Customer Retention Rate
The dilemma is over whether to spend more on conquest vs. retention efforts at your dealership. We know from many years of experience that a good customer retention rate is easier to achieve. With years of managing direct marketing campaigns in the auto industry, retention lists were always the better performing low-hanging fruit. After all, these are existing customers that already bought from you once. They will be more receptive than someone with no purchase history at your dealership. We also know from a list performance standpoint, running many programs at the T1, 2 and 3 level – existing customers have a better open rate, response rate, and buy rate across all channels.
So why are we about to suggest the contrary?
That’s right if you want to grow your sales performance, put most of your ad budget into acquiring competitive dealer defectors. A smaller portion of the budget can be used for improving customer retention sales rates. Let’s take a look at the numbers.
Auto Trends – Loyalty
According to Edmunds, the 2018 top seven brands have a loyalty rate above 50%. Therefore, it is very safe to plan on approximately 50% of any dealer’s customers defecting to buy a different make for their next vehicle purchase.
For the 50% of customers who are loyal to the make, when purchasing their next auto, NADA research says only 14% of those customers buy from the same dealer. This means most dealerships true retention opportunity is only 7% of their previous customer base (.14 x .50 = .07).
This leaves 86% (1 – .14 = .86) of any given dealer’s customer base ripe for conquest as they return to the market. These customers are going to a different dealer to buy the same make, or they are looking for a new make and dealer altogether.
Apply this math to 100 customers at a dealership:
- 100 dealer customers are in the market for a new vehicle.
- 50% will be loyal to the dealer make – so 50 customers have the potential to buy from the dealer again, and the other 50 are going to buy another make.
- Only 14% of the 50 make loyal customers will return to this dealer, the others will buy from other dealers selling the same make – This leaves our dealer with a loyalty retention rate of only 7 repeat purchases.
- 93 of these customers are either potential prospects for other dealers offering the same make or other makes.
The take away from this is that 86% of the competitive dealer owners are going to switch make or dealer when in the market for a new vehicle, as opposed to a 7% retention opportunity.
Dealer Marketing Budget – Where there is Opportunity
So your dealer marketing budget needs to go where there is the greatest opportunity. Sure you need some money for retention customers – saving them will help you grow. However, the pool of in-market consumers who are going to switch brands represents a much larger pool of opportunity. Use your marketing budget to conquest these consumers into your dealership. Put 80% of a dealer ad budget towards conquests and 20% toward retention for an optimal dealer marketing budget that seizes the greatest opportunity potential.
Automotive Conquest Strategy
It’s hard for a dealer to commit to a conquest strategy. Typical conquest results aren’t that good. It’s much easier to produce a strong ROI with a direct marketing campaign directed at previous customers. They already have a relationship with you. The response is higher. The closing percentages are higher. Conquests are more difficult and often translate into lower response rates and closing percentages. However, their larger volume compensates for the weaker performance. Using these techniques can also help improve conquest sales performance:
- Keep consumer touch costs down with digital channels like email marketing, consider increased volumes, and measure sales ROI as the key metric.
- Use repetition and customization of messages – don’t just send the same message over and over. Tell a story, express a timeline in the communications, change headlines, and relay an offer.
- Use data to identify the potential make and year already in the garage and use this to tailor your offer for desired trade-ins and/or potential lease ends.