A Case for Dealer-Branded Service Retention Programs

in Nov 07, 2018

Dealers using loyalty programs or prepaid maintenance (PPM) programs designed specifically for their dealership’s client demographics and geographic location enjoy significantly higher levels of customer retention and service up-sell. In addition to an increased program ROI, dealerships that utilize a personal dealer-branded PPM see continual increases in vehicle repurchase intent.

 In fact, because these plans are captive service plans – meaning the customer is required to return to your store for service — they retain far more customers than similar non-captive OEM-branded plans and are significantly better than NADA retention averages in general.  

 Consider how dealer-branded or dealer-centric maintenance programs differ from OEM branded programs:

  1. They brand your dealership: OEM programs brand the OEM. Most dealers consider the first objective the more important of the two.
  2. Promote captive service: Customers that purchased a dealer-branded program must return to the dealership where the plan was purchased to redeem the service. Conversely, the OEM branded programs allows your customer to service at any like branded dealership, and in many cases it may be your nearest friendly competitor.
  3. They reach a larger customer base: Generally OEM programs limit the sale of their PPMs to new and certified pre-owned vehicles only. The biggest difference is that a dealer-branded program will reach a much wider customer base by allowing the sale of the plan in the service lane (selling to existing service customers) and on competitive-make used product. It is not unusual to see a metropolitan service department selling 300-400 plans a month to their existing customers.
  4. They deliver more ROI to the dealership: OEM programs contain predetermined plan components and generally pre-established suggested retail pricing. Therefore, the dealership’s gross profit is determined by the OEM. With a dealer designed program, the plan elements, service reimbursement rates and retail selling price are all determined by the dealer, thus allowing the store to design in whatever profit they choose.
  5. They lower administration fees and higher revenue recognition:  Dealer-branded programs bypass many of the administrative fees associated with OEM and some third party programs while recognizing all of the plan forfeiture and maintaining the reserve accounts internally.

PPM or Loyalty Program?

There are other types of retention solutions on the market that utilize customer incentive cards and numerous marketing programs that seek to influence retention through email and print ads, but none of them have the lasting shelf life and growing customer acceptance that PPM and loyalty programs offer.

  • Loyalty programs: Like airline mileage programs, they reward customers for their loyalty to the business. They earn rewards, cash or dealership discount points that can be redeemed only at the issuing dealership.   
  • PPM plans: Bundled services such as LOF changes, tire rotations and other routine vehicle service needs designed to encourage the plan holder to return for service more frequently while remaining loyal to the dealership.

Dealer brands can be more powerful then OEM brands

The first automotive loyalty programs were utilized by dealers in 2002. At this time more than half of all the US dealerships employ some type of loyalty initiative. Many through the OEM sponsored programs of Ford, GM and Nissan.  But what about the dealerships with multiple brands where the OEM programs could do more harm to the remaining dealer brand than the good they provide to the other?  Multi-brand dealership groups need a solution that will allow cross-selling and reward redemption between all of their brands. OEMs simply can’t provide that type of solution, nor are they expected to.  Think of the brand Starwood Hotels and Resorts. We all know them as The Westin, Sheraton, The W, Le Meridian and others. Starwood wants to encourage their loyalty members to utilize all of their different brands but under one common moniker. Dealership groups that have multiple brands may very well benefit from this practice as well and start realizing thebenefits it provides to them in cross-brand marketing, (not to mention the vast amount of customer purchase data and analytics it provides).

The evidence for dealer-branded retention programs is strong. This proof emerges from a recent 72-dealership study by LoyaltyTrac, which examined 1.7 million repair order transactions over a period of more than two years at dealerships that engaged in a dealer-branded loyalty rewards program.

According to the study, retention of members – those customers who voluntarily opted to use the program — is 56.98%, compared to the NADA average of 20%. OEM loyalty programs that seek to brand the OEM rather than the individual dealerships have hoped to increase retention to 55% with an array of less effective incentives, internal OEM branded loyalty programs and market saturation advertising.

A recent survey by DME Automotive revealed similar results. “Both prepaid and OEM-provided maintenance plans have a powerful impact on dealer service retention,” DME said. In fact, the automotive marketing company noted these plans drive retention to as much as 60% versus typical post-warranty rates of 22% to 40%.

The LoyaltyTrac study also found that those customers that were engaged and joined a dealership branded loyalty-rewards program:

•           Visited their service department more often, every 2.87 months compared to every 5.95 months for customers who did not join the program.

•           Spent $982.34 in retail service annually compared to $384.55 for non-loyalty members.

•           Spent on average $235.01 on a customer-pay RO compared to $191.32 for non-loyalty members.

The evidence seems clear: Loyalty and prepaid maintenance (PPM) programs improve overall service business, drive the customer back more frequently, provide a new source of service lane revenue and ultimately influence vehicle repurchase intent.

Read this article in Fixed Ops Magazine.

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