Automotive Dealership Customer Retention Statistics

Jan 20, 2021Tips & Tricks

Happy Customer in Car

It used to be the case that you only had to worry about other car dealers stealing your customers. But, these days, there are digital disruptors from outside the industry that have your customers firmly in their sights too. As a result, automotive dealership customer retention statistics have moved from the footnotes of marketing reports, to a major point of discussion for key decision makers right up to manufacturer level.

According to Invesp, on average, it costs five times more to acquire new customers than it does to earn repeat business from existing customers. As a result, and needless to say, retaining customers should therefore be a priority for every dealer of any size.

In this article, we’ll be looking at the latest automotive dealership customer retention statistics and how they relate to the value retaining customers gives you, as well as tips to improve customer retention overall. But let’s start with why customer retention is quickly moving to the top of marketing agendas for car dealers everywhere.

Why is retaining customers important?

It’s simple – you can make more money out of a loyal, existing customer than you can in converting and obtaining new ones. That’s right, your loyal customers are cheaper to sell to. They don’t need the same level of incentive or persuasion to stay with you. You’ve already done the hard work in converting them – you just have to keep them, which is much more about relationship than spend.

At the same time, your existing customers are less likely to enter into militant levels of price negotiation with you. They’ve already had the reassurance that you were the right choice for them as a supplier, and hopefully seen the benefits – meaning you’ll see a higher profit per unit when it comes to selling to existing customers. And they’re also more likely to be “all in” – meaning they automatically consider you for servicing and maintenance. On top of all this, if your existing customers are happy and kept happy, they’re much more likely to tell others about it, acting as a reliable source of high return-on-investment (ROI) referral business.

The value of retaining your customers (and the cost of losing them)

We all know what Mark Twain thought about statistics – “there are lies, damned lies, and statistics”, and if there is one thing car dealers want, it’s to be able to know the return they’ll see on any marketing spend in pure, simple dollars. But the short-term costs of investing in a long-term customer relationship more than deliver. In fact, just improving customer retention by a mere 5%* can increase profits from anywhere between 25% and 85%, depending on industry.

So, to get industry specific, lets look at General Motors. In 2012, they reported that improving customer retention by 1% was worth 25,000 vehicle sales, or $700 million. Today, just eight years on, that figure would be nearer $800 million.

When it comes to dealers though, research from MaritzCX found that, by simply improving customer satisfaction by one point on a standard five-point scale, the average dealer would see an extra $2.5 million in loyalty-generated revenue. However, on the flip side of that, a drop of one point was estimated to cost the average dealer a potential $4.2 million in lost loyalty revenue. Data and research from IHS Market backs this up, with a 1% decrease in customer retention losing dealers the equivalent of 90 vehicle sales.

By knowing when your customers are in-market, and keeping up good levels of engagement and contact, you have the opportunity to recoup their custom before they defect. And the automotive dealership customer retention statistics above show why it’s worth your while.

Introduce long-term thinking and practices

It’s likely that your teams and objectives revolve around monthly targets. And that’s something we, or anybody else is unlikely to change soon. But it can introduce a potential conflict with how you harness and improve customer loyalty. Every time you turn a blind eye to a repair cost, don’t charge for a courtesy car, or throw in something for “free”, it becomes a short-term cost – but it should also be seen as an investment in long-term loyalty.

Perspective here is important. You probably already do this as a matter of course – but, for instance, are customer satisfaction levels discussed with the same prominence as sales figures? Do your teams understand the direct correlation between the two? We’d like to suggest, that with real revenue at stake, improvements in your loyalty and satisfaction scores should be celebrated as joyfully as a bumper month of sales. And declines should be taken even more seriously.

The car industry has started its long-journey into becoming a more service-orientated and experiential one, in light of digital disruptors and changes in how people buy their cars. The next big step will be adopting a dealership culture that ranks customer retention and satisfaction higher than any single month’s sales figures.

This is, in fact, already being facilitated by manufacturers. When GM realised the multi-million-dollar value of improving loyalty retention, they incorporated it into their annual bonus calculations. So, maybe ask yourself how you are rewarding your teams for driving growth in customer retention and maintaining excellent relationships with your customers.

Where to engage

Although your relationship with your customers usually starts with a sale, it is nurtured, grown, and galvanized as you continue to service the needs of those customers. By the time the next opportunity to sell them a car comes around, they will have likely endured at least a year or two of the service side of your business. As a result, the experience they have had there will massively outweigh the influence of your sales team, or any memory they may have of that specific, one-off experience.

Ultimately, it is when your customers are bringing their vehicles in to be serviced, or looking to you to solve an issue, that you have the best opportunities to see your investment in customer experience rewarded. This is where the launching point for trade-in discussions should be. How many of your service advisors get told of a model a customer is hoping for as a loner, or they simply aspire to? A fair few we’d wager.

And, for your service customers that didn’t buy from you, this is also where conversion happens. Turning a service customer into a conquest sale is simply a matter of providing a better, more consistent experience. Data and customer journey specialists, Automotive Mastermind, claim up to 55% of their dealer partners’ service customers are converted into in-market leads by adopting a customer experience culture based on retention results.

NADA data appears to back this up further. They found that on average, 76% of car buyers bought their next vehicle from the dealership that performed their regular maintenance. However, only 13% of those car buyers had maintenance performed at the same dealership they bought the car from. When you consider 14% of car buyers returned to buy a car from the same dealer, you can see the direct correlation between customer retention and the service experience.

The importance of brand

Traditionally, customer retention has been excessively associated with vehicle make and model. It is generally accepted that exotic, luxury, and highline automotive brands see the highest customer retention. Ferrari, Lamborghini, Rolls-Royce, Porsche, Audi, and Aston Martin are all in the top ten of manufacturers for customer retention. But so are Hyundai and Honda. However, according to a report by Naked Lime in 2019, ignoring Ferrari and Lamborghini (who manage 74.3% and 64.5% customer retention respectively), even the top ten manufacturers barely manage to retain half of their customers. And it’s interesting that Hyundai and Honda are manufacturers that place important emphasis on the customer journey – both being early adopters of online sales and driving customer engagement through digital experiences.

Using video to improve customer retention

One of the places where the customer service experience falls down is when there is a lack of transparency. Without transparency, you can’t establish trust, and without trust you can’t expect to establish a long-term relationship with your customers, and certainly not a profitable one. As our look at automotive dealership customer retention statistics shows, establishing that connection is vital – and one of the best ways of establishing both transparency and connection is through video.

With SnapCell, you have a platform and toolkit that enables you to create professional, high-quality video in minutes. Video has been shown to increase service upsell and CSI scores, and its ability to build rapport between your staff and customers is second to none.

It shouldn’t come as too much a surprise that good relationships rely on effective communication. There simply isn’t a better way of getting your message across than video. Using SnapCell, you can talk and walk a customer though work being done on their vehicle, utilizing two-way video chat. Or you can record a short video showing work that needs to be done that can be added to an email or SMS message seamlessly. Whatever your requirements, we make communicating to, engaging with, and keeping your customers easier.

If you’d like to know more about how SnapCell and video can help you retain more customers and increase service upsell, speak to a member of the team today.

 

Sources:

*Harvard Business Review, 1990

† Reuters, 2012

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