Why trust and not price is the key to not only earning our customers’ business but also retaining it
Is Ivan Pavlov alive and well and working in your dealership? Pavlov, if you remember, was a Nobel Prize winning Russian psychologist whose views on conditioned response learning became prominent in the early 1900s and endured long afterwards. One of the basic tenets of his work was the fact that people can be conditioned to respond in a certain way to a stimulus.
We are all like that in a way. Special offers, coupons and other promotions cause us to respond to the call by retailers (including car dealers) to come in and spend our money. These certainly have their place in the general pattern of doing business.
But what behaviour do these incentives or stimuli encourage? Unless they absolutely have to make a purchase, consumers in most sectors have learned to sit on the sidelines, waiting for the right offer before they commit to any major purchase. Black Friday and Boxing Day sales are prime examples of how the retail world works. In auto retailing, cash incentives and special financing options (low interest rates and extended loan terms) have become so ubiquitous that it’s difficult for manufacturers and dealers to stand out in the marketplace. At a recent conference in Toronto, LMC Automotive showed the percentage of new vehicle loans with terms of 72 months or greater to be 69 per cent (up from 42 per cent in 2010). This is an astounding number indicating the lengths we’ll go to in order to coax consumers into purchasing new vehicles, regardless of the longer term consequences.
FOCUS ON SERVICE
So much for the sales side. How about the service side of the equation? While the focus may not be as sharp on incentives offered to customers to service at the dealership, the practice is certainly widespread. Evidence suggests that incentives for service loyalty do work to an extent, but there is still huge potential for dealers to increase their service business, especially among customers with vehicles out of warranty.
The chart below shows the percentage of service occasions done at the dealership versus those done at an aftermarket establishment by vehicle age and for luxury and non-luxury vehicles. While luxury brands are quite successful in keeping the customer at the dealership, the drop-off as the vehicle ages is clearly visible for both luxury and non-luxury vehicles. It’s important to look at this information based on service occasions, rather than on percentages of customers, as that reflects more accurately the business potential. If you see a customer twice per year, is that a loyal customer? How about any other service occasions that might take place — like tire replacement, a quick oil change, a brake job, or even some body work? All of these services are revenue generating opportunities. This is where promotions and incentives come into play. They are legitimate tools to get customers coming to the dealership for specific items, often with the expectation that additional work can be performed. But what impact do they have long term?
WHY DO CUSTOMERS GRAVITATE TO THE AFTERMARKET?
Let’s look at this through a different lens. I have often been asked the question: “Why do customers gravitate to aftermarket service providers once their warranty is up?” One of the common perceptions is that customers view the dealership as a more expensive place to have service done. We know that this is very often not the case, but perception is reality. Relying on special offers and incentives alone to pull those valuable “out-of-warranty” customers back just reinforces that perception. Some will only visit the dealership if there is a special offer. If an offer or coupon is the only reason your customers come back, it’s likely costing you more than it should and you’re missing the larger opportunity.
Another perception is that dealerships always “upsell” on service — doing things that aren’t really necessary. This might be wrong and merely reflects the dealership trying to get the customer to follow the manufacturer’s recommended maintenance schedule. But in the context where customers already view the dealership as expensive and perceive these efforts as unnecessary upselling, there is an understandable skepticism and lack of trust. This is a key reason why owners gravitate towards the aftermarket, where the belief is that they can get more reasonably priced service and can trust the service provider.
BUILDING TRUST AT THE POINT OF SALE
Trust, not price, is key to customer loyalty. The time to start building trust is at the point of sale. But we have to get over the resistance to talk to customers at that time about the longer relationship that vehicle ownership brings, but set expectations from the beginning. If this is done in a transparent and consistent way at the point of sale and at every visit to the dealership or communication with the customer, there is a much stronger likelihood that the customer will trust the dealership more.
There will always be a place for promotions and price incentives in service, but if these activities are part of a more transparent relationship, they can help build trust instead of eroding it. Changing habits by employing a stronger sales-to-service transition process and by using service promotions in a much more targeted and customer-relevant way, will build trust.
HOW DO YOU BUILD TRUST?
I read an interesting piece in a retail publication recently that listed five simple steps in building trust and loyalty among customers. These are not blinding revelations — just a common sense checklist for a healthy business:
- Treat customers well;
- Build the relationship;
- Give customers a reason to come back other than price;
- Out-do the competition (doing all these things is more effective than lowering prices); and
- Deal quickly and effectively with complaints.
So, let’s stop training customers to see dealer service as expensive and to distrust Service Advisors when they recommend valid service activities. It’s not that easy to break old habits, but having some simple guidelines, like those above, can help. Start training your customers to do the right things!
