Customer Retention at Auto Dealers
# 69: 7 / 2006
Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
Customer Valuation, Retention, Loyalty, Defection
Get the Drilling Down Book!
In This Issue:
# Topics Overview
# Best Customer Retention Articles
# Customer Retention at Auto Dealerships
Hi again folks, Jim Novo here.
Sometimes a business model is just "broken" and despite all
the analysis and marketing efforts, you keep coming back to the same
place - the model needs to change. Where do you get the oil in
your car changed - at the dealership where you bought the car?
We also have a couple of great customer marketing links that follow
this general theme. Often the most striking changes in marketing
profitability come not from better marketing, but from insight
customer analysis can deliver to operations, from service centers to
the manufacturing floor. If you want to create extraordinary
gains in marketing profitability, quit "siloing yourself";
go out and discover how the company works and what marketing and
customer analysis can do to help.
Let's do some Drillin'!
Best Customer Retention Articles
Data to Predict What Happens Next
June 28, 2006 Information Week
It's finally happening out there, people are using predictive modeling to
predict everything from airline safety to patient care to crime. And you
can bet that at the center of many of these models you will find Recency
or Latency in some form. Can these
simple models help your business increase
sales / lower costs?
July 18, 2006 Intelligent Enterprise
A great article with tangible examples of using customer
analytics to improve service delivery. This is a classic high
ROI situation and an example of the kinds of things marketing should
be responsible for / paying attention to (see this
article for more on this idea).
Questions from Fellow Drillers
Customer Retention at Auto Dealerships
Q: I love your book. Let me say that again, I love your book.
Why? Because it is helping to answer many questions on how to data-mine my
A: Well, thanks so much, I appreciate that.
Q: I own a couple of (major US brand) dealerships and have been saying for years to our industry that we need to mine our data not blanket advertise.
I sat on two advertising committees and convinced some of the dealers of the power of direct marketing to our own customers and the advertising
agencies have caught on somewhat, however it's still just looking at the name and address and blanket mail a special.
Yet the Ad agency still insists on spending millions in newspaper and TV.
Here's an example. We ran an institutional "genuine
factory service" campaign which increased service department
sales (top line, not profit) per dealer about $20,0000 for every
$30,000 we spent; we would have been better off just sending dealers
Another business group I belong to, the CEO and I have had many a
conversation about data mining (he gets it by the way) and I am excited
to share with him your advice in the book. I want to do this however with
some true data and am wondering if you do work with the automotive
A: This topic comes up quite frequently, and by chance, my father was a Lincoln-Mercury dealer so I am quite familiar with the biz and "how it
works". I've had discussions with several consultants to the auto dealer biz but nothing has come of it in the end.
Q: I am not completely done with your book yet and have a few questions.
As you may know we have a great life cycle built into our business, it's called
the oil change, and it tells our customers to come in every 90 days or
3000 miles. We can measure this fairly easily however not every customer
does what they are supposed to even if you give them free oil changes.
In fact many never change their oil!
A: Hmm..that sounds like a bit of a different problem...educational?
Q: What I want to do is use your Recency and Frequency
model but I think that trying to pin down an average days to determine defectors would be impossible as customers are all over the map
with their service. In addition, you add to this problem the fact that
many customers come in for warranty, not that they made any decision to come
in, they had to if they want the manufacturer to foot the bill. Have you any ideas on what
I should measure to determine my defectors.
A: I suspect the trick is in the segmentation. First off, if you are to focus on oil changes, then you would only use oil change data and this would exclude warranty work - unless they had an oil change while they were
having the warranty work done. In fact, do you encourage this
behavior? Seems to me it would be a good time to suggest and oil
change, since the car is already in the shop.
Second, there's probably a cut where targets need to have had at least one oil change to even be in a program, which cuts out the "never change their oil" crowd.
Third, there is probably something that has to do with model, or engine type - e.g. "performance" engines versus "grocery getter" engines and so forth.
Seems to me the people who paid for performance engines would be more
sensitive to the oil change issue.
Each segment will have different patterns and you can use the "average" cycle time of each segment as a place to start.
