Who Will Miss Car Dealers? Not Customers!

Michael Lowenstein

Dealerships Must Create Owner Trust

Michael Lowenstein, Ph.D., CMC
Senior Vice President and Senior Consultant
Harris Interactive

John -

Totally agree with your blog post. Dealerships, in the main, haven't learned how to create owner lifetime trust and value. I've pasted the article I wrote for CustomerThink a couple of years ago on this subject, about a highly successful auto dealership group - and what separated them from the rest.

Michael

Experience is (Almost) Everything
The Hows, Whats, and Whys of Customer Decision-Making, Commitment and Advocacy

“It will not suffice to have customers that are merely satisfied. An unhappy customer will switch. Unfortunately, a satisfied customer may also switch, on the theory that he could not lose much, and might gain.” This is a statement made close to thirty years ago by W. Edwards Deming, in his book Out of the Crisis. Though an expert in total quality processes, he well understood that it was customer experience, formed by interactions with employees, augmented by systems and processes, and supported by a company’s messaging and other communication, that creates success. He concluded: “Profit in business comes from repeat customers, customers that boast about your product or service, and that bring friends with them…….profit in a transaction with a customer that comes back voluntarily may be 10 times the profit realized from a customer that responds to advertising and other persuasion.”.

Framing and Transforming an Experience

All who have anything to do with customers should pay close attention to statements like Deming’s. They have the clear ring of truth and staying power. Experience is (almost) everything to customers, and are at the center of perception, relationship, and trust.. Here’s an example. Just about every reader of this piece owns a car, SUV, or light truck; and we have all gone through the often painful and exhausting experience of purchasing the vehicle and maintaining it. Speaking for myself, it’s an experience which favorably compares with the same eager anticipation of a trip to the dentist or the IRS.

In the movie Fargo, there’s a memorable scene in which an auto buyer is forced to pay more for a car than he’d agreed because, supposedly, the factory had ‘automatically’ applied undercoating (a $500 option), even though the buyer had specified that he wanted the car without the undercoating. Though very angry over this situation, the buyer took the car, but made it clear to the dealer that he had felt cheated and would never buy from him again. And, although only implicit in the movie, it was evident that the buyer would tell everyone he knows about the negative dealership experience.

Companies have to be aware that every experience between themselves and customers, no matter how seemingly trivial, has the power to both excite and disappoint, to build loyalty, commitment and advocacy or create disaffection, disloyalty, and even sabotage. And, the impact of each experience, and components of the experience, need to be fully interpreted and understood so that prescriptive actions can be taken. This is especially true if the experience, or an element of the experience, is identified as a contributor to customer risk and/or loss.

Understanding the Critical Relationship Between Employee Behavior, Experience Management Processes, and Customer Loyalty

Michael Price, General Manager/EVP of Price Automotive Group, a seven brand auto dealership chain headquartered in New Castle, DE, focuses on optimized customer experiences, and redefining what customers think of auto dealers, at least as well as any of the better-known organizations, such as Nordstrom’s, Wegman’s, Ritz-Carlton, Starbuck’s, The Container Store, and Southwest Airlines.

What Michael has accomplished proves that companies of any size, and in any industry, can optimize the loyalty and commitment of customers and the loyalty and commitment of employees. Here are some of the achievements of his flagship dealership, Price Toyota, in New Castle, Delaware:

• Sixty-seven percent of their business is repeat or referred.
• 13.5 vehicle sales are made per representative per month.
• Ninety-seven percent of their customers are A or B credit scored.

All of these results are significantly above industry norms or standards. For example, average representative monthly sales levels are 9.5 vehicles per month, so reps at Price Toyota sell about 50 percent more than the typical salespeople.

Price’s success is driven by closely monitored process management at each customer life stage, always with the objective of optimizing perceived customer value. This is built on a solid foundation of insight into customer needs and expectations coupled with flexible, innovative approaches to delivering benefits. Further, and perhaps most importantly, the dealership is able to customize, and value-enhance, the individual and lifetime experiences of each customer.

