Rewards and loyalty programs are useful tools to keep your customers from slipping away
It’s a good day when a dealership is able to attract a new customer and watch the new car owner drive off the lot for the first time.
But more often than not, that car is driving years worth of aftermarket business off to the nearest Canadian Tire or Jiffy Lube. Many car owners stop returning to the dealer for service once their warranties expire, and dealers continue to be hurt by the (often untrue) perception that their services are more expensive than aftermarket chains.
According to a recent study conducted by J.D. Power and Associates, customer retention rates in Canada are about nine percentage points higher for aftermarket chains than for dealer facilities, a difference that represents about $700 million in business every year.
Dealerships need to take positive action to start regaining this revenue, especially since the J.D. Power study also found that consumers, as a whole, spent less money on service in 2011 as compared to 2010, signifying a lessened priority put on vehicle maintenance in light of other unstable economic times. Plus, drivers are keeping their cars for longer, the average age of a vehicle on the road now sitting at just over 10 years, an age where service and maintenance is likely to become much more costly — and more profitable.
Keep them loyal
There are a wide range of loyalty options that Canadian dealers can tap into to start reeling back in those customers — from point systems to cash back rewards to dedicated loyalty task forces — which is good, because these days, dealers can use all the help they can get.
The key to a great loyalty program is what Claudio Rodrigues, president of Retail Media, calls the three Ms: Meaningful, motivational and memorable. “Those are the things you need to look for when designing a reward,” he says.
A reward is meaningful, says Rodrigues, when it’s something that has significant value to a customer. A pen or a calendar isn’t going to cut it. With motivational comes the fact that consumers need to be able to aspire to really benefit from the rewards available, thus luring them back into your dealership to get the service done there, rather than the closest Mr. Lube. And finally, rewards have to be memorable. An example of something that often misses this last mark, says Rodrigues, is cash-back incentives. “Cash is fine,” he says, “but cash is often just used to pay down debt, so it’s not really memorable. There’s no consumer engagement.”
Build up points
One of the more common ways to incentivize consumers into coming back for more is to implement a points-earning system, similar to the hugely popular Optimum points system at Shopper’s Drug Mart, which Daniel Tardif, president of IQ 7/24, refers to as one of the best loyalty services in Canada. IQ 7/24 is a marketing company that specializes in generating customer loyalty in Canada’s auto dealer industry that offers dealers customizable loyalty programs that can be built on points (to be redeemed at the dealership). Another option, he says, is to include “privilege” in with the loyalty program, that is, things that can’t be purchased with money, like being able to skip the lines during a busy time.
If creating a custom points system for your dealership isn’t for you, you can also tap into existing points systems, like Air Miles and Aeroplan, which come with the benefit of easy recognition, since the majority of your customers will already be familiar with the brand and are likely to be already very loyal to it. The downside is that the points won’t necessarily be spent back at your dealership.
Rodrigues manages the Air Miles Incentives program, which allows dealers to purchase reward miles in bulk, and distribute them at their discretion throughout the year, either awarding them on a per-dollar basis, or in a lump sum in exchange for certain products, such as extended warranties or accessories.
Rodrigues says it’s also a useful tool to give customers an incentive to fill out customer service surveys. Air Miles also offers exclusivity within a given geographical area, which gives you an added competitive edge over other dealers in your city.
(It’s worth noting that the Air Miles Incentives program doesn’t develop programs for service, because of an Air Miles exclusivity deal with Goodyear.)
Similarly, the Toronto Automobile Dealers Association recently penned a deal with Aeroplan to offer that incentive program to Ontario dealers. “An individual dealer couldn’t pledge the commitment required for the program as one, or even four or five dealerships, so the association was able to work out a plan on behalf of our dealers,” says Todd Bourgon, executive director of the TADA.
“Canadians are very loyal to things they can collect points on,” says Bourgon, who says that another benefit to Aeroplan is that, because other businesses such as Home Depot and Esso also offer Aeroplan miles, they’re essentially advertising your loyalty program for you. Bourgon says they’re also currently developing a system where collectors can use their Aeroplan points to purchase gift certificates for the dealerships, so the money would then funnel back into the original dealership.
