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Volkswagen, GM Experiment with Customer Loyalty

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Volkswagen, GM Experiment with Customer Loyalty
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As Americans, we love our cars. Research has shown that we identify with the type of car we drive so much, that the brand image is often a reflection of our personality. Despite the passion we have for the vehicles we drive, most consumers remain brand fickle, tend to carry heavy skepticism about the quality and competitive pricing of service from the manufacturer’s dealer and, as a rule, agree that the overall car buying experience is still too long and painful.

Taken together, it’s not surprising that creating an effective customer loyalty program in the auto industry is more than a challenge. At times it has seemed almost impossible.

The length of purchase cycle is the first obstacle to creating brand affinity and customer loyalty in the auto business. One study I’ve just found indicates that the average person will buy 4 fewer cars over the course of a lifetime today than they had before the last recession. Many factors contribute to this, and the industry’s renewed approach to leasing may serve as an effective counterweight to this trend.  To protect the residual values of car sold via lease financing, several of the auto manufacturer finance arms are pre-selling portfolios of vehicles to South American buyers at pre-determined prices. This ensures that there is an outlet for vehicles coming off lease and enables dealers to be aggressive in their marketing of lease financing.

The National Automobile Dealers Association (NADA) publishes a comprehensive State of the Industry report and the 2012 edition can be found here if you want to understand additional industry trends and dealer statistics.

Years ago, I participated in the pilot of a customer loyalty program for Auto Nation. The plan was to reward people not just for the purchase of a vehicle, but to engage them with ongoing offers and incentives for parts and service at local dealerships, hoping to keep their attention until they were ready to purchase another vehicle. Theoretically, multiple auto purchases would “drive” additional value, and the ability to turn program credits into free service, parts, courtesy cars, even gasoline would create brand stickiness. The pilot went forward in one or two markets and results were all positive. Nevertheless, new leadership at the top of the company preferred a bare bones discount model and the program was quietly retired.

Since that time, I’ve seen little experimentation with loyalty among the auto industry. BMW has built a solid offer around its credit card offerings and other manufacturers have toyed with the cobrand credit model as an instrument to “drive” loyalty. The remainder use the standard fare of instant rebates and temporary promotions to attract new car sales, packaging all of it under the “loyalty” banner.

Despite what is visible to the market, there is a move to create customer loyalty by several manufacturers, and I was touched by two of them in the past month. General Motors has a program that funds 3% rebates on services, body shop repairs, and other services, putting the accumulated value on account for the customer at the dealership. Through the unfortunate circumstances of a fender-bender, I earned about $100 recently in dealer credit based on the cost of repairs to my car. At least now I can look forward to a “free” oil change and, more importantly, I’ll be sure to patronize that same dealer for service needs in the near future. Should they prove themselves during these visits, I presume I would continue to shift my repair business to the dealer even after my credit is absorbed.

In a much happier circumstance, I was buying a new Volkswagen recently and asked the salesperson if I would receive anything for my brand loyalty. I was not expecting much of a response, but to my surprise, the salesperson asked me how many cars we had purchased at the dealer and wrote down the year, make and model of each. When it came time for price negotiation, there was a $1,500 cash credit towards the purchase price applied as a direct result of my dealer loyalty. The cars purchased were documented on paper and it seemed that the factory was funding the rebate.

Similar to my AutoNation experience, these programs could be in pilot and therefore are not widely promoted. The dealers might be wise to experiment with various tactics and funding levels before announcing they have a loyalty program to the general market. Either way, my personal experience was enough to demonstrate that customer loyalty can be reinforced successfully, even in a highly competitive business with an extended purchase cycle.

If you don’t knock, the door never opens. Keep knocking.

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