Published in Automotive

The No. 1 Enemy of Dealer Customer Retention!

I discovered a surprising truth after three years as Customer Retention Manager for a large volume dealer in Houston. There is a hidden enemy that must be addressed before any customer retention initiatives can be achieved. It is the no. 1 enemy of client retention, and yet most practitioners fail to recognize it, let alone address it.

It’s the reason why many dealers are left with small, gradual changes in their retention efforts that pale in contrast to the huge budgets and time spent acquiring new customers. But by keeping an existing customer, who is apt to buy again, dealers could be spending many times less to obtain the same amount new vehicle sales.  As proof of this, the 2018 Cox Automotive Service Study found that buyers who returned to the selling dealer for service in the past 12 months were 74% more likely to return to that selling dealer for their next vehicle purchase. Returning service customers were 74% more likely to buy their next vehicle from that same selling store! Those who didn’t return for service in the past 12 months were only 35% more likely to return for their next purchase.  That should gain the attention of most dealer GM’s, who generally come from the sales side of the business.

And speaking of sold customers returning for their next vehicle purchase, that same Cox study revealed a negative by-product of today’s obsession with “conquesting” sales from other dealers.  “Not a convenience location” (no. 5 reason in the 2015 survey) moved up to the second most given reason for new vehicle purchasers not returning to the dealer where they purchased.  So, there is a very good chance that many of today’s conquest vehicle sales will not return to that original dealer for service because they live out of the area where the selling dealer is located.

So, what is the number 1 enemy of retail auto customer retention?

No, the number 1 enemy isn’t a limited budget. Although a sufficient budget is necessary, it’s not the real enemy of a successful retention strategy.

Lack of buy-in from the dealer and management? It’s important, but the reason store leadership doesn’t get solidly behind a retention push is directly tied to the no. 1 enemy.

Silos are a real problem. You must address them, and it is not simple to do so, but they are not the real problem.

Competing initiatives are often cited as a reason for lack of meaningful progress in addressing customer retention. But these agendas usually directly support the number 1 enemy of retention. And that focus distracts management from seriously directing resources in the support of retention.

The lack of a robust technical infrastructure? Yes, retention can be aided with better technology, but it is not the true obstacle to retention.

Lack of training? It certainly helps to have trained employees, but if the average auto retailer really believed in retaining existing customers as a primary strategy, they would find the budget and time to train their workers. HINT: All the training, technology and “knowledge” in the world is not going to thoroughly address the number 1 enemy of retaining customers!

Lack of support from the OEM? No, automakers are offering more and more mega cash incentives for customer retention, as I covered in this post for the MaritzCX Cafe blog.

It’s transactionalism, an all-consuming focus by dealers on the “deal” or the “RO” is the number 1 enemy of a successful customer retention program. And that obsession consumes both the larger part of store budgets as well as the time spent by the staff.So, what is the number 1 enemy of a successful customer retention transformation?

Transactionalism describes the decades old, deeply ingrained tradition of placing the transaction front and center as the primary strategy for most auto retailers. And while the transaction has always been the primary focus of showroom sales, it’s just as prevalent these days in the service lane. Customer facing employees are paid to maximize and close “deals/ROs”, and because of that, retaining customers takes a back seat.

I’ve heard it said time and time again that there is little customer loyalty these days in retail auto. But how would we know? If the industry is so intoxicated with the transaction, and much less so with retaining the customer, it’s no wonder customer loyalty is perceived as dead. I spoke directly to this reality in a past MaritzCX Cafe post titled Retail Auto: Client Loyalty is not Dead, But Client Follow-Up is!

But there’s a glimmer of hope on the horizon.  Early last year, one of the largest automakers launched the first ever OEM customer rewards program and another major manufacturer followed soon thereafter.  And there is strong evidence that other OEMs are pivoting more and more towards implementing strategies that handsomely reward dealers and their associates for focusing on  retention.

That’s great, but the big question left is, how are the OEMs going to move the needle of retention forward, when most of the dealers are still consumed with “transaction?”  This is all about changing behavior at the dealership, which is the toughest challenge of all.