New vehicle sales are slowing, front-end margins are shrinking and economic experts predict a recession within three years. For auto dealers, these trends require a focus on fixed operations growth as a source for future revenue. This requires a two-pronged approach. First, increase service yield from current customers. Second, increase service market share.
Most dealers don’t track revenue per units-in-operation ($/UIO), which is a critical metric to help measure customer loyalty and retention. It’s a far more effective metric than service absorption, which is a dangerous number. The major problem with service absorption is that you can have 100 percent service absorption, yet still be losing market share. You can’t manage what you can’t measure.
Revenue per UIO allows you to measure both service yield and market share, so you can establish a baseline from which to grow.
How to Increase Service Yield
Most auto dealerships capture less than half the work needed on vehicles that enter their service lanes. To increase service yield, focus on providing complete vehicle care to your current customers.
To do this you must identify, communicate and capture all service needs. This may require changes to your write-up, multi-point inspection (MPI) and service recommendation processes.
Technologies such as mobile tablets can help, but incentives may need to be put in place so advisors and techs are encouraged to spend the appropriate amount of time with every customer.
Additionally, omnichannel service marketing strategies can be used to deliver relevant offers to your current customers based on their vehicle history. Digital channels increase both reach and frequency, greatly increasing awareness and response rates from your customers.
Increase Market Share with Service Conquest
Traditionally, dealerships rely on sales conquest to acquire customers, then profit by retaining customers through service and the next purchase. When the market is expanding this strategy works well; but in today’s environment sales conquest becomes brutally competitive and a zero-sum game, 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 that service and repeat purchases will justify their initial acquisition costs.
There is a better way. Shift to service conquest campaigns to attract new service customers, with the goal of building long-term relationships that will eventually convert into sales.
One benefit of this strategy is that service conquest is less costly with an average $40 to $80 per customer acquisition, when compared to sales conquest campaigns with an average $1,200 to $1,600 per customer acquisition. That’s 20X more cost effective!
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 in this age cohort 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 the warranty has expired. Unlike new vehicle sales, this category is expanding and is likely to be less rigorously defended by competition, particularly by dealers who are still focused on service absorption.
To reach new service customers, new marketing strategies are required. Most dealers’ service marketing efforts utilize mail and email channels to remind customers about factory scheduled maintenance and select seasonal campaigns. Many conquest campaigns rely on “oil change” offers to bring new customers in.
This marketing strategy performs significantly below potential impact. To drive more responses, an integrated marketing campaign must replace the “fire and forget” mentality.
Omnichannel marketing leverages a variety of digital channels to deliver relevant offers to each prospect, based on lifestyle factors, online behavior and predictive analytics.
With every customer interaction, data is collected and used to create a message or offer that drives the customer to the next stage. The customer is guided through needs notification to scheduling, to the appointment, to in-service notifications and post-service follow up.
This marketing strategy is designed to build relationships, instead of a one-and-done service experience. Creating processes and marketing programs that focus on the relationship, rather than the here and now, is a critical part of any service growth plan.
In my upcoming Digital Dealer 26 presentation, we’ll discuss technology solutions and marketing strategies designed to grow fixed operations revenue in today’s environment. I look forward to seeing you in Orlando.
