What Experience Tells Us About Retention Marketing Costs

Investment in retaining profitable service customers is money well spent

The latest NADA statistics clearly point out the continuously changing advertising-spend per dealership. Overall dealership ad expenses were down more than 14 percent in 2009, with more advertising money flowing to new media.

This movement of ad-spend from traditional to new media is perhaps best shown by these NADA Data 2010 report statistics: “Dealers now spend more than 22 percent of advertising dollars on the web, up from 4.8 percent in 1999 and 9.9 percent in 2005.”

I have not been able to source a statistic that tells us how much of this spend, whether web or more traditional media like newspapers, radio, and TV, is focused on customer retention, especially in the service department, but it seems certain that focus is increasing.

As evidence, this conclusion by CPA firm Crowe Horwath, in its October 2010 “Dealer Flash” newsletter: “A major transformation is underway in how dealers are advertising, a shift from campaigns directed at consumers to efforts to build relationships with them.”

This increasing importance of relationship building is evident as dealer investment in technologies enabling CRM, loyalty, and retention marketing systems increase.

Another indicator of the increasing importance of relationship building is the news from Chrysler Group’s Mopar parts and service division. In late 2010, Chrysler announced Saturday hours for its part distribution centers for its dealers—with Sunday hours coming in the future. The objective, of course, is to help its dealers better compete with aftermarket and independent providers for valuable customer-pay business. 

According to Chrysler, for every one of its dealerships 37 independent service centers compete for the same service business. I would guess the same or similar ratio holds true for most OEMs. 

Further evidence of the continuing shift of ad dollars to retention marketing is recent news from Ford and General Motors. Each announced survey programs to reach out to non-warranty customers in an effort to help its dealers grab more customer-pay service business. 

How will these OEMs and their dealers increase their markets’ awareness of these new hours or their new focus on servicing any make or model or age vehicles? Certainly, some of the ad money to do that will go to traditional media, but my prediction is that most of it will flow to direct-to-consumer retention marketing via new media.

Reduce retention spend, increase results

A problem with approaching retention and loyalty marketing as many dealers now do, using different systems from different vendors, results in redundancy. This includes duplication of technologies, resources and money.

If you have three or four vendors’ technologies in your store, all approaching your customer communications initiatives separately, you’re paying for each vendor:

• Your share of their product development costs 
• Your share of their facilities overhead costs 
• Your share of their sales staff salaries and commissions 
• Your share of their support staff costs 
• Your share of their accounting costs

This redundancy is waste. There has to be a better and more efficient way for reaching customers and reeling them back into your store. The first big way to reduce advertising and marketing expense is to consolidate technologies and vendors where you can. It is certainly realistic to enjoy a $2,000 to $3,000 monthly reduction in marketing vendor expenses when you can eliminate redundant services or vendors.

This savings is possible because of redundant vendor and program elimination and increased and more frequent use of digital marketing channels of distribution—including emerging ones like social media, video emails, mobile web, text, and email.

These channels of distribution are largely free to the dealer, especially if your in-house resources have the creativity, time, and analytic abilities to execute digital retention and loyalty marketing. The channels remain free when a vendor is used as well, though you pay for their expertise, technology, distribution automation, and reporting capabilities. 

For example, by consolidating fragmented marketing platforms into a single streamlined solution, a dealer can feel confident that customers are being “touched” at all key touch points across the entire ownership life-cycle, while it helps the dealer:

Communicate with a single consistent voice

Improve overall dealership profitability

Significantly lower marketing expenses

Leverage your database

Radio, TV, and newspaper mediums all reach wide audiences, a majority of which will most likely not be interested in the message at the time they receive it from you. Retention marketing driven by your database (or qualified mailing or email lists of owners and prospects in your marketing area) will reach people who’ve already spent money with you.

This marketing heavily leverages new media to personally reach consumers who already know you, who’ve bought product from you, and who still have need for your services.

A life cycle marketing program can help you retain customers at a cost of seven to eight dollars per year per customer, a remarkable reduction in expense. Consider that response rates for traditional direct mail are three to four percent, and that email, on the other hand, is 5.2 percent. Conversion rates are also higher when marketing to existing customers to retain their business.

Social media marketing can also help reduce service-marketing costs. However, given the content-control features of sites like Facebook, a dealership-driven marketing program for this medium must be a hybrid product.

This means using personal web pages for each customer. It is to this page that the dealership will push its marketing and retention messages. The page is then linked to the respective customer’s Facebook page, assuming he or she has one. This approach side-steps content-control barriers that otherwise limit ability to exploit Facebook to market to customers.

Continue to lean your dealership

 Vendor consolidation and other expense reduction is an action we all should have learned and learned well from our recent industry past. Even while the industry continues to gain health, it is prudent to continue seeking out ways to do more for less, to acquire new customers and especially to retain those who’ve already spent money with you.

Traditional media will continue to be with us for some time; much of it probably will continue to have a place in your media buy strategy as well. Some media, however, is simply more conducive to returning a more profitable return to you, especially when used to drive customer loyalty and retention.

Jim Roche is president of Auto Point, a wholly owned subsidiary of Service Repair Solutions, Inc. For more information visit www.autopoint.com.