The Modern Day Customer Retention Model
There is no question that the automotive industry has seen many rapid changes and improvements over the past several years, with Complimentary Maintenance undoubtedly being one of the most influential. In early April, J.D. Power and Associates released the 2014 Customer Service Index Study which stated that the percentage of vehicle owners with Complimentary or Prepaid Maintenance Packages has more than doubled in the past five years.
The study shows that the growth in such offerings is helping to drive up loyalty and repurchase rates — and is reshaping the flow of service as we know it.
In the past, dealerships relied on warranty to drive customers into their service departments, but with the decrease in warranty opportunity (down 45% for the big three) dealerships can no longer rely on its steady flow of traffic to lead customers back to the dealership for more expensive repairs and the full line of maintenance. Certified Maintenance® Prepaid Complimentary Maintenance Programs were pioneered in 1996 as a solution to this problem.
The goal of Prepaid Complimentary Maintenance is to replace warranty in the customer retention model and reverse the roles of maintenance and warranty entirely. Now, rather than relying on warranty to lead customers to the full-line of maintenance, we are training customers to return to the issuing dealership for routine maintenance during the first 12 months of ownership (or longer) with maintenance included incentives. Routine maintenance replaces warranty as the gateway and is driving a steady flow of customers into dealership service departments. Retention habits are created because the loyalty process was put in place before the vehicle was delivered. As a result of maintenance included, we are noticing that where customers return for service is where they are returning to get their warranty work performed.
Warranty Claims Create RO Opportunities for Dealerships
In the early 1980s and 90s, service retention and traffic at the dealership used to happen naturally. On any given Monday, the tow trucks would be lined up outside and service advisors could rest easy knowing there would be a full week of work ahead. Warranty claims worked as a gateway that led customers into the dealership service department. Warranty visits led to more expensive repairs, created RO opportunities at the dealership and eventually led to higher repurchase intentions. This service model also worked as the customer retention model.
The Risk-Free Trial
It’s important to understand the important role warranty played in the service cycle. Warranty was the gateway into the service department. Since warranty acted as a risk-free trial to the customer, it provided an introductory opportunity for customers to get to know your service department, staff and processes. This was an important step in the customer retention model because once customers are familiar with your dealership — and the more they trust you — the more inclined they are to return and spend more money.
Since the manufacturer covers the cost of warranty work, customers don’t have to pay out-of-pocket, so there’s little for the customer to lose. In warranty situations, customers may actually feel rewarded knowing they saved hundreds of dollars on a repair which provides opportunities to create positive and lasting first impressions. In this situation, customers may leave feeling good about the experience they had at your dealership. This provides not only a good first impression, but it also increases the likelihood of that customer returning in the future.
Creatures of Habit
Have you ever favored a grocery store because you knew exactly where items that you needed were? Because you knew that you could be in and out in no time? Service at your dealership works in the same way. It’s for this reason of speed and convenience that 24 million customers service their vehicles at Jiffy Lube each year. Mass merchandisers create a unique form of convenience in the form of security because the customer doesn’t have to leave the comfort of their vehicle, which takes the guesswork out of the equation. They don’t have to do any of the work — or leave their comfort zone — to find what they’re looking for. Once a person is familiar with a place or a business and its processes and knows the steps to take, they’re more comfortable and are more likely to return. We’re all creatures of habit, and it's the dealerships responsibility to find as many ways to provide comfort to customers and to exceed their expectations so customers want to come back and service — or better yet — repurchase from your dealership..
Decrease in Warranty Opportunity
Warranty Claims Fall for The Big Three
"It really says that there have been some substantial gains made in terms of the quality of the American automobile." — Autos Analyst Erich Merkle of Autoconomy.com
In the late 1990s, when we began seeing an increase in production and in quality of vehicles, we also saw a decrease in warranty. Because vehicles are built better, there is less opportunity for warranty work to be claimed. This inverse relationship began to create a problem at the dealership. Not only did it provide a challenge in driving customers into the dealership, but it changed how relationships were built with customers.
When warranty — the introductory phase — is removed from the customer retention model, how do you drive customers back for service? How do you stand out against the competition of mass merchandisers, independent repair shops and the DIYers? Are you the dealership with the cheapest price, the best quality, the most convenient location or the fastest process? Wouldn't it just be easier to replace warranty with a similar solution — a solution that is guaranteed to drive customers back to your service department? That's where Prepaid Maintenance comes in.
Complimentary Maintenance is the New Gateway
The benefit of a Prepaid Maintenance Plan is that it replaces the role of warranty in the customer retention model. It is low cost and low risk, and it's rewarding to customers. Since maintenance is included in the cost of the vehicle, customers don't have to pay out-of-pocket when they return for maintenance. This provides a positive experience for customers, and also an opportunity for your dealership.
By providing routine maintenance for the first 12, 24 or 36 months of ownership, you are setting yourself up for success by mapping out planned visits that train customers to return to your dealership for service. So when it comes time for more expensive repairs and repurchase opportunities, your dealership will be top-of-mind. Since we know from industry data that customers are more likely to become loyal customers after two or more service visits, prepaid maintenance shapes the path to customer retention.
Prepaid Maintenance takes a positive approach to vehicle maintenance. Rather than warranty leading customers in to fix something that's already broken, maintenance brings customers in to prevent breaks from happening in the first place. Customers also have the option to extend their vehicle maintenance coverage for a longer program term, which provides more RO opportunities at your dealership.
Your Customer Is In Control
The biggest shift in service lies within who has control. Warranty work used to tie customers to your dealership, but now there’s no way to guarantee customers will return to you at all. Today, the service model is reversed. With the popularity of Maintenance Included incentives, maintenance now brings the customer in, and the dealership who performs routine maintenance and services the vehicle is able to claim the warranty dollars. The customer is ultimately the decision-maker — where they service is where they will spend.
Shape the Path
You have to lead customers down the path you want them to take. That's the goal of Prepaid Maintenance plans — to train customers to return to your service department rather than the competition. The goal is to build service loyal relationships so customers will return for repurchase. For this reason, it's important to walk customers through your service department when they purchase the vehicle and let them know how your process works so they know exactly what to expect, where to go and who to talk to when they return for service. Your job is to make customers feel as comfortable as possible and make your process as convenient as possible.
Prepaid Maintenance Bridges The Gap
This change in service is actually great news for you and your dealership. Although Maintenance Included Strategies are ultimately the cause of this shift in service, they’re also the solution. Maintenance programs are proven to create loyalty and long-term relationships at the issuing dealership and are fueling repurchase rates. Prepaid Maintenance plans are beneficial in bridging the gap between purchase and repurchase because they provide multiple opportunities to connect with customers and build a relationship within the first year of ownership.