Tag Archives: retention

Factory Rewards Programs Versus Dealer-Owned Rewards Programs

Customers like to be rewarded and the more you reward them, the more loyal they become.

One of the OEMs has an new loyalty program in which their dealers will soon need to decide whether or not to sign up for it. I commend the OEM for recognizing how important it is to design this program for their dealers. Their reason for starting it was to “incentivize customers to spend more money, more frequently.”

A friend of mine asked me to look at the program and compare it to the dealer-owned program he is currently using. Here’s how they stack up.

How easy is it to join?
OEM: Every customer is not automatically enrolled. They have to sign up and join the program.

Dealer Owned: Every customer (new and used) is enrolled in the program as soon as they buy a car or come in for a service visit.

Is there a cost to the program?
OEM: Yes, some dealers will pay $1,000 a year, and all will pay 2 percent of every repair order of a member. This money will be used toward the rewards points and the OEM will match at 1 percent. After five years the points will expire, and the dealer will not participate in the reserve.

Dealer Owned: The dealer decides how much he wants his points to be worth, and how much he wants to spend to administer the program. The two biggest differences seem to be the money for the points reserved stays in house and all of the reserve belongs to the dealer.

How do members earn points?
OEM: Customers can earn points in a variety of ways. Enrollment, CPO purchase, vehicle purchase, customer pay service and the in-vehicle safety and security service, to name a few. They earn a different voucher for each component.

Dealer Owned: The dealer designs how he wants the points to be used, when he wants them to expire and how to combine them to be the most effective.

How do members redeem points?
OEM: The member has to download a voucher, which has an expiration date on it, bring it to the service drive, present it to the service writer, who then looks it up and redeems it. This voucher then needs to be submitted to the OEM for redemption before it expires. If it expires, the dealer has to pay for the points again.

Dealer Owned: The customer comes in, redeems his points on his app in front of the service writer.

Can I customize the program?
OEM: No, dealer-specific enhancements are not available at launch.

Dealer Owned: Yes, the rewards program can be tied into your digital marketing and your app with the intent to drive customer behavior. You can also enhance the program by adding other features like prepaid maintenance or bundling products to the rewards card.

Is Training Offered?
OEM: Training will be available only on a special website.

Dealer Owned: In-house monthly training for all service and sales staff.

So, as I see the breakdown, there are benefits to both. The good thing is the customer will win in the end no matter which program you use.

One word of caution, if you decide to go with a factory program, since the dealer does not participate in the reserve, you might want to ask an administrator to keep track of the points you are giving out to your customers. The breakdown is two to one, dealer cost versus the OEM. You need to make sure your customers are redeeming at least 66 percent of their points or you will be losing some serious money.

In the pilot program, only 20-some percent of the points were redeemed. Another benefit of having an independent administrator overlooking your program is, unlike a dealer-owned program, every dealer in town will have the same rewards program. You can greatly enhance your branding opportunity by not only tracking point usage but also adding other features to your factory rewards card to separate you from the pack. The cost to administer this is a fraction of what the benefits will be.

Creating loyalty to your business is not always easy. As you can see, there are a variety of ways to accomplish it. One person wants to have their own branding message and control over that message. The other person wants a more traditional footprint in their marketplace. The important thing is, we are now building our business on repeat customers who appreciate our service.

 – Jack Garrity

Understanding Rewards

In the Feb. 12, 2018, issue of USA Today, there was an article about how people respond to rewards. It covered a lot of ground, but the main thing I took away from it was that if people felt engaged in an activity they reacted in a much more positive way. The article was written by Jeff Stibel, who happens to be a brain scientist. Far be it from me to put an old car guy in the same paragraph as a brain scientist, but it did get me thinking about how little people understand about the concept of rewards to the retail customer. Stibel said, among other things, that rewards were “psychological tricks.” He also stated that “…paradoxically, people will pay more money and perceive a higher value if they have to do something to ‘earn’ a product or service.”

So, I wanted to apply some of this thinking to the car business and see how rewards shake out. First off, a “psychological trick”? As it pertains to his study, it was probably true but is that really how rewards work? Customers will see right through a bogus program. Many retail rewards programs aren’t very strong. A solid rewards program is not trying to trick the customer into doing business but thank them for their business in a meaningful way. Secondly, I couldn’t agree more that people perceive a higher value in a reward if they have to do something to earn it.

