|Recession Marketing (continued)
|In the face of these challenges, it can be difficult to know the right course of action. The purpose
of this paper was to put the industry’s current challenge in the context of some of the best
independent research available.
In a recession, the natural reaction of consumers is to re-evaluate every business relationship they have. Despite
this, the counter-reaction of many dealers is to “cut, cut, cut,” at a critical time when customers need to be given
additional reasons to stay. Dealers too often focus on the short-term overall cost of advertising and marketing
instead of focusing on the long-term cost of losing customers and the even higher cost of acquiring new
customers. This can be a BIG mistake. Reducing their share of voice in the market place can have significant long-
term impact on the dealer’s market share. A study of the last major recession by McKinsey and company came to
|The most dramatic, and least expected, response of the leaders to the recession was
their approach to operating expenses. While most companies tightened their belts,
successful leaders, trading lower short-term profitability for long-term gain, refocused
rather than cut spending. Indeed, these successful leaders, perhaps reasoning that a soft
market required greater effort or provided greater opportunity, actually spent significantly
more on selling, general, and administrative (SG&A) costs than did companies that lost
their market leadership.
Expenditures on advertising followed a similar pattern, with successful leaders spending
more money (as a percentage of sales) than did their former peers during the recession
and smaller amounts of money in periods of growth. Expenditures on advertising followed
a similar pattern, with successful leaders spending more money (as a percentage of
sales) than did their former peers during the recession and smaller amounts of money in
periods of growth.
Thus, when other companies simply battened down the hatches, seeing only risk during
the recession, the more successful competitors found opportunity and pressed their
advantages. As companies today look to the end of the present downturn, they should
consider that managing risk doesn’t mean avoiding it altogether.
|Final Note: If you expect different results in Fixed Operations as a whole, you either have to do things differently or do
different things. My suggestions for many dealers are to do things differently and expect dramatic results.
advantage of weaker competitors. In his book Recession Storming, author Rupert Hart put it this way, “Most
people focus internally, even hibernate in a recession. This seems to miss the great potential of a recession or
downturn, which is to reap the extraordinary profits in the recovery.” On the decision-making process in
recessions, Hart wrote, somewhat tongue-in-cheek:
carefully-deliberated programs to inculcate loyalty in customers to capture the highest present
value of lifetime value, your shrewdly-executed promotions to engender the most profitable
positioning in the eyes of the customer and your exquisitely-tuned competitive analysis of price
based on the value to the customer and competitive pricing. Guaranteed, it will all get mucked up
by someone somewhere in the company’s desperation to gain cash flow even at a loss. Even
when the corporation has enough cash to afford the key programs and even when something will
increase net profit and cash flow, corporations do not always appear to act rationally in crisis.
recessions tend to cause some decision makers to only focus on the “I” and disregard the “R.” On this, another
recent article from consulting company Millward Brown, said:
your budget) is the mindset of a company’s senior management. Even if funds are available,
managers who don’t value marketing may be unwilling to maintain existing levels of support for
brands, let alone condone increases in spending. The need to prepare quarterly financial
reports for investors will keep them focused on the bottom line. When innovation and marketing
budgets are scaled back, little appears to be lost in the short term even though the evidence
suggests that many brands will suffer as a result.
|Clearly recessions are times of great challenge, yet also times of great opportunity. Once the decision is
made to take a breath and make a rational decision to continue to invest in advertising and marketing, the
next question becomes one of effectiveness. This is where a loyalty program comes in.
As a response to the increased potential for customer defections, many dealers are considering the
implementation of a loyalty program. In fact, this was the #1 fixed ops strategy in the October 2008 issue of NADA’
s AutoExec magazine. “There’s a reason every grocery store, airline, and retail chain has loyalty programs – they
work.” While a loyalty program can never replace the fundamentals (providing a quality offering at a fair price with
effective communication), it can give a dealer the edge in keeping a key portion of their customers – customers
who also tend to be the most valuable.
warranty runs out, so there is clearly an opportunity to prevent a portion of those customers from defecting. The
good news is a little movement in the needle can have a big effect on the bottom line. A Deloitte and Touche
study of the auto industry not long ago found just a 5% increase in customer loyalty in the service department can
mean a 25% increase to the income of the entire dealership. A large part of this is due to the fact that a 4th year
customer spends more than 3x as a 1st year customer. And every first-year business student learns that it takes
$10 to recruit a new customer for every $1 it takes to keep a current customer, with a loyalty program being one
of the easiest ways to take advantage of this age old law of marketing.
found that 80% of a customer’s repurchase decision is based on their service experience. So if they are leaving
the service department, the dealer is also potentially losing a future sale right at the time when the customer is
starting to consider their next purchase.
is not typically part of the expertise of dealership personnel. That is why we would like to present this guide to
designing a successful loyalty program using some of the best research available.
