ST. LOUIS – It’s easy to understand why a satisfied customer is more likely to be a loyal customer, but a new Maritz Research study finds tangible proof that car dealerships that make an investment in improving the customer experience drive away with higher profits. Bob Lorenz of Glenview, Ill., has been buying cars at nearby Jennings Chevrolet since the late 1970s. “We’ve bought three Suburbans, I don’t know how many Trailblazers and I drive a 2012 Malibu now.”
Perhaps it’s the shuttle that takes customers back to work when they drop off their car for maintenance or the fact that the service department is open four nights a week until 11 p.m. Lorenz suspects it’s all of that, plus a service culture, that makes him a loyal customer. “We’ve dealt with different salespeople over the years, but there’s no question it’s the customer service at the dealership that keeps us coming back,” says Lorenz, a 61-year-old father of four.
While all businesses would likely agree they want customers to leave happy, it can be challenging to justify an investment in the larger customer experience. To help measure the financial return, the recent Maritz Research Automotive Customer Experience Payback Study uncovered a way to calculate how improving a customer’s car-buying experience positively impacts a car dealership’s bottom line.
According to the study, Maritz Research found the average car dealership could generate an additional $106,315 per year in gross profit by making their customer’s experience a top priority.
“It’s always been assumed that happy customers are good for business, but this study provides hard data to back up that theory,” said Chris Travell, vice president of strategic consulting for Maritz Research. “For many dealerships, when it comes to improving the customer experience, they say – what’s in it for me? Now, customer service should be seen as a profit-generating endeavor, and we can actually calculate the payoff.”
To determine the financial impact, the study examined two key areas that drive profit for dealerships – vehicle sales and service revenues – to determine the potential incremental profits. Models were created estimating the impact on an average dealership’s sales and service gross profits due to an increase or decrease in customer satisfaction scores by one level. For example, people moving from feeling “very satisfied” to “completely satisfied” with the car-buying experience.
Repurchase Loyalty Drives Vehicle Sales
According to the study, when in the market for a new car, satisfied customers were much more likely to return to the dealership where they bought their previous car compared to less satisfied customers. This is intuitive but the study went a step further by calculating the financial benefit, determining that a dealership could earn more than $64,000 each year in additional sales profits if the dealers are able to increase their customers’ satisfaction over the lifetime of their vehicle by one level.*
Service Loyalty Brings In Maintenance and Repair Revenues
The study also revealed how customers’ satisfaction with their car-buying experience affected their likelihood of visiting the dealership for future maintenance and repairs. A similar analysis found an estimated increase in service profits for the average dealership of $41,646 per year.** Combining additional sales profits with service profits reveals a potential incremental gross profit of $106,315 per year for the average dealership.
Dissatisfaction Hurts Profits
A similar analysis was performed to model the possible effects of customer satisfaction decreasing one level and found a potential decrease in gross profit of $191,624 per year. “When dealerships consider investing in improvements to their customers’ car-buying experience, this model will help them understand exactly what financial benefit they can expect. This is essential in justifying the cost of customer experience improvement initiatives,” said Travell. “It also shows what’s possible, if dealers choose to ignore this reality and change the mindset that customer service doesn’t matter that much.”
Read more about Maritz Research’s Automotive Customer Experience Payback Study at www.therideblog.com. To watch a video of Travell explaining the study in more detail click here: http://youtu.be/SYb9XlJYAFE?
About Maritz Research
As one of the world’s largest marketing research firms, Maritz Research, a unit of Maritz, helps many of today’s most successful companies improve performance through a deep understanding of their customers, employees and channel partners. Founded in 1973,
it offers a range of strategic and tactical solutions concentrating primarily in the automotive, financial services, hospitality, technology, telecommunications, and retail industries. The company has achieved ISO 20252 registration, the international symbol of quality. It is a member of CASRO, ESOMAR and MRA. For more information, visit www.MaritzResearch.com or contact us at 1-877-4MARITZ.
*To estimate the impact of customer satisfaction on sales gross profits, the model uses the most recent 2011 National Automobile Dealer Association (NADA) statistics for average annual number of retail units sold (726) and average gross profit per vehicle retained ($1,401).
**To estimate service revenues, five-year cost of ownership data was gathered from Edmunds.com for the top ten vehicles sold during 2011 ($5,376), and to estimate dealership gross profits for service and parts, a 2011 NADA statistic was used (46.1 percent).