Coupons are a classic example of how this works. If you use coupons to drive your service business, there is really no customer involvement. Let’s say you charge $49.95 for an oil change and a tire rotation. You send out a coupon for $9.95 oil change to drive some traffic to your service drive. First off, you lost $40 on the coupon. Secondly, I guarantee that 80 percent of the customers are coming in just for the coupon. This will bring no extra business and you will probably never see them again. They didn’t earn it, so it is not very rewarding.

Now, let’s look at it from the rewards side. Same scenario, but instead of a coupon, the customer gets $40 in rewards points. Now the customer did something to earn it. He came in, spent $49.95 for the oil change and, in return, he received reward points he can use later. He earned them. An added benefit is the service department gets two visits instead of one.

Reward programs seem firmly rooted in the hotel and airline business but not very well received in the auto industry. I had lunch with a service manager recently and we were discussing reward cards for the service drive. He said he didn’t need them because he already had the customer in his service drive. Why should he send money if they are already here? I pointed out that I had used the same service department for all of my service work for the last four years and when I needed tires, I went back there to spend the $118 in rewards that I had earned during those last four years on a new set of tires. I also explained it was the first set of tires I had ever purchased at a car dealership and not a discount tire center. He said, “Well, maybe in some cases….” This perception is prevalent in the auto industry.

In another case, a dealer with a large chain of stores dropped his rewards program. He said he had more than $5 million in rewards points out on the street. He asked me what would happen if everyone redeems them at the same time? I think his exact words were, “If that happens, I’ll go broke.” Once again, this is a classic case of someone not grasping the concept of rewards. I explained to him his customers were redeeming points at less than 3 percent per year for the last four years, and I asked him how much service had he received off his program if the $5 million in points represented just 5 percent of all the service business he had written during that time.

People tend to have many different notions of what rewards are and how they work. In his article, Stibel said that “shopper rewards programs aren’t rewards at all.” Many in the auto industry look on them as just an unneeded expense. Used properly, however, they are a tremendous asset to any retail business. It is one of the key ways to keep your customer engaged in your business — and coming back — for a long time.

Jack Garrity

How to Build a Public Relations Position to Grow Customer Retention

“How would you create a ‘wow’ buying experience for the customer after they purchased their car? How would you set up a brand new profit center by developing a public relations manager?”

I have had a few calls from people about last month’s article about using the “Apple Experience” in your dealership’s service drive to retain customers. The main question that kept coming up was how to set up this type of program. This month, I will try to outline the steps I would take to develop this experience in a dealership.

One of the things I suggested was to get more Millennial and newly graduated college students into our business. How would you create a “wow” buying experience for the customer after they purchased their car? How would you set up a brand new profit center by developing a public relations manager? How would you get better penetration on F&I products? And, finally, how would you pay for it all? Let’s drill down on some of these things in a little more depth.

The first step is to advertise for recent college graduates. Let them know this is a manager-training program. You may want to hire more than one as the program grows. I would start their salary at $600 per week, plus commission. In order to offset this cost, I would have the company I buy my F&I products from contribute part of this expense. I’m sure they will have no problem with this because this person will be selling their products full time and the penetration should go through the roof. If you have an agent or customer retention company or, really, any other company doing business in your store, they can contribute as well. All of these people will benefit in the long run and what’s wrong with someone paying the dealer to do business in their store? Think about it: If that cost is split three ways, you are hiring a college grad in a management position for $200 per week. If it is split with more vendors, it will be even less. As this person gains more experience, they can be worked into other departments, and now your management program is up and running.

The second step is setting up the program. Everything we want sold should be laid out on an iPad. When the customer comes in for service, we pull them up, we have the date they bought their car and what they purchased in F&I at the time. We will know when they go out of warranty, or when their service contract expires. Did they purchase a prepaid maintenance package or other products, such as key fob coverage, wheel and tire coverage or ding and dent? The public relations manager can review the benefits of each product with the customer, even showing a short video on the value add for any of these products. If the customer doesn’t have time for a review, we can email a feature benefit presentation to them so they can look at it at their convenience. Think of a business development center for your F&I products. The public relations manager will make a commission off of each product he or she sells. We could also wrap it with an equity-mining tool and he or she could be commissioned on car sales, as well.

The third step would be the sale of accessories. Everyone wants to sell more aftermarket products. Tires, batteries and wiper blades could be advertised in a targeted marketing campaign. Sell bed liners to truck customers, and wheels, rain guards and window tint to customers on the anniversary of their purchase. The PR manager could get all the op code declines and develop a coupon campaign that could go out nightly. With all the information from the DMS at their fingertips, they can easily spot when a customer is ready for an upgrade. All of this marketing could be done on-line with just a little help from a graphics department.

