Customer Retention: Auto Dealerships
Drilling Down Newsletter # 69: 7/2006

Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
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Customer Valuation, Retention, 
Loyalty, Defection

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http://www.booklocker.com/jimnovo

Prior Newsletters:
http://www.jimnovo.com/newsletters.htm
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In This Issue:
# Topics Overview
# Best Customer Retention Articles
# Customer Retention at Auto Dealerships
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Topics Overview

Hi again folks, Jim Novo here.

Sometimes a business model is just "broken" and despite all the analysis and marketing efforts, you keep coming back to the same place - the model needs to change.  Where do you get the oil in your car changed - at the dealership where you bought the car?  Do you even get your oil changed at all?

We also have a couple of great customer marketing links that follow this general theme.  Often the most striking changes in marketing profitability come not from better marketing, but from insight customer analysis can deliver to operations, from service centers to the manufacturing floor.  If you want to create extraordinary gains in marketing profitability, quit "siloing yourself"; go out and discover how the company works and what marketing and customer analysis can do to help.

Let's do some Drillin'!

Best Customer Marketing Articles
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Mine Data to Predict What Happens Next
June 28, 2006  Information Week
It's finally happening out there, people are using predictive modeling to predict everything from airline safety to patient care to crime.  And you can bet that at the center of many of these models you will find Recency or Latency in some form.  Can these simple models help your business increase sales / lower costs?

Service Advantage
July 18, 2006  Intelligent Enterprise
A great article with tangible examples of using  customer analytics to improve service delivery.  This is a classic high ROI situation and an example of the kinds of things marketing should be responsible for / paying attention to (see this article for more on this idea).

Questions from Fellow Drillers
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Customer Retention at Auto Dealerships

Q:  I love your book. Let me say that again, I love your book.  Why?  Because it is helping to answer many questions on how to data-mine my business properly.

A:  Well, thanks so much, I appreciate that.

Q:  I own a couple of (major US brand) dealerships and have been saying for years to our industry that we need to mine our data not blanket advertise.  

I sat on two advertising committees and convinced some of the dealers of the power of direct marketing to our own customers and the advertising agencies have caught on somewhat, however it's still just looking at the name and address and blanket mail a special.  Yet the Ad agency still insists on spending millions in newspaper and TV.  

Here's an example.  We ran an institutional "genuine factory service" campaign which increased service department sales (top line, not profit) per dealer about $20,0000 for every $30,000 we spent; we would have been better off just sending dealers the money.

Another business group I belong to, the CEO and I have had many a conversation about data mining (he gets it by the way) and I am excited to share with him your advice in the book. I want to do this however with some true data and am wondering if you have done any work with the automotive business.

A:  This topic comes up quite frequently, and by chance, my father was a Lincoln-Mercury dealer so I am quite familiar with the biz and "how it works".  I've had discussions with several consultants to the auto dealer biz but nothing has come of it in the end.

Q:  I am not completely done with your book yet and have a few questions.  As you may know we have a great life cycle built into our business, it's called the oil change, and it tells our customers to come in every 90 days or 3000 miles.  We can measure this fairly easily however not every customer does what they are supposed to even if you give them free oil changes.  In fact many never change their oil!

A:  Hmm..that sounds like a bit of a different problem...educational?

Q:  What I want to do is use your Recency and Frequency model but I think that trying to pin down an average days to determine defectors would be impossible as customers are all over the map with their service.  In addition, you add to this problem the fact that many customers come in for warranty, not that they made any decision to come in, they had to if they want the manufacturer to foot the bill. Have you any ideas on what I should measure to determine my defectors.

A:  I suspect the trick is in the segmentation. First off, if you are to focus on oil changes, then you would only use oil change data and this would exclude warranty work - unless they had an oil change while they were having the warranty work done.  In fact, do you encourage this behavior?  Seems to me it would be a good time to suggest and oil change, since the car is already in the shop.

Second, there's probably a cut where targets need to have had at least one oil change to even be in a program, which cuts out the "never change their oil" crowd.  Third, there is probably something that has to do with model, or engine type - e.g. "performance" engines versus "grocery getter" engines and so forth.  Seems to me the people who paid for performance engines would be more sensitive to the oil change issue.  

Each segment will have different patterns and you can use the "average" cycle time of each segment as a place to start.  If people are not coming in within a month of average cycle time, they have probably defected - at least from the "oil change" business opportunity.

