Is Giving Up Profit A Smart Path To Customer Loyalty?

in Nov 07, 2018

A dealer in Washington state has taken a highly unusual – and unheard of – path to customer retention and loyalty. According to Automotive News, Denver Morford, dealer principal at Barry Chrysler-Dodge-Jeep-Ram in Ephrata, Wash., doesn’t believe in dealer reserve. Not only does he not believe in it but he also educates his customers during the buying process that he is legally allowed to mark up the buy-rate (the wholesale rate the bank has approved the customer for) by as much as 2 percent…and chooses not to. He allows each customer to view the responses from the banks and see the buy-rate that is offered. In his opinion, this transparency on the financing side of his business – and the loss of dealer reserve profit – contributes to his high level of customer retention and brings additional sales via word of mouth. He has no finance department, or used car managers, as he trains all of his sales staff to handle customer transactions from start to finish.

It’s certainly an interesting philosophy. The dealership’s combined sales in 2014 between the 3 stores were 160 new and 390 used vehicles, averaging roughly 46 units per store. Transparency in the buying process has been increasingly demanded by consumers, but I’m not aware of anyone else that has connected the dots between transparency and customer loyalty in this way until now. While we don’t have any numbers to compare (gross vs net profit per vehicle), one would have to assume that they are lower than average, as there’s little doubt that this dealership’s competitors are participating in dealer reserve, and offering other back-end products. Of course, the easy way to balance the loss of back-end profit is to increase front-end profit.  But, those same consumers seeking transparency, along with the many forms of information available on the internet, would probably dictate the vehicle prices.

Another theory to consider is that – just maybe – it’s his unusual sales process that’s helping him win customer loyalty and retention. Consumers traditionally don’t like the whole back-and-forth part of the sales process. Training all of his salespeople to assist a customer from the beginning of the transaction to the end may be the differentiator that is really bringing people back and leading to more referrals.

Whether the key to this dealership’s high customer loyalty and retention originates from the “no dealer reserve,” or from the entire customer experience itself is something that should be closely considered. It could be that empowering his employees to smooth out the sales transaction for his customers is all that was needed to raise customer retention, and it’s not just a matter of leaving money on the table.

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