In the automotive industry, the ability to earn a greater share of a customer’s spend is the key to driving higher customer lifetime value. To that end, many dealers utilize flawed retention strategies designed to achieve a minimum number of service visits rather than maximize the revenue potential from every customer.
Unfortunately, today’s automotive retention measurement and marketing programs are often severely limited, and most only tell a partial story about a dealer’s retention performance. For example: a typical retention program used by dealers will identify which customers have exhibited some minimum level of activity in the last 12 to 18 months––e.g., made a service visit––vs. those who have shown no activity. The typical reaction is to invest more in the no-activity customers with the hope of converting them to a loyal customer.
However, this strategy has two key risks: first, inactive customers are often defecting for reasons outside of a dealer’s control––a factor corresponding directly to the frequent disconnect between a customer’s wants and a dealer’s value proposition. Second, and perhaps more surprising, if you are lucky enough to reactivate a customer, they are significantly less likely to return again for the next visit. We analyzed a national sample of over 2M dealer customers and discovered customers who were once inactive and recently visited a dealer are 50% less likely to be retained than a customer who was always active.
The predictable result: over-investing in inactive customers may eventually lead to a downward spiral of performance, where high-potential customers are replaced with lower-value customers over time. Dealers are then forced to find even more low-value customers in order to replace the lost revenue of their best customers, and the unproductive cycle continues.
What should dealers focus on instead?
Dealers can offset the limitations of retention management programs by shifting some of the focus (and marketing dollars) to capturing a greater share from their active customers. Identifying the untapped potential for each customer is a crucial first step. This is determined by evaluating an owner’s complete transaction history over the lifetime of their current vehicle. From there, dealers can determine a service share of visits, which compares a customer’s actual lifetime visits to the number of expected service appointments based on the manufacturer’s maintenance requirements. The service share of visits score is one of the most important metrics available for measuring a customer’s potential.
To provide a specific frame of reference and determine the real percentage of expected maintenance visits that dealers are currently capturing from vehicle owners, AutoLoop analyzed the service transactions from over 1,000 dealers. We found the average share of actual service visits was just 50%. Translation: dealers are only netting half of the existing service opportunity from their active customers.
By employing the service share of visits metric, dealers can identify which customers in their database offer the best potential (such as customers with a score below 50%), along with which services they’re missing. Although they may have had just one service visit in the last 12 months, the low-share customers are still active and receptive to marketing messages, and they provide the greatest possibility for service growth. In other words, since these owners are currently splitting their service spend between dealers and aftermarket service centers, dealers who can successfully recoup all the revenue potential instead of simply a small portion stand to see the most profit increase.
As well, dealers can further maximize their retention initiatives by pinpointing the particular service(s) a customer is missing. We analyzed the service history of consumers from a national sample of dealers who purchased new vehicles and discovered that in the first 5 years of ownership, only 25% bought tires from a dealer and only 13% bought brakes. Knowing and using the full history of each customer enables dealers to strategically target their marketing with messaging geared toward every individual’s specific service opportunity.
The automotive service industry’s existing retention measurement and marketing programs, while useful to a point, only solve part of the problem. A more comprehensive approach would empower dealers with the information needed to make the most of their marketing investment. By utilizing share of services in combination with the current retention measurement offerings, dealers can capture the full potential from their most profitable owners and avoid the downward cycle of overinvesting in lost customers.
Doug Van Sach
VP of Strategy & Analytics
Blog | DATE 05, 2020