The easiest placed to start with this might be with customers who seem to have a fairly consistent oil change pattern established with you already.  Of these people, when do they defect, if ever?  What is the most common pattern, say 5 oil changes and then they disappear?  Then knowing this, can you extend the oil change cycle past 5 changes?

Working with this "predisposed" group first will likely teach you a lot about the situation that will help with the other segments.  It is almost always much easier to extend an existing  behavior than create a new one!

Q:  By the way, if you really want to become rich, help us come up with an answer to stop customers from leaving the dealership for service, once the warranty expires.  We see a trend that has about 80% of our customers
coming in for service (oil changes, brakes, exhaust etc) while the vehicle is in the warranty period, then drops to 25% once the warranty is over.  They defect to the muffler shops and such.  This is the biggest problem in the eyes of dealers and so far the answer has been trying to get the manufacturer to make longer warranty periods, and you are starting to see this already with Hyundai's 10 year warranty, and Chrysler moving from 5 year to  7 years, etc.

A:  I find it interesting this topic keeps coming up but nobody seems to "do anything" about it.  This makes me suspect the whole auto dealer / service biz needs a complete business re-engineering, and folks like you are probably going to be the ones who "drive" this movement.  The fact I am asked about this specific business so often is testimony to the need and demand out there, I would think.

Of course, many of these "brake and muffler" shops wouldn't have come into existence if the dealers had not created an environment where they could survive, that is, a perception (at the least) that it is more costly to have the same work done at a dealership than at the brake and muffler shops. 

So it either in fact is more costly for the same work, or the work is **not the same** but the consumer does not know this yet.   I suppose these "genuine factory service" campaigns are an effort to educate the consumer on some of these issues, but as you pointed out, they don't seem to work.  Perhaps the message is not clear...

Another approach would be to make the difference between a dealership and the alternative more obvious, for example, by turning the waiting room into a "StarBucks"- like experience, so at least it is obvious why it costs more for the same work.  If you look around there are some really interesting things going on in services that I'm sure could help improve the experience. 

For example, as in some restaurants, issue each patron / service client a beeper and tell them you will page them when the car is ready.  To go further, they can take one of the new models out and do some errands while they are waiting for the oil change to finish (note to self: make sure car has tracking so you can find it if need be).  The pagers are a dirt cheap way to provide a very high level of service that makes paying an extra $15 a no-brainer decision, at least for certain clients.  There is a tire-change shop down here, located near a mall, that does this.  Methinks certain folks would be more likely to get an oil change if the trip wasn't really about an "oil change" but instead "a couple of hours at the mall".

Providing a car to run errands is probably reserved for higher end or best customers. The clients most likely to respond to this kind of thing are also the clients you probably most want to retain - the ones who aren't looking to chisel $5 on price every time they look at you.

Many people probably don't get their oil changed not because they don't want to, but because it is so damn inconvenient.  Make it more convenient, and you get more people coming to you for oil changes.  Make it really convenient, and they might be willing to pay a premium.  You change the business model.  

For example, what idiot thought that people would actually pay $5 - $6 for a cup of coffee? Oh yea, the founder of StarBucks.

The whole business model is in need of a remake, and the data is there to really make it work, I think.  But you also have to work these other issues at the same time, you can have a brilliant database marketing / CRM infrastructure in place and still not have an impact because there are fundamental business issues leading to defection.

Q:  Anyhow, once again great book, makes me do lots of thinking, just wanted to know if you have any direct experience with automotive dealerships.

A:  I was hoping the book would "turn the light on" for people and always appreciate knowing when that happens.  The fact this keeps happening with dealers and consultants to dealers means to me there must be a solid business case out there somewhere.  Perhaps all we have to do is just untangle and rebuild the whole business model!

Jim 
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That's it for this month's edition of the Drilling Down newsletter.  If you like the newsletter, please forward it to a friend!  Subscription instructions are top and bottom of this page.

Any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them right along to me, along with any other questions on customer Valuation, Retention, Loyalty, and Defection here.

'Til next time, keep Drilling Down!

- Jim Novo

Copyright 2006, The Drilling Down Project by Jim Novo.  All rights reserved.  You are free to use material from this newsletter in whole or in part as long as you include complete credits, including live web site link and e-mail link.  Please tell me where the material will appear.