Consumer Loyalty: the percentage of people who purchased or serviced with a dealership each month who had previously purchased or serviced with that dealership.
The automotive industry is changing. Nationally disruptive new online dealers are joining the market, service is booming, and new car inventory is seriously lacking. Another change: customer loyalty has started to decline. The convenience of having your trade in picked up directly from your driveway, test drives starting right at your front door, and oil changes that do not require an appointment can be hard to compete with. However, when you know how to intercept the competition before they reach your previous customers, you can lock in your loyalty.
In fall of 2019, the decrease in customer loyalty began to take place. This came as COVID swept away the world as we knew it and brick and mortar stores had to temporarily close their doors. Appointments and sales were at an all time low and as a result, online car buying took off. Online dealerships such as Carvana and Vroom took the stage for the first time in many people lives because it was quick, efficient and 100% remote. Dealers that were not ready for the change to online were hit hard and many of their previous customers did not return.
As the world began to open back up at the start of 2021 and in-person socially distanced interactions were on the rise, surprisingly, customer loyalty did not have the same comeback. Another effect of Covid was the impact that it caused on supply chains. The chips that were needed to allow full functionality of a vehicle were not available, causing an imbalance in supply and demand that has worked to the dealers' advantage in gross profit, but will ultimately be damaging to brands and dealers alike. This has not stopped the buying and selling of cars though. In fact, car sales are up 5% so far in 2021 and dealership gross profits are skyrocketing. As shopping habits continue to migrate online, consumers just aren’t buying as many vehicles from the same dealership as they used to.
As more people purchase used cars, dealership service business has grown as customers fill up appointment slots to fix the bigger issues that come with older cars. The service sector boomed so much so, that soon enough, dealers were booked two to three weeks out. For the first time, many people found themselves at national chain service shops that had openings for a five-minute oil change that their dealers did not have appointments for. Services that kept customers coming back to the dealership they previously bought a car from were no longer available, and service has seen its first downward trend in loyalty.
In short, as the used car sales have gone up, customer loyalty has gone down. From January of 2019 to September of 2021, sales loyalty for new cars has decreased 10.2%. For used cars, that number is 5.5%. This is because the inherent loyalty of someone that buys a new car is higher than someone that buys a used car. While many dealerships are having some of the best months in terms of revenue, the defection of their previous customers will eventually catch up to them.
One of the biggest ways that a lack of loyalty will affect dealers will be in terms of ad spend. The cost to acquire a new customer is about five times higher than a customer you have previously sold to. Also, some of the most effective marketing comes from previous customers and the referrals they send you. When loyalty declines, those “free” leads go with it.
Because Driven Data is connected to a dealership’s data, we recognized this trend early on. To help our customers, we’ve applied our custom audience capabilities to develop a solution called Loyalty Lock. Loyalty Lock is designed to bid only on your customers when they perform high-funnel searches, keeping them from defecting to your competition.
When a customer begins their buying journey, they begin to search online for new cars. Typically, when this happens, customers search specific words that allow us to know where they are in their buying journey. We make sure those customers see ads to keep you top-of-mind.
Once they begin to look for single dealerships and get more detailed in their research, we know they are likely nearing a purchase. This is an ideal time to market to that customer but keeping up with this journey can be difficult and running campaigns against your competitors is expensive and time-consuming. With Loyalty Lock, Driven Data uses your dealerships data to connect to your previous customers at the moment they search and bid for the top ad position to prevent them clicking on your competitor's site. This strategy maximizes your budget when it matters most: protecting your customer base.
This decline in customer loyalty is going to impact dealerships for years to come. We care about our dealers and want to help our customers get in front of challenges before they become serious issues. This is why we provide our Loyalty Lock feature to all our dealer and agency partners. We do this automatically to keep your customers coming back and your ad spend efficient.
To learn more about how Driven Data is addressing loyalty concerns and maximizing the cost of dealership marketing, schedule time to speak with our team here.