Of course, offering points isn’t the only way to get consumers back into your dealership. Another option is to appeal straight to their wallets with actual cash. “It’s real dollars, so it’s not only enticing your customers to come back, because they have real equity in the dealership, but it’s creating a different revenue stream,” says Jennifer Nelson, vice president of marketing at MoneyBar Rewards, of the company’s DealerCard program.
This kind of program gives dealers additional leverage when negotiating sales, too, says Nelson. For instance, if a customer asks for a discount off a new car, a sales associate might then say, “Well, I can’t knock anything off the price, but I can put $500 on your card that you can use for any purchases in the dealership, or in the service department.”
“As a consumer, I know I’m not likely to drive 45 minutes out of my way just go to to the dealership for aftermarket stuff,” says Nelson. “But if I’ve got a dealer card with actual money on it, I probably would.” Plus, the service centre is typically where dealerships make good money, rather than on the sale of new cars.
The voice of the dealer
Instead of going the way of points or cash rewards, another option for dealers to consider is to simply ramp up their customer relations departments — and hire experts to do it. Suly Inc. is a company that can do just that. “We take charge of the communication in the name of the dealership,” says president Suzanne Sills. “We either invite them for maintenance on their vehicle, or inform them of programs, and just see how we can get more customers to use the dealership. We become the voice of the dealer.”
Suly doesn’t offer any specific incentives programs as part of its offerings, but it will incorporate dealers’ existing rewards programs into the communication with the consumer.
A lot of the time, says Jean-Guy Carvahlo, director of performance improvement solutions at Suly, dealers will have their sales staff handling the customer retention calls, but those people more often than not don’t have the time, or the organizational skills, to be able to do this effectively.
People buy from people they like
Of all the tricks dealers can employ to try to retain customers, Carvahlo says the one he’s found to be the most successful for the most dealers is simply developing a good honest relationship. He calls it the “human touch.”
“Services can be replicated, price can be replicated, but when you’ve got someone able to develop a relationship with a customer, and the customer feels he can trust that person, that’s a very hard thing to replicate,” he says. “That’s what you’ll find in the most successful dealerships.”
So with so many options available, where are dealers going wrong? According to IQ 7/24’s Daniel Tardif, the biggest mistake dealers make is in trying to treat each customer equally. “Loyalty programs are all about finding out who are your best customers,” he says. “Most retailers, including auto dealers, don’t know how to do that.”
Boost your service dollars
According to Paul Mountney, senior vice president at Dealer Rewards Canada, a common misstep dealers make is focusing too much on new car owners, who are typically just doing oil changes and service check-ups, and subsequently losing opportunities to service five to seven year car owners with more expensive repair and maintenance needs.
Additionally, he says, there’s too much of a focus on new car sales. If sales are down, Mountney says a dealer will often focus on selling, say, five more cars that month, but in doing so could be “losing $200,000 a month in the service department due to defection,” which is way more than the dealership made on the sale of those five cars.
“When the economy turned in 2008, aftermarket shops were doing record sales,” he says. “Customers still have to maintain their vehicles, but they’re not going to the dealer.”
The one key thing that dealers are often missing, which causes them to lose potential loyalty, is not putting an effort into making sure a customer is going to leave feeling good about the experience, says Tardif. This can be especially tricky, given that many consumers have a negative perception of going to a dealership for service.
Tardiff says dealers should run their businesses like a dentist’s office. No one likes going to the dentist: You get poked and prodded, and at the end of it, you get a bill for $150. But after you pay your bill, the dentist gives you a bag of goodies, maybe a toothbrush and some dental floss and gum. “You get out of there not thinking you paid $150 to get your teeth cleaned, but thinking that you got a little bag of free stuff,” says Tardiff. “It’s important that the last experience is a positive one.”
The bottom line, according to Bourgon, is that while all dealers know they need to retain their customers, they need to start thinking about reward programs as a way to create loyalty, rather than just a cost. “Of course there’s a cost to retaining a customer, but there’s an even greater cost to losing the customer.”