Dealers predominantly rely on conquesting vehicle sales and then profiting by retaining the customer through service and the next purchase. This strategy works well when the market is expanding. In an environment of plenty, dealers conquest more narrowly; focusing on customers close to home with the same core brand message is cost-effective.
We have enjoyed an expanding new-vehicle market for the past eight years, but to quote Nobel Laureate Bob Dylan, “The times they are a-changing.” Most industry analysts predict a flat-to-declining new-vehicle market through 2021.
In such an environment, conquesting becomes brutally competitive. Sales becomes zero-sum or even a game of musical chairs. As more dollars chase fewer sales, conquest efforts become more expensive and less effective. It’s not unusual to see incremental marketing costs exceed gross margin net of commissions for conquest sales, with dealers hoping service and repeat purchases will justify their initial acquisition costs.
There is another way.
Dealers could focus more resources on service conquest and then work to convert these service customers into sales customers. Service conquest is less costly per customer won with a more attractive ROI than typical sales conquest programs.
In fact, even expensive service conquest campaigns are 20 times more cost effective than average sales conquest campaigns in this environment!
Service conquesting is particularly effective in an environment where four- to six-year-old vehicles are expanding rapidly, as will be true over the next three years. This category is an excellent service conquest pool because owners are less likely to have strong servicing relationships.
Many are second owners and have defected from other franchised dealers or are open to new relationships now that warranties have expired. Unlike new-vehicle sales, this category is expanding and less likely to be rigorously defended by competition, particularly by dealers who are still focused on service absorption.
To successfully conquest four- to six-year-old vehicles, dealers need to overcome three major challenges.
1. Data. Finding one- to three-year-old vehicles is relatively easy. Most are owned by the first owner and hence in the DMS. Contacts are fresh. As vehicles age, more are in the hands of second owners and contacts atrophy. Therefore, we become more dependent on third-party lists that vary in quality and on omni-channel marketing approaches to reach consumers. That raises the cost per RO.
Before paying for outside data, mine your “lost souls” or CRM “no sales” and make compelling offers. These lists often are fruitful. We also find first-party social media a cost-effective channel to address these consumers.
2. Offers. Many conquest programs focus on oil change offers, since they are easiest to execute. This is like looking for a lost watch under the street lamp because that’s where the light is, even though you lost the watch elsewhere.
When deciding between a dealership or an independent repair shop, consumers see little value difference in oil changes.
Stated differently, the quality/convenience trade-off is not meaningful enough for them to automatically choose dealerships. Instead, dealers should focus on pre-warrant and post-warranty end services and major repair items that the vehicles are likely to need addressed. Offer meaningful discounts or better yet, loaner vehicles, to skew the quality/convenience trade-off in your favor.
3. Budgets. Your purpose here is to acquire more customers, not merely write more repair orders. Therefore, service-conquest marketing should be funded in part from sales marketing and executed in conjunction with other sales activities.
Success depends on a strong service-to-sales introduction. In addition, the store needs to perform and record a multi-point inspection on every vehicle and have a consistent follow-up process to drive ROI and continue the dialogue.
While the times are a-changin’, there is no reason a dealership should not continue to grow profits during pauses in auto industry growth. Building a new customer base will allow us to accelerate growth when the winds shift again to our backs. Greater investment in service conquest can accomplish that.
Scot Eisenfelder is CEO of Affinitiv, a marketing technology company serving automakers and dealers.