Published in Automotive

The $ Value of Loyalty

Given the lengthy purchase cycle for new cars and the intense competitiveness of the market, car dealers have a special challenge in creating loyal customers. Is it worth it? A linkage study funded by Maritz “showed them the money.”

While all businesses would likely agree they want customers to leave happy, it can be challenging to justify an investment in the larger customer experience. To help measure the financial return, the Maritz Research carried out a study to calculate how improving a customers’ car-buying experiences positively impacts a car dealership’s bottom line.

The study found that the average car dealership could generate an additional $106,315 per year in gross profit by making their customer’s experience a top priority.

“It’s always been assumed that happy customers are good for business, but this study provides hard data to back up that theory,” said Chris Travell, vice president of strategic consulting for Maritz Research. “For many dealerships, when it comes to improving the customer experience, they say – what’s in it for me? Now, customer service should be seen as a profit-generating endeavour, and we can actually calculate the payoff.”

Loyalty drives vehicle sales.

To determine the financial impact, the study examined two areas that drive profit for dealerships – vehicle sales and service revenues – to determine the potential incremental profits. Models were created estimating the impact on an average dealership’s sales and service gross profits due to an increase or decrease in customer satisfaction scores by one level. For example, people moving from feeling “very satisfied” to “completely satisfied” with the car-buying experience. The average dealership sells 726 vehicles per year. By increasing satisfaction by one level our projections showed that the average dealer would sell an additional 329 vehicles.

We found that when in the market for a new car, satisfied customers were much more likely to return to the dealership where they bought their previous car compared to less satisfied customers. This is intuitive but the study went a step further by calculating the financial benefit, determining that a dealership could earn more than $64,000 each year in additional sales profits if the dealers were able to increase their customers’ satisfaction over the lifetime of their vehicle by one level.

Service loyalty brings in maintenance and repair revenues

The study also revealed how customers’ satisfaction with their car-buying experience affected the likelihood of them visiting the dealership for future maintenance and repairs. A similar analysis found an estimated increase in service profits for the average dealership of $41,646 per year. Combining additional sales profits with service profits reveals a potential incremental gross profit of $106,315 per year for the average dealership.

Dissatisfaction hurts profits

A similar analysis was performed to model the possible effects of customer satisfaction decreasing one level.  This found a potential decrease in gross profit of $191,624 per year. “When dealerships consider investing in improvements to their customers’ car-buying experience, this model will help them understand exactly what financial benefit they can expect. This is essential in justifying the cost of customer experience improvement initiatives,” said Travell. “It also shows what’s possible, if dealers choose to ignore this reality and change the mind-set that customer service doesn’t matter
that much.”

Maritz can take the data and produce proof points to show the value of satisfying customers. Various financial measures can be modelled from the different satisfaction segments. These can be very valuable for internal communications, and with dealers, making the linkage programme highly actionable.

For example, retailers can be grouped based on their overall customer groups from the poorest performing retailers to best performing retailers.

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We can then look at how these retailers perform on profitability, loyalty and customer experience measures.

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Summary

Linkage analysis bolsters the effectiveness of customer experience measurement in two ways. First, linkage justifies the measurement of customer experience in terms of valuable business outcomes. Second, it helps organizations align people and operational processes targeted at improvements in customer experience. Whether simple or complex, linkage requires discipline when merging of datasets and modelling of relationships between them. Linkage pays off this investment, however, by contributing greatly to the credibility and actionability of customer experience programs.

FIND OUT MORE…

Contact Andrew Grant on +44 (0)1494 590693 or email andrew.grant@maritzresearch.co.uk