Surveyed customers say they are loyal to auto dealers, but their behavior says otherwise.
A cynic once said, “If you want loyalty, buy a dog.”
It isn’t quite that bad for auto dealers, but they and the auto industry in general face a new generation of consumers with their own definition of loyalty.
That definition can defy conventional wisdom, according to a study, “Life After Loyalty – Learning to Embrace Customer Engagement,” commissioned by AutoLoop, a marketing and customer-relationship management company.
It surveyed a national sample of 1,000 auto consumers and analyzed the purchase behavior of more than 4 million customers.
Increased competition and online pricing are partly to blame for a decline in loyal consumers, says Doug Van Sach, AutoLoop’s vice president-analytics and data services.
“The hard truth for dealers is most consumers have redefined what it means to be loyal in the digital age,” he says, citing a need for auto retailers to stay engaged with sales and service customers.
In a WardsAuto Q&A, he talks about the study, buyer behavior and those sometimes-baffling Millennials who are changing the way everyone shops for cars.
WardsAuto: What prompted the study?
Van Sach: Part of it was to understand what customer expectations are, and where some dealers might be falling short. We found dealers are much less likely to retain Millennials than non-Millennials. That reinforces that there are some issues dealers need to deal with.
WardsAuto: But does that also reinforce conventional wisdom that Millennials are different types of buyers than their elders?
Van Sach: Yes, and that was one of the things we wanted to try to understand. We wanted to understand why it was happening. It wasn’t just about the experience; it was also about the mentality of Millennials.
A question we asked of customers in the survey is how they defined loyalty. Surprisingly, about 45% believe they are loyal to an automotive service center, even though they go elsewhere.
To them, that they trust the service center more than they do others means they were loyal. This can translate into lost opportunities to dealers. Even though a customer may be visiting a dealer periodically for service, they often go to other service places between those visits.
Dealers face a challenge of preventing their best customers from going elsewhere even if they show no signs of disloyalty from consumers who no longer think of loyalty as a commitment. To them, it’s a convenience or preference.
WardsAuto: It seems incongruous that you are loyal to someone or something, yet you go elsewhere. Is that a new definition of loyalty or is it a matter of who is defining loyalty.
Van Sach: That’s why we asked the question. About 60% of Millennials said they were loyal to a brand, even though they shop elsewhere. Non-Millennials were less likely to say that.
Part of it is the mentality of the Millennial. They’ve grown up in a world with fewer reasons to be loyal. Some of it relates to their personal experience. Some have been laid off. And it’s harder to come out of school and find a job today compared with 20 years ago.
WardsAuto: Are you saying that because they didn’t sense loyalty to them in a laid-off or job-seeking experience it translates to them being less loyal?
Van Sach: I think it does. If companies are less loyal to their employees, employees and consumers are less loyal to companies.
WardsAuto: It becomes contagious?
Van Sach: That’s part of it. A bigger driver is the digital decision-making and online transparency around experiences. A challenge for any customer is whether to go to this store or that store.
We found nine out of 10 Millennials will shop online before going somewhere for a vehicle-service visit. That number is much lower for other age groups. It says Millennials are less sure about the experience and are doing more research.
So the driver is a greater transparency of what the experience will be like.
WardsAuto: Transparency means different things to different people. What needs to be done if a dealer wants to be more transparent?
Van Sach: A couple of things. On the sales side, we survey 60,000 customers who visited a dealer last year, but didn’t purchase a vehicle there. A common reason they didn’t buy was because they couldn’t reach an agreement with the dealership on pricing or financing.
We also learned the primarily reasons someone picks a dealership is that it enjoys a good reputation, offers value and provides a good inventory selection.
So some strategies dealers can employ include better reinforcing their selection and creating more pricing transparency compared with other dealers. If customers don’t think they got a good deal, they don’t come back.
WardsAuto: A lot of times the reason they feel that way is because they discover someone got a better deal on essentially the same product.
Van Sach: Yes, because they are doing research. There is that post-purchase sentiment.
WardsAuto: Why wouldn’t they sense that at the dealership before the purchase? Why purchase a car and then think, “I didn’t get a good deal”? It seems a bit after-the-fact.
Van Sach: That’s a good question. I don’t know that I can fully answer it.
WardsAuto: Post-purchase research probably isn’t all that fruitful.
Van Sach: And part of it is a level of confidence. If there’s a perception I can get a better price at one dealer, yet a second dealer has in stock the right car with the features I want, I may just out of the need to expedite my transaction and out of exhaustion from the purchase process, settle on the second dealer even though I know I can get a better deal if I waited three weeks.
Another gap we’ve seen is online pricing vs. in-store pricing. We analyzed comments from those 60,000 customers. Many of them said they were given a higher price when they showed up at the store than the price they saw online.
WardsAuto: It seems self-destructive to price that way.
Van Sach: It does. It’s short-term focus. You are drawing people in with a good deal, but when they check out, they end up paying more. Part of the issue is you don’t know all of the costs you’re going to incur throughout the process. You walk in expecting to pay $25,000 and walk out spending $27,000.
WardsAuto: But there are legitimate additional costs associated with buying a car. When you buy a phone at the Apple store, it charges you a tax that is not listed on the purchase price. No one complains about that.
Van Sach: Absolutely. What sometimes happens is someone sees the price of a base vehicle model, but then goes in and chooses a model with more features. They are anchored on a price, because they saw it, but that changes because of the purchase process or their wants or needs.
WardsAuto: But that’s more on them then isn’t it?
Van Sach: Yes. But there were survey comments such as “I saw a price online, but the dealership charged more.”
WardsAuto: The industry seems to be moving towards 1-pricing, even though it’s exactly called that. It’s sometimes called “value pricing.” Regardless, consumers can readily get prices online. A dealer who isn’t in a relatively narrow band of pricing isn’t a player. So isn’t the market being driven towards, if not 1-pricing, then very-close pricing?
Van Sach: Yes, and that’s where the transparency comes in. It’s easier to find the range of pricing online. Getting back to your transparency question, an opportunity is for dealers to justify their asking price.
WardsAuto: How do they do that?
Van Sach: Be prepared with market pricing data and show how your pricing compares with that of competitors.
WardsAuto: So not just tell them.
Van Sach: No, you have to prove it to them. That’s the opportunity and it builds trust throughout the deal.
WardsAuto: How influential are customer reviews of dealerships?
Van Sach: We’ve found 75% of consumers are influenced by online reviews when picking a service center. Interestingly, even though Millennials only make up 20% of today’s auto consumers, they create more than half the reviews after they’ve bought or serviced a car.
WardsAuto: And their reviews presumably impact the public at large?
Van Sach: They have a greater voice and they are influencing non-Millennials who are likely to read a review but less likely to write one. Reviews have a lot to do with whether someone picks a particular dealer.