Guide to Dealership Customer Loyalty

by automotiveMastermind

IHS Markit, now S&P Global Mobility, recently reported, “During the past several years loyalty has emerged as one of the most watched metrics in the US new vehicle industry, along with market share and profitability.”

Now, amid inventory shortages and historically high vehicle prices, nurturing a dealership’s automotive customer retention program against competitor’s conquest attempts has become key – critical to both immediate and long-term success.

In this blog post we will discover why customer loyalty is so important, especially in today’s market, and touch on the prime ways that you can promote customer retention in your dealership.

Why Your Dealership Should Focus on Customer Loyalty

There are numerous reasons why dealers should focus on their loyalty audience. Loyalty customers are an invaluable supply of high ROI sales, typically less likely to negotiate and more likely to generate service revenue and referral business.

Now amid ongoing inventory shortages across the automotive industry, it’s more important than ever that dealers focus on customer retention.

Consumer Sentiment Is Low

Nearly halfway through the year, new and used vehicle prices remain high, with buyers paying 12.2% more for new vehicles in January 2022 than the previous year. Used car prices are up even more – nearly 40% over the same period. This, in addition to the other factors still impacting the market, have led to consumer sentiment declining across the industry.

From March until April 2022, the Consumer Sentiment from the University of Michigan declined 9.4%, and by May, views of buying conditions for vehicles declined to the lowest reading this year, according to Manheim reports. Car dealership loyalty has also taken a dip in recent months, with auto brand loyalty among U.S. buyers dropping to a six-year low in 2021.

Loyalty Is Diminishing Amid Inventory Shortages

According to S&P Global Mobility, inventory shortages are having the most profound impact on automotive customer retention. In addition to brand loyalty falling to a six-year low in 2021, in a 2022 report, S&P Global Mobility found a strong correlation between days’ supply and loyalty. This demonstrates consumers’ willingness to switch dealerships – or even brands – to find the vehicle they want.

To proactively protect their loyalty customer base from competitor’s conquest efforts and promote customer retention, its critical dealers consistently engage buyers, even before they return to market.

Benefits of Building Customer Loyalty for Car Dealerships

There are many benefits of that come with emphasizing customer loyalty within your dealership including:

· Securing short term successes

· Building long term loyalty

· Supplying future care sales

Focusing on building customer loyalty offers auto dealers numerous valuable opportunities in the long and short term. While the specific percentage varies from study to study, research finds acquiring a new customer can cost 5-25x more than retaining a loyalty customer – but the benefits of focusing on retention doesn’t end at acquisition costs.

Loyalty Auto Sales in the Short Term

Focusing your immediate efforts on tapping into your most loyal customers is a fantastic way to start leveraging loyalty to increase your sales numbers in the short term – and this dealership loyalty strategy isn’t just limited to brand.

While the percentage of return-to-market households that acquire the same brand again is typically the most cited loyalty metric, S&P Global Mobility registration data details loyalty at various other levels. These levels range from manufacturer loyalty to loyalty for import vs. domestic brands.

By leveraging behavior prediction technology to analyze customer insights from their CRM, DMS, and inventory data influencing a buyer’s purchasing decisions. This allows dealers to map their available inventory to the best prospective buyers.

This process empowers dealers to meet their short-term sales goals by maximizing their available inventory – all while protecting against competitor’s conquest efforts by reaching buyers before they start shopping around.

Download the Whitepaper:
3-Step Guide to Protecting Your Dealership Loyalty Customer Base

Long Term Dealership Loyalty

Engaging loyalty customers after the sale empowers dealers to drive service revenue, build effective referral programs and ultimately fuel future sales. Not only will tapping into your loyal customer base support your immediate sales goals, focusing on this already critical segment only increases its value. To put it simply, loyalty builds loyalty.

According to S&P Global Mobility, a loyal household becomes more loyal with each purchase. For example, in 2020, older super loyalists, or those who acquired their three most recent acquisitions from the same make, generated an incredibly high loyalty rate of 90%, while young nomad buyers generated a 73% loyalty rate.

With tools powered by behavior prediction technology, dealers can reach dealership loyalty customers at key relationship building touchpoints, like with conveniently timed and personalized service notifications.

By taking a similar approach using Mastermind’s intelligent behavior prediction modeling, our dealer partners increase retention sales up to 15%.

Supplying Future Loyalty Auto Sales

Finally, loyalty dealership customers represent a critical source of future sales regardless of what lies ahead.

According to S&P Global Mobility, production in the second half of 2022 is expected to result in SAAR rates that average 14.69 million units amid continued semiconductor challenges and ongoing supply chain, logistics and worker related issues. Pent-up demand remains under threat from inflation and other macroeconomic pressures, according to S&P Global Mobility.

