Customer retention is at an all-time low.
Dealers seek new ways to protect their customers from defection and increase customer loyalty through marketing and customer loyalty programs, but the results are minimal.
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Blog posts, marketing campaigns, and statistical studies all point to the benefit of retaining previous customers, but dealerships are facing declines in customer retention each year.
The truth is, 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 to refill the void.
Customer Loyalty Is Dead
The days of customer loyalty are behind us.
Shoppers no longer rely on the dealers for the information they need to buy a vehicle and they're no longer attached to any particular make or model.
They find the information they need online and compare multiple vehicles across multiple brands.
Today, dealers market to informed customers who don't need dealer marketing to make a decision.
We Actually Sat Down & Did the Math…
Recently, we 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. Which meant that the average dealer had a customer retention rate of about around 66 percent.
While this might not be a surprising number to you, we delved a little deeper and discovered that this information was not necessarily the whole story.
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 bought a new car – about 295 cars total.
Out of this same customer base, 1.49 percent bought a used car each month.
This means “customers” bought about 400 used cars per month, but the average dealer in our study sold 57 used cars a month – and not all of those sales were 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 all of a dealer's business came from previous customers, the average retention rate would still be below the believed percentage.
In fact, according to one Google webinar, the BEST customer retention rate a dealer can have is 25 percent – and our data supports this.
With this many customers defecting to another make or dealership every month, dealers lose over a third of their customer base each year.
The answer to this, however, is not to increase your customer retention marketing budget.
Our data shows that this will not solve the problem at hand.
“There are two main reasons that people defect from your dealership: They’re either defecting from your store or they’re defecting from the brand you represent.”
This is because there are two main reasons people defect from your dealership: They’re either defecting from your store or they’re defecting from the brand you represent and, at most, the average brand had a loyalty rating of 42.58 percent.
This means that less than half of each brand’s customers bought the same brand again. And from that percentage of brand loyal customers, even fewer remained loyal to their original dealer.
In fact, 12.5 percent of brand loyal customers bought their next new car at a different dealership.
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 on the make, model, and even price they're willing to pay.
Once they reach this point, you can’t spend enough money to change their mind and there's no offer you can make that will regain their business.
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. Anything you send trying to convince them to buy your make at your dealership, if they haven't already chosen your make or dealership, is a waste of time and money.
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.
The good news here is that there’s a way to benefit from these statistics.
You simply need your new customer sales to out-pace your customer defection 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.
And, our data shows that conquest marketing has never been more possible.
With over two-thirds of the average dealer's DMS defecting to other dealership, there are more conquest opportunities available than ever. You simply need the right marketing strategy.
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Scott Joseph is an automotive dealer and CEO of J&L Marketing. With nearly 3 decades of automotive sales, marketing and leadership experience, he helps automotive clients grow predictable sales with his engineered, proven marketing process.