Even the question of who manages and trains the public relations/manager trainee can be answered using one of your vendors. Any vendor who is currently in your DMS could easily work with your F&I provider to develop this program. They could hire, train and supervise and then, when you decide to promote them to another department, they could do it again. It really is a low-risk, high-rewards proposition for any dealership.

The last step is truly the public relations part of the program. This person will be the liaison between the service department and all the other departments in the store. If you have a rewards program, a customer Website, a customer app, weekly coupons, and a lifetime engine or powertrain component, all of this can be reviewed and sorted out either in person or through email communication. This person’s success will be based on their ability to develop a good relationship with the entire database and develop your store into the customer’s dealership for life.

Jack Garrity

Loyalty Versus Retention

Every business wants a loyal customer. Who doesn’t want a customer who is unswerving in their dedication to your business? Who doesn’t want to do business with someone who is as faithful to you as a customer that they would never think of purchasing something from anyone else? If only our customers were like our dogs, loyal to the end regardless of the circumstances. Well, we are never going to find customers as faithful as our dogs, but you get the point. Creating devoted customers does not happen overnight, nor does it always last a lifetime, but staunch allies can grow our business faster than any other factor we have. Their steadfast devotion to us is not only good for our business but they become advocates in the community that extends our message far better than any advertising campaign.

The question then becomes, how do you create loyalty? Here is where the quandary comes in. Before you can have any degree of loyalty, you need to design something that will keep the person engaged until they become a strong supporter of your business. What type of retention tools are you developing to create a steadfast customer whose loyalty will be contagious in your community? These tools are where retention comes into play.

In the automotive business, you see many different programs popping up designed to create retention. Unfortunately, not all of these are designed to create loyalty. Loyalty comes from a great customer experience. This customer experience needs to occur over and over again. Let me give you a few examples. One dealer gives away the first two oil changes free and one has lifetime oil changes. Which retention program creates more loyalty? One dealer gives a free tire rotation when you purchase a vehicle, and another gives you a rewards card that earns point toward free service for the life of the car.

Starting to get the picture?

Customers become loyal when they think you have gone the extra mile. The days of saying, “We’ll treat them right and they’ll come back” are pretty much over. Everyonetreats their customers right in this market.

Retention programs are not the answer to the problem but the tool for solving the problem. Picking the correct method of retention can go a long way toward developing a strong loyal following. The branding message that develops your loyal customer will, in time, create that raving customer.

Keep in mind that choosing your retention method is not a one-size-fits-all decision. A good CRM program is not necessarily a good retention tool — unless it combines a series of messages throughout your business. A factory rewards card isn’t branding you as someone different in the market place; every dealer has the same program. You don’t necessarily want loyalty to the brand — you want loyalty to your business. What is your message? How do you communicate that message to your customer? A combination of retention tools designed to deliver a unique message that your customer sees value in is always the best step.

That fact that loyalty is not created overnight can be perplexing to the average business. We all want instant gratification and, when we spend money, we want to see it go immediately to the bottom line. That’s why the rush to just grab the first thing that comes down the line is so enticing. That is also why it usually doesn’t work, and we wind up throwing good money after bad. Think of the things you are most loyal to — your school, your church, your favorite sports team, etc. Did it happen overnight? They all provided you with a great experience, a great memory and, over time, a dedication that is hard to shake.

So, where should we focus our retention efforts? In my experience, when trying to develop loyalty and retain your customers, it’s best to focus first on the service drive.

I see a lot of stores offering lifetime powertrain and they are calling it a retention program. Yes, there might be some form of retention in having the customer call to get an authorization number for service, but overall most of these programs will let the customer go anywhere for their oil changes and maintenance. The problem with this is retention begins and ends in the service lane. Lifetime powertrain as a stand-alone retention tool is not enough. It mostly helps us sell more cars — that’s not a bad thing, but to have people talking about our business like they do Amazon Prime it’s going to take a lot more than this to move your numbers to the next level.

To start the process of developing loyal customers for your business, you need to lay out a comprehensive plan that is ongoing and develops a branding message that separates you from your competition. It might not be one retention tool but several. Lay out the plan in advance and make sure you have total buy in from your management team. Look at each department and see what type of retention tool you are using to create loyalty. It is very important to have a way to measure your results, but the best measurement is say to yourself, “If I was the customer, is this program so special that I can’t imagine ever wanting to shop any place else for my automotive needs?”

Jack Garrity