Several years ago, Price Automotive Group switched to a “one-price” method of vehicle selling, in which the best vehicle price is offered up-front, completely eliminating the highly disliked negotiation process. They conducted research to better understand the pros and cons of this selling approach. One of the key early customer learnings at the dealerships had to do with experiences associated with the purchase transaction process. Customers tend to equate a long, drawn-out vehicle purchase transaction with personal vulnerability, filled with negatives and potential added, unwanted expense; and, beyond two hours, future purchase intent and recommendation likelihood scores decline rapidly. Simply stated, they found that speed equals trust, at least insofar as buying a vehicle is concerned. The shorter the transaction time, the greater the customer’s level of trust in the dealership.

Price has reduced the transaction time for most customers to under two hours, with the finance and insurance (F & I) element compressed to under 25 minutes. Among the more than 75 percent of customers who complete their purchases in under two hours,
100 percent plan to repurchase at the dealership, 97 percent plan to service their vehicles there, and 67 percent have already referred.

The dealerships offer 15 high-perceived-value benefits to customers, including a 72 hour buy-back/exchange policy, service and parts discounts,no charge towing, and $300 extra for their Price vehicle at trade-in. These are some of the tangible elements of value. The real differentiators for Price dealerships are the approaches to creating intangible, emotionally-based value.

Price understands that, particularly at the beginning of the customer’s life with the dealership, traditional sales processes, and resulting experiences for buyers, had to be redesigned and realigned to address each customer’s needs. This means that the processes had to match what customers want, eliminating obstacles and perceived negatives. Sales reps, for instance, are carefully trained to guide customers through the purchase and to offer quick, responsive support. They are on salary rather than commission. Also, the dealership has defined the critical profit-driving linkage between employee and customer loyalty, and so special emphasis is placed on making certain that sales reps—and all Price staff—feel that they are part of a team, that they are directly contributing to the dealerships’ successes, and that they are appropriately compensated without having to push customers for each additional dollar. As a result, Price experiences very low employee turnover.

Vehicle owner research has clearly proven that loyalty to the dealership is leveraged at least as much by cumulative service experiences as the sales and delivery processes, so Price puts equal weight on service performance. Its value guarantees
are offered through a Preferred Customer Card, which provides such benefits as five no-charge diagnostic service certificates, four no-charge oil service certificates,free roadside assistance, mobile service for light repairs, and free loaner cars if the vehicle isn’t fixed right the first time. Price also offers extended service hours, a child safety program, and a service menu that has been greatly simplified for easier write-up.

Post-sales communication and service experiences are monitored to identify any potentially neutral or negative situations that need to be stabilized or turned around. Price does some basic predictive churn modeling to help identify when their customers will be ready to make the next vehicle purchase. Price actively believes in customer engagement, providing service reminders and otherwise customizing the post-sale communication for each owner. Uniquely, Price is also concerned about customer loss, and invests in customer win-back. They identify when and why a customer would have stopped servicing his or her vehicle at the dealership and have methods in place to re-establish the relationship. Few other dealerships do this.

Net-net, like their larger and better-known counterparts, Price Automotive Group has built long-term relationships and value through creating superior, and consistent, experiences for customers.

Graham Hill

Missing the Point Entirely

John

I think your diatribe against dealers is badly misinformed and somewhat out of touch with reality.

Putting to one side the surfeit of dealers in GM/Chrysler's network and the reasons why, dealers in general provide a valuable service to customers, particularly during the years long after the manufacturer has forgotten about the customer once their vehicle is out of warranty.

I have worked with a number of automotive manufacturers over many years. And my wife worked in the head office for another one for well over 15 years. My wife just shook her head when I showed her your article. Neither of us recognised the auto industry you describe.