The most important decision to make when launching any loyalty program is what the reward will be. Above all,
desirability in the mind of the customer must guide the decision. As Incentive Magazine stated so well recently, “It
is important we give the customer what they want to receive, not what we want to give them.” A Harvard Business
Review article put it this way: “Consumers love to be given a treat they would not splurge on with their own money.
And so the most successful loyalty programs often feature less functional and more pleasure-providing rewards.”
The article continued,“Sticky rewards stick in the recipient’s mind, reinforcing the relationship with the program
provider, while slippery rewards are more mundane and tend to slip from memory.” In other words, “utilitarian”
rewards are not remembered, whereas rewards with a high-desirability factor remain in memory.
the ability to earn points that “must be spent back at the dealership.” Such programs are designed to do one thing
very well – appeal to the dealer’s ego. Who doesn’t want to think that their brand will elicit as much consumer
excitement as that consumer’s effort to collect enough points to take the family to DisneyWorld? The fact is,
however, consumers are as excited by dealership points as earning points towards the dentist’s office. How many
dentists have you heard of who offer points towards future root canals?
This is not a knock on the importance of dealer service by any means. Maintaining your vehicle at the dealership
is as important as going to the dentist regularly. We must be honest, however. Customers NEVER wake up in the
morning looking forward to either. It is not only important to give customers desirable rewards but also a choice of
rewards. A summary of a poll conducted by Maritz Loyalty Marketing confirmed “A one-size-fits-all approach is not
only outdated, it is a waste of dollars and can break a relationship with your most-valued customers.
The question then becomes, what do customers want? The Maritz poll found that 63% of households making
$100k+ chose “free travel” as their number one choice. Other popular choices were “cash back” (50%), “free
merchandise” (35%), and “gift certificates” (23%). Only the lowest income households, $35K and below, chose
“discounts” as their number one choice, and this is a group that rarely sees the inside of a dealership service
While the results of the Maritz poll may send your head spinning with visions of complexity, this does not have to
be the case. One other key element of loyalty program design is to make sure you don’t create a new currency.
There are airline programs, credit card programs, hotel programs, restaurant programs, retail programs, etcetera,
but they have one thing in common: While they may offer their own points, they also all offer the now ubiquitous
currency of airline miles. In fact, the Harvard Business Review estimates over 20,000 businesses in the United
States offer airline miles as a loyalty tool.
would rather build on a program in which they already participate rather than participating in a new program from
scratch. Therefore, the best selection is to take advantage of the currencies that already exist. There is no need
to reinvent the wheel. Rather, it is not only recommended but also much easier to “piggy-back” on to the
currencies that already exist, taking advantage of the consumer awareness and brand equities the other
currencies have already built.
One currency that currently exists but should be avoided at all costs is discounting. Most so-called “VIP” type
programs offer guaranteed discounts like “10% off” to participants. There is a large and growing body of research
which clearly shows discounting erodes the perceived value of the dealer’s service other marketing efforts work so
hard to build. While “10% off” has been done for 30 years, it is actually detrimental to long-term performance. In
his book Price Wars, expert Thomas J. Winninger said:
and so on) with a long-term orientation toward developing the loyalty of a core group of best
customers. Customer loyalty is the Holy Grail of the value merchant. Coupons tend to diminish
customer loyalty and should be used with great care. Couponing or discounting often lowers the
value of an item in the eyes of a customer. It also conditions the customer to wait until the item is
available at the coupon price before buying again at that particular store.
the price again when he wants the customers to buy that item. The end result of couponing is little
or no profit.
independent shops. By offering a “10% off” coupon, the dealer is essentially saying, “We are priced 10% too high
in the first place so we can give it back to you.” There are many reasons to choose a dealer over an independent,
not the least of which are the factory trained technicians, the factory parts, alternative transportation, and the
backing of the manufacturer to name a few. A “10% off” coupon, however, tells the customer, “Forget all those
other factors, price should be the ONLY reason to come to us,” and a price war with the independents is rarely
suffers when firms engage in regular discounting. Price-seeking customers are rarely loyal,
which pits one seller against another. They will maintain repeat patronage only until such time
as the next deal is presented. The company unwittingly “prostitutes” the brand to the point where
it eventually assumes a commodity status.
value of the firm’s offer.
We caution against the overuse of discounting due to its “narcotic” effect on buyers and its
adverse impact on brand loyalty.
The good news is a well-designed and executed loyalty program that offers highly-desirable rewards can allow a
dealer to transition away from corrosive discounting quickly, and often will cost significantly less than what was
being lost to discounts in the past. On this subject, Reichheld and Sasser said in their article “Zero Defections”:
people will pay more to stay in a hotel they know or to go to a doctor they trust than to take a
chance on a less expensive competitor. The company that has developed such a loyal following
can charge a premium for the customer’s confidence in the business.
IF they can successfully communicate the added value provided by coming to the dealership, and a
loyalty program is certainly a large part of that offering.
|SUPERIOR DEALER SOLUTIONSsm