With margins shrinking, dealerships need to get maximum value for their marketing dollars. You can use the information in your CRM to view your customer interaction records, but how do you decide which customers are the most valuable?
The four types of customers
In the 1990s, Harvard Business School studied customer loyalty and developed a model that is still useful today for identifying the most valuable customers. They evaluated people’s overall satisfaction and likelihood to purchase again and categorized them into four groups:
1. Mercenaries – This group of customers is satisfied, but not loyal. These people are perfectly happy with their experience but will quickly desert you if your competitor sends them a coupon.
2. Hostages – These customers are loyal, but not satisfied. Maybe they’re your customer because you’re the only convenient option, but if they get an opportunity to go elsewhere, they will.
3. Defectors – Neither loyal nor satisfied, these customers are already gone. A subset of these folks is categorized as Terrorists because they put forth effort to let everyone know how much they dislike your business. Think bad online reviews and lots of negative word of mouth.
4. Loyalists – As the name suggests, these customers are loyal – and they are extremely satisfied. They feel that your dealership gives them a good value for their money, they will take the time to get to know you better, and they are happy to recommend your business to their friends and family – and sometimes in online reviews.
Loyalty and customer retention
Customer retention is extremely important in the automotive industry. According to data from NADA, new customer acquisition cost $629 per new vehicle sold in 2017.
General Motors reports that every 1% increase in their sales retention translates to a $700 million increase in annual revenue. That averages out to $150,000 per GM dealer.
The Harvard research found that, “In the automobile industry, even a slight drop from complete satisfaction created an enormous drop in loyalty,” but concluded that, “completely satisfied customers are—to a surprising degree—much more loyal than satisfied customers.”
Cultivating Loyalist customers who are more apt to purchase again is vital, but should you be trying to win over your Mercenaries, Defectors or even Terrorists? Jim Roche, vice president of marketing and managed services at Xtime, says no.
In a presentation at VinWorx 2018, Roche said that dealerships would be best served to save their marketing focus for Loyalists. Because they visit more often, pay a higher gross margin and send referrals, their value far outweighs that of the other groups. It also takes less effort and expense to encourage their repeat business.
Targeting your most loyal customers
Your CRM data can give you a wealth of information to help you determine which customers are Loyalists and should receive your marketing focus. Just make sure you’re tracking all of their interactions with your dealership, including the service lane and parts sales. That’s where integrations between platforms, such as Connect CRM’s integration with Xtime, come in handy to provide a single view of your customers’ behavior.
Once you have identified that valuable customer base, be sure to keep personalizing their offers to show that you understand their individual needs. Cultivate your Loyalists carefully and your efforts should pay off for a long time to come.