Several marketing firms run programs that follow up with customers who didn't buy extended service contracts when they bought their vehicles.
These programs directly market using dealership customer databases. The best part of such services is that they are usually offered at little or no cost to the dealer, and the dealer earns money every time a customer buys a service contract.
These programs were established because dealers generally do a good job selling things to customers at the dealerships, but tend to do a poor job of marketing to customers afterwards.
Only a small percentage of dealerships have any type of follow-up program like this. So any ensuing business is usually “found” money and pure incremental revenue.
The process is simple. The marketing company pulls 18 months worth of sales and service customer information from a dealer management system. The data is edited to eliminate duplicate entries and customers with existing service contracts.
The “cleansed” customer list is then run through a national change-of-address database. Personalized solicitation letters are sent, asking interested recipients to call a toll-free number. Good companies have trained professionals to speak with and sell the customer the service contract. The dealer usually receives $150-$200 per sold agreement.
A few things to consider before entering into this type of agreement:
- Review what service contracts the company offers. Be certain that it only offers through high-quality national providers.
- The talent level of salesperson on the phone can vary greatly. Some companies hire former finance and insurance personnel or service contract company employees to handle incoming customer calls. Other firms hire telemarketers whose success rate is far lower.
- Incoming calls should be recorded and accessible for review by the dealership in the event of a customer issue. The customers are still being sold when they call in, so problems can arise. Monitor how company employees review the terms and prices with customers. Some firms have clear procedures to ensure full disclosure and avoid potential problems.
- Some auto makers and independent finance companies have programs like this, but keep the money without sharing it with the dealers. Dealers should review their lender agreements to see if this is allowed.
- Be certain that the company with whom you do business is licensed to sell service contracts in your state, and is in compliance with insurance regulations. Ensure that there are indemnifications in place to protect your dealership against violations.
- Because the customers are direct-mail recipients, and themselves call if interested, Gramm-Leach-Bliley Act privacy issues are limited. But it is best to insist upon indemnification for this as well.
Success rates vary, but the average dealership should make $10,000 to $20,000 per store annually. In addition, it is documented that service contracts increase service retention and revenue for dealerships.
Variables include sales and service volumes and the make of vehicle sold.
While some dealers might undertake this internally, it makes sense for most to let someone else do the work, especially in light of the minimal cost.
Dealers should check with their existing service contract providers to see if they have a program like this. Otherwise an independent marketing firm should be used. It is an opportunity that dealers should investigate and consider.
Bryan Dorfler is a finance & insurance consultant. He's at [email protected].