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How Three Dealerships Parlayed Loyalty Programs Into $$$
Car Dealer Insider Case Study – Part 1 of 3

DealersEdge Car Dealer InsiderSeptember 15, 2010 – Years ago, Car Dealer Insider worked on a study of a large dealership group that used customer retention as one of the key factors in measuring the group's performance against other financial goals. That is, if you assume that your dealership will retain all of the customers that have purchased vehicles from your store for at least five years you would have one-hundred percent retention. One hundred percent retention is a worthy goal but might be unrealistic in an industry where vehicle purchasers tend to abandon the dealership nearly as soon as their new-vehicle warranty expires.

It is that discrepancy between what dealerships owners aspire to and what happens on the ground that gave rise to the idea of Customer Relationship Management (CRM), but the less said about that experiment, the better. Today the focus has turned to so-called Loyalty Programs, that strive to give customers an incentive to come back to the dealership whether they feel they have a relationship with the store or not.

The incentives can be as simple as the ubiquitous "Punch-A-Page" deals that offer a free oil change after the customer pays for four LOFs and can prove it by presenting his punched card. Or they can be far more sophisticated, and expensive, as some dealers have discovered. The cost isn't the issue. Value is. What's the ROI from the dollars I spend every month trying to build customer loyalty?

A company called Performance Loyalty Group takes those numbers very seriously and Performance Loyalty Group managing partner Mike Gorun has research that shows a dealership with a 70% customer retention rate will have lost three times as many customers as one that retains 90% of its customer base. That gap translates to real money.

Let's take those figures as given, at least to the point that dealerships that retain customers will make more money if, for no other reason, than they don't have to spend so much to attract new customers. Also, current customers are by far the best source of new business for any business.

Without quibbling over whether 70%, 80% or 90% is the right number, let's accept that repeat business is good and move on to the experiences of three dealerships.

Three Stores

The three dealerships that we will be following are Tom Wood Nissan in Indianapolis, Santa Monica Acura in Santa Monica, CA, and Humberview Auto Group in Toronto, ON, Canada. There are others to be sure but these three give us some geographical diversity and they have been successful by following the Ten Critical Factors that determine the success of a loyalty initiative:

  • Don't aim for a quick fix
  • Communicate with customers using the Three Rs
  •   – Right Message, Right Audience, Right Time
  • Include a provision for acquiring new customers
  • Get to know the customer
  • Provide attainable affordable rewards
  • Measure costs and ROI; always recover costs
  • Identify and empower the loyalty team
  • This is a long term project
  • Create barriers for the competition
  • Keep it simple

Secure in the idea that it is more valuable to have thousands of "members" who voluntarily join the dealership's club rather than having thousands of customers that need constant marketing and reminders, these three stores have thrived, even in a down market.

Key Components

According to Mike Gorun, any successful customer loyalty/retention program should encourage multiple levels of membership. For instance:

Base Level – free with purchase or first service of a vehicle.

VIP, Gold, Platinum membership – Must be earned with repeat business or may be purchased, included higher level of benefits, and convenience items like free loaners, car wash, detailing, etc.

Maintenance membership – Purchased for a fee. Includes base and VIP benefits plus additional prepaid maintenance items.

Club or Enthusiast Membership

Regardless of your approach, the most important goal is to develop an ability to change customer purchase behaviors. Offer incentives to get new customers and for referrals from current customers. Offer increased benefits for customers who register multiple vehicles with your dealership regardless of where the cars were purchased. Give a bonus for completing 15, 30, 45, and 60K maintenance with your dealership. Use the support/sponsorship for community events to drive business to your dealership.

CRM vs. Loyalty

Customer Relationship Management programs have been a valuable development for car dealers, but they tend to be dealer-centric. Automated direct mail programs, email marketing campaigns, and telephone follow up by sales and service are all good things, but what's in it for the customer?

Customer loyalty initiatives promote the idea of "membership," they add perceived value to doing business with you, they use incentives to influence buying behavior.

Michael Gorun is the managing partner and founder of Performance Loyalty Group, a company he started in 2003 after nearly 25 years in operational management positions for Ford, Nissan and General Motors. You can reach Michael at: mgorun@performanceloyalty.com

For more information about the UltraCare PrePaid Maintenance Program from Performance Loyalty Group, contact Jeff Shenk at: 925-415-1300.

About Performance Loyalty Group

Headquartered in San Ramon, California, Performance Loyalty Group is a leading marketing technology company providing customized loyalty rewards, customer retention, prepaid maintenance and media tracking programs for the automotive industry.

Performance Loyalty Group Contacts

Jeff Shenk
Performance Loyalty Group
Sara Callahan
Carter West Public Relations

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