer comes in, the manager meets them, or they have a special parking spot or a separate line to check in. There are endless opportunities to highlight these high-value customers to make them feel appreciated.
When I was researching this idea, I searched for LTV for automotive customers and did not find anything of value. In my travels over these past 10 years working with dealerships, I have not heard anyone discuss this term or have a structure in place to leverage it if they were indeed tracking LTV.
Could the lack of focus on this metric also be a product of good sales over the past 4-5 years? Could it be due to service lanes also being at 75% capacity? My fear is while everyone is happy and busy, without a system in place to retain your best customers, what happens when the inevitable slowdown happens? After all, we’ve now seen it for sales. Now is the time to put a structure in place while competition is only focused on getting new customers at the expense of failing to appreciate their current customers.
In summary, customers love to feel special. They love to feel companies they invest their time and money into appreciating them. I believe dealers who commit to creating the LTV metric, then creating specialized experiences for each tier will generate higher retention rates as well as the desire for other customers to join in the program.
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