The role of dealers is only partly to sell new vehicles. That's what the manufacturer wants them to do, as legislation in most countries prevents them from doing so themselves.The manufacturers push and cajole dealers to keep the metal moving to maintain their sales numbers. But the manufacturers don't know their customers (95% of leads go through dealers direct, not through the Internet), don't care about anything but selling new vehicles and the finance that acompanies them, and absolutely are not interested in customers once their vehicle is out of warranty.

In contrast, dealers are around to sort out all the little problems with your new car, to battle with the manufacturer for unusual warranty cases to be paid for (and I have seen the battles with my own eyes), to keep your vehicle on the road long after it is out of warranty and to provide a whole range of services that the manufacturer just isn't interested in. Unlike the manufacturer, it is the dealer who has the incentive to develop a working relationship with their customers. After all, they make most of their living from servicing vehicles and from selling used vehicles, not from selling new ones. So it is the dealer who is the person you are most likely to have the relationship with, the one you are most likely to go to for automotive help when your vehicle breaks down and the one I would trust to find me the best second vehicle financing deal too.

The Fiat 500 is a great little car, but its social media launch was a marketing gag. It didn't and doesn't drive volume sales. Traditional manufacturer and dealer marketing does. And the Fiat 500 is an exception, not the norm.

So next time you feel like criticising automotive dealers, first get your facts straight and recognise that without them, you would literally be all by yourself wit your shiny new vehicle once you had driven it away from the smiling salesman.

Graham Hill
Customer-centric Innovator
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Axel Schultze

The dealer is dead - long live the dealer

Wow - nice heated discussion.
John, I very much like the new thinking of cars comment. I made a "Detroit Proposal" last year : http://www.facebook.com/group.php?gid=97901110531

I guess we are having two very different problems:
1) The ruined car industry
2) A dysfunctional channel

John, this post is about a dysfunctional channel and I agree with you. In my book "Channel Excellence" I briefly talk about channel corrosion in other industries but the pattern are the same in all industries: "channels corrode after 30 years". Maybe not exactly 30 but after some time. The changing customer education process is killing the auto dealer - because the auto dealer has no clue how their customers changed. I'm in the market for a new car. The experience would go far beyond the capacity of that page. But summarizing: Car dealer sales people are probably the least educated humans in the western society. They stand in front of their shops like bodyguards in front of Al Capone's favorite bar. They do everything they can to make the visit unpleasant. In one case I walked after the contract was done and ready to sign. The boss came in in the last second and hoped to get some extra margin. His sales guy almost had a heart attack.

But than the structure is broken, making dealers buy inventory is ill. The way that whole industry operates is unbelievable.

I guess the dealer shake out is just the tip of the iceberg. That industry need to reinvent itself or is taken over by foreign car manufacturer. Again I still believe it must start with taking Ford and GM apart create a new national auto industry with 20 competing brands and do a CTRL-ALT-DEL. ;-)

Bob Thompson

Not all dealers are "Al Capone"

The stereotype of car dealers exists for a reason; some still behave that way.

But I feel compelled to defend those that don't. My car dealer for the past 3 cars has been fabulous. Great buying experience and excellent service. My wife has been treated well at a Honda dealer.

Good car companies and dealers are available. Somehow they make the "dysfunctional" distribution process work, despite some of the problems that Axel mentioned like taking inventory. Unfortunately for Detroit, it seems that the "good" dealers are more likely to be affiliated with foreign brands.

Making dealers "agents" could fix the inventory problem, but won't fix cars that have quality problems or dealers that practice win/lose negotiating.

Bob Thompson, CustomerThink Corp.
Blog: Unconventional Wisdom

Bob Thompson

social media is the sizzle, not the steak

John,

It would indeed be interesting to talk about the role of social media in the car experience. But can social media fix more fundamental problems of bad products, high costs or flawed distribution channels? I don't think so.

Since Detroit's problems are dominating the headlines now, I put the question back to you: What should GM be doing with social media to help with their crisis? Or is social media just the "sizzle" that can be used to improve an otherwise good "steak" at more healthy car-makers?

Bob Thompson, CustomerThink Corp.
Blog: Unconventional Wisdom