If people are not coming in within a month of average cycle time, they have probably defected - at least from the "oil change"
The easiest placed to start with this might be with customers who
seem to have a fairly consistent oil change pattern established with
you already. Of these people, when do they defect, if
ever? What is the most common pattern, say 5 oil changes and
then they disappear? Then knowing this, can you extend the oil
change cycle past 5 changes?
Working with this "predisposed" group first will likely
teach you a lot about the situation that will help with the other
segments. It is almost always much easier to extend an
existing behavior than create a new one!
Q: By the way, if you really want to become rich, help us come up with an
answer to stop customers from leaving the dealership for service, once
the warranty expires. We see a trend that has about 80% of our customers
coming in for service (oil changes, brakes, exhaust etc) while the vehicle is in
the warranty period, then drops to 25% once the warranty is over.
They defect to the muffler shops and such. This is the biggest problem in the
eyes of dealers and so far the answer has been trying to get the manufacturer to make
longer warranty periods, and you are starting to see this already with Hyundai's 10 year
warranty, and Chrysler moving from 5 year to 7 years, etc.
A: I find it interesting this topic keeps coming up
but nobody seems to "do anything" about it. This makes
me suspect the whole auto dealer / service biz needs a complete business re-engineering, and folks like you are probably going to be the ones who "drive" this movement.
The fact I am asked about this specific business so often is testimony to the need and demand out there, I would think.
Of course, many of these "brake and muffler" shops wouldn't have come into existence if the dealers had not created an environment where they could survive, that is, a perception (at
the least) that it is more costly to have the same work done at a dealership than at the brake and muffler shops.
So it either in fact is more costly for the same work, or the work is
**not the same** but the consumer does not know this
yet. I suppose these "genuine factory service"
campaigns are an effort to educate the consumer on some of these
issues, but as you pointed out, they don't seem to work. Perhaps
the message is not clear...
Another approach would be to make the difference between a
dealership and the alternative more obvious, for example, by turning the waiting room into a
"StarBucks"- like experience, so at least it is obvious why it costs more for the same work.
If you look around there are some really interesting things going on in services that I'm sure could help improve the experience.
For example, as in some restaurants, issue each patron / service client a beeper and tell them you will page them when the car is ready.
To go further, they can take one of the new models out and do some errands while they are waiting for the oil change to finish (note to self: make sure car has
tracking so you can find it if need be). The pagers are a dirt cheap way to provide a very high level of service that makes paying an extra $15 a no-brainer decision, at least for certain clients.
There is a tire-change shop down here, located near a mall, that does
this. Methinks certain folks would be more likely to get an oil
change if the trip wasn't really about an "oil change" but
instead "a couple of hours at the mall".
Providing a car to run errands is probably reserved for higher end or best customers. The clients most likely to respond to this kind of thing are also the clients you probably most want to retain - the ones
who aren't looking to chisel $5 on price every time they look at you.
Many people probably don't get their oil changed not because they don't want to, but because it is so damn inconvenient.
Make it more convenient, and you get more people coming to you for oil changes.
Make it really convenient, and they might be willing to pay a premium.
You change the business model.
For example, what idiot thought that people would actually pay $5 -
$6 for a cup of coffee? Oh yea, the founder of
The whole business model is in need of a remake, and the data is there to really make it work, I think.
But you also have to work these other issues at the same time, you can have a brilliant database marketing / CRM infrastructure in place and still not have an impact because there are fundamental business issues leading to defection.
Q: Anyhow, once again great book, makes me do lots of thinking, just wanted
to know if you have any direct experience with dealerships.
A: I was hoping the book would "turn the light on" for people and always appreciate knowing when that happens.
The fact this keeps happening with dealers and consultants to dealers means to me there must be a solid
business case out there somewhere. Perhaps all we have to do is
just untangle and rebuild the whole business model!
If you are a consultant, agency, or software developer with clients
needing action-oriented customer intelligence or High ROI Customer
Marketing program designs, click
That's it for this month's edition of the Drilling Down newsletter.
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Any comments on the newsletter (it's too long, too short, topic
suggestions, etc.) please send them right along to me, along with any
other questions on customer Valuation, Retention, Loyalty, and
'Til next time, keep Drilling Down!
- Jim Novo
Copyright 2006, The Drilling Down Project by Jim Novo. All
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