Despite consumer demand remaining high, NADA reported new light-vehicle sales fell 12.6% in May 2022 due to a combination of limited inventory, high prices and few OEM incentives. To achieve sustainable success despite ongoing inventory challenges to achieve record-breaking profitability looking ahead, dealers need to take a proactive approach to customer retention.

Remember: Loyalty auto sales increase in value and commitment over time.

Just as it’s critical to think ahead and protect this segment against the competition through consistent communication, dealers need to ensure they’re not jeopardizing a long-term customer relationship with a short-sighted approach.

Loyalty customers are:

an invaluable supply of high ROI sales,
less likely to negotiate
more likely to generate service and other fixed-ops revenues,
contribute to referral business.

Among inventory shortages and other uncertainties, focusing on dealership customer loyalty equates to a steady supply of highly profitable sales now – and in the future.

Download the Whitepaper:
Dealership Templates for Customer Communication Amid Inventory Shortages

How to Promote Automotive Customer Retention

Now that you know why customer loyalty is so important, we want to share with you some ways in which you can promote customer retention in your dealership:

· Define what dealer loyalty is worth to your bottom line

· Help your employees understand the value of loyal customers

· Make sure you’re focused on where the customer relationship lives

Know What Dealer Loyalty is Worth

Auto dealership loyalty is profitable. Loyal customers are less expensive to sell to, less likely to bargain aggressively on pricing, more likely to generate service and other fixed-ops revenues and are a source of high-ROI referral business.

But how profitable is it to invest in a long-term customer relationship, if that requires short-term investments or foregone revenues? A landmark Harvard Business Review paper found that improving customer retention by just 5% increased profits by 25% to 85%, depending on the industry.

As previously mentioned, customer loyalty has also diminished amid ongoing inventory. Today, not engaging loyalty customers could mean losing their business for good while engaging customers could be key to retaining their business.

To weigh their opportunities, dealers need to calculate the cost of their loyalty customers. For example, if a dealer typically sells 450 loyalty cars per year at an average $4,000 gross per vehicle, totaling $1.8 million in annual gross, a 10% hit to their loyalty rate will cost them $400,000 in gross revenue.

All this to say, improving customer loyalty for auto dealers means knowing its worth. Use what you know about your existing automotive dealership customer retention statistics, gross and net revenues and other key performance indicators to project what even small improvements or declines in customer retention would mean to your top-line and bottom-line figures.

By utilizing behavior prediction technology, you can take those predictions and key performance indicators (KPIs) a step further by determining when high-value customers will be in-market and immediately engage them before they’ve had the chance to defect. From there, measure your responses and ROI to further optimize your approach.

Have Dealership Employees Think Long Term

From a day-to-day perspective, dealerships revolve around hitting the weekly and monthly sales numbers, and that’s not going to change. This can create conflict with the way auto dealers improve customer retention. It means making decisions that incur short-term costs as investments in long-term dealership loyalty, such as absorbing repair costs in an OEM warranty dispute or offering a free loaner.

However, what’s good for customer happiness is good for customer retention and good for sales, even when happiness comes at a cost.

The important question is whether your dealership is being managed accordingly:

· Are your loyalty and satisfaction numbers posted as prominently and discussed as regularly as your sales figures?

· Are loyalty and satisfaction improvements celebrated and declines taken as seriously as the month’s sales figures?

· Does your dealership culture truly rank the customer’s experience over that month’s numbers?

· Critically thinking, what’s making a dollars-and-cents difference for your people?

· How are you rewarding your employees for building excellent customer relationships and long-term car dealer loyalty to drive dealership customer retention?

Ensure you’re utilizing reporting tools and dashboards to help understand why salespeople are or are not hitting their sales targets and where there are opportunities for improvement and growth. By actively setting, monitoring and measuring these metrics, you’ll ultimately improve on your dealership’s sales strategy.

Focus on Where the Relationship Lives

Many dealers view the customer experience through the lens of the sales floor, but in reality, once the sale is over the service drive becomes the focal point of your customer relationship. By the time the next sales opportunity rolls around, the quality of the service customer experience will far outweigh the quality of the sales experience years prior in your customer’s mind and heart.

This is especially important in challenging sales environments where the service drive becomes the de facto front door to your dealership. It’s also your best venue to profit from your competition’s failure to build dealership loyalty when you leverage your service-not-sold customer relationships to turn a service customer into a conquest sale.

Download the Whitepaper:
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This is where a dedication to the customer relationship results in real-world profits. When deployed as part of a comprehensive customer experience culture, Mastermind helps our partner dealers activate up to 55% of their service drive customers into in-market leads. This is a 4x activation rate over industry standards that helps drive up to 15 incremental conquest sales per month.

Interested in learning more about what you can do to drive customer loyalty and retention in your dealership, even in the most challenging environments? Contact us for a free demo.