If you’re in the car business, you already understand the importance of customer retention. Blog posts, marketing campaigns, and statistical studies all point to the benefit of retaining previous customers. It’s profitable. Unfortunately, dealerships face declines in customer retention each year. There is no marketing scheme or budget allocation that can guarantee 100 percent customer retention. Even with a miracle solution, investing in retention efforts is not enough.
Recently, J&L Marketing did a study of over 400 dealerships nationwide. This study took the customer data base of all 400 dealerships and ran them through a Customer Repurchase and Lost Opportunity Report Analysis. The average store had 26,828 customers in their dealership management software (DMS). Our study shows that one out of every three car buyers in a dealer’s DMS were no longer customers and 35 percent of their customers no longer owned the vehicle listed in the DMS.
This information may not seem that surprising. With a one out of three defection rate, one might assume that the retention rate of the average dealership is around 66 percent. But this just isn’t the case. In fact, the real results will shock you. The actual retention rate of the average dealership is less than 25 percent.
“The actual retention rate of the average dealership is less than 25 percent.”
Each month, the average dealership in our study sold an average of 75 new cars. In the same amount of time, 1.1 percent of the customers in a dealer’s DMS buys a new car - which doesn’t sound like a lot until you consider that this is 295 new cars.
Out of this same customer base, 1.49 percent bought a used car each month. Out of the average 26,828 people in a DMS system, this means customers bought 400 used cars per month. The average dealer in our study sold 57 used cars a month. But obviously, not all of these sales are to previous customers. Our data shows that dealerships are missing out on over 695 car sales per month to consumers currently in their DMS. Even if 100 percent of your business came from previous customers, the average retention rate is below the believed percentage.
With this many customers defecting to another make or dealership every month, you’re losing over a third of your customer base each year, not just overall! Your reaction might be to instantly review your customer retention budget and increase your previous customer marketing. Unfortunately, our data shows that this is just not the answer.
There are two main reasons as to why people defect. They’re either defecting from your store or they’re defecting from the brand you represent. New car customer loss is mainly caused by make defection. This is a market force that is completely outside of a dealer’s control. The average vehicle shopper spends about ten hours researching cars online before making a purchase. These same shoppers spend only three and a half hours at a dealership, including the time it takes to buy the car. This means they’ve made up their minds before going to a dealership. At this point, you can’t spend enough money to change their mind and you can’t make them an offer that’s too good to refuse.
Once a shopper has already spent a significant amount of time and effort researching and deciding on their future vehicle, no campaign will make a difference. They have no desire to look at your website, direct mail piece, email, or other advertisement because they’ve already decided that they want something else. Anything you send trying to convince them to buy your make at your dealership again is a waste of time and money. Ultimately, you do not know why they decided to choose another make or dealership and you can’t market against something you don’t know. Maybe another make or dealership interfaces better on your customer’s iPhone or Android!
As our data delved deeper, we discovered what effect make loyalty really had on a dealership.
Our study shows that, at most, the average brand had a loyalty rating of 42.58 percent. This means that less than half of each make’s customers bought the same make again. It does not mean that they bought the same make from their original dealer. In fact, 12.5 percent of make loyal customers bought their next new car at a different dealership selling the same make. There is no way a dealership can have a 60 to 70 percent customer retention rate, when almost 60 percent are make defectors!
In a recent Webinar, Google came to the same conclusion.
Google’s data shows that the BEST customer retention rate a dealer can have is 25 percent.
The good news here is that there’s a way to benefit from these statistics. Your new customers must out-pace your retention rate. You still need to improve retention where you can control it, but by bringing in new customers you’ll replace your defecting customers with new conquests. By allocating more of your advertising dollars towards conquest customers, you can refill your dwindling customer base.
With customer retention at such a low percentage, conquest marketing has never been more important. Our data shows that you are actually selling more cars to new customers than you ever have. The days of a “Chevy Family” or a “Ford Family” are long gone…and millennials place even less value on make loyalty. Which means these trends will only get worse.