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Automotive: The Perfect Market for "Lifetime Value-driven" Marketing
CEM in Automotive
Mr. Marco De Veglia
Partner, Trout & Partners
G-CEM International Partner (Italy)
www.medius.it
This article is exclusively written for G-CEM.
A famous Italian football coach had a rule who he taught to all his players: "Rule Number 1: don't lose".
He obviously cared about the goals his team scored, but got ballistic when they do any defense blunders. Why?
Well, from a football point of view when your opponed score in your goal, you lose three times: you lose a point, you lose confidence and your opponents gain confidence. A 1-2-3 punch that can be lethal.
How this has to do with selling cars? Well, actually a lot.
Car clients: from Kings to Nuisances.
The overbearing majority of marketing money is spent on acquiring new clients. Expensive advertising (why car advertising is always expensive?), expensive stores and display, expensive financing, expensive brochures. Let's forget the fact that most automotive marketing is irrelevant and not differentiating enough. Let's say it's effective in acquiring a new customer.
So, you spend a good amount of money to get this new client on board. It eats badly into your profits, but hey, the factories are churning cars like mad and you have to move your stuff out of the warehouse and the negative interests.
A good amount of money and a good amount of customer experience if you are good: the prospect shall feel treated like a king so he switch his money to your brand and drive out your car salon with a new car. The factory is happy, the autodealer is happy, the car salesman is happy and the client is happy too (hopefully).
And then what happens?
Then the client becomes a nuisance.
- The value of his car loses 1/3 when he just leaves the dealership
- When he comes back for mandatory services, they are as expensive as possible (you have to make money out of that)
- Out of dealership, out of mind (if you are really, really good, you send lame notes for Holidays and when there is a new car model to show)
- And if the client wants to trade his old car for a new one he gets very little for the jewel he bought only a few years ago
- Support when he is on the road? Come on, are you kidding?
Ok this is the average bad dealership/car brand and there are exceptions. If you sell a luxury car, you have probably some "nurturing" program in place to pamper your 100K car customers.
But for the mid-price or economy car market, that means for the 90% of the market, there is no special treatment.
Why?
"Of course because clients are unfaithful, those bastards! They try to maximize their interest and when they want to buy a new car, they will shop around for the best deal."
Excuse me: do you know when they are ready to trade their old car for a new one?
What are you doing from the moment the new client leaves the dealership to the moment the client is ready to buy a new car, so that he thinks again at your car models and dealership?
I tell you what you are doing: nothing.
The average car brand is just hoping that the customer will think again at the same brand when he is ready to buy again. He sees the ads, he reads the reviews, hopefully he comes back and if not, you are again client-hunting. And there is free interest financing, by the way.
But hoping is not marketing and there is much more you can do to improve your chances of not losing your client.
Because the rule N.1 of car business is: don't lose your customer.
(it's too expensive to get a new one).
Here are 5 things you can do to invest your marketing money to actually keep your customers and make 8.6 millions more of profits in 3 years.
Interested? Follow me in this ride.
1. Measure the Lifetime Value of your clients.
Lifetime Value (LTV) is the profits your clients will bring in their life as your clients. When you lose them, clearly you lose their Lifetime Value from that moment onward.
Computing LTV is not complex, even if it requires a minimum of financial and Excel skills. There are lots of information online about LTV calculation. Personally I like how Arthur M. Hughes explains it. You can find Mr.Hughes articles and LTV info at http://www.dbmarketing.com/
Here is how a LTV table looks:
With LTV numbers (for different segments of clients, different models, different zones and channels) you will have in your hands 2 key informations:
1. Where you are right now with your LTV (how much - or little - money you make with your clients)
2. Where you can go to increase it
The "where you can go" info is clearly the most intersting. But you have to start from where you are today. Let's say that in 5 years you're a segment of customers of your Auto1 model is 5000 (add your preferred currency).
If you lose customers it will be less. If you keep more customers coming back it will be more. How more?
You can and shall compute it.
2. Define strategies to increase the Lifetime Value of your clients.
Can you increas the current LTV of you're a clients of Auto1 model? Probably you can.
How? There are several ways.
You can retain more of them, that means you treat them so well that more of them decide to come back and repurchase from you. If historically only 47% of A customers would come back, you can work so that 50% come back.
How? It's marketing. You can make they recognized, make for them easier to come back and repurchase, make them feel overall better by repurchasing.
Them you can increase how much they spend over their Lifetime as customers. More services, more products, more expensive.
Then you can have them act as referral and bring to you other customers. It's the member-get-member idea and it surely works in automotive (when a customers speaks well about his car and dealership, friends listen).
Finally you can decrease your sales costs, by making easier for the customer to buy: this means your profit is higher.
You can do all these things together, or just some, but I advise to do each one separately and measure what happens and how to optimize it.
With these strategies defined, it's time to make them into numbers.
3. Put some numbers out of the strategies and into your LTV Table.
This, for me, it's the most exciting part. Because now you see how your marketing can work to increase your profits! That's the marketer's dream come true, but it's exactly what it happens with retention marketing.
So you make a new LTV table with the new values for Customer Retention, Purchase Value, Number of sales and, if you have thought of a Member-Get-Member program, put there referred clients.
Of course you have to put in the cost for these strategies. Your costs will go up. The key is that the increased profits more than pay for the increased costs.
This is a critical element: I have seen too often companies using very nice retention programs and services that simply cost too much and don't deliver a profit. So be sure your numbers add up and you have increased profits.
Here how the hypotetical LTV table, with retention strategies inside, will look:
What can you see from this table?
That with your strategies implemented, the LTV should go up. You make more money from your existing clients than without any retention strategy.
Here are the number for this hypothetical example:
With this hypothetical example your retention strategies will make 8.6 million in added profits that the company weren't making before everything was in place.
8.6 millions? Are they real? Of course not.
This is an example and we are just putting numbers on a spreadsheet. But this is what could happen and you know before spending a single penny. How cool is that? In my almost 20 years of marketing, LTV what-if analysis is the coolest thing I have done.
But now it's the time for you to actually go to work and see how the assumptions stand to reality.
4. Getting your hand dirty: testing the strategies and seeing what happens in the real world.
Now you have to implement the strategies. You know the classic cycle you already do: writing briefs, meeting suppliers and partners, making sure everything is done correctly, launching the activities, seeing the results.
Many marketers think this is their job, personally I disagree. This is just technical stuff and I advise never spend more time on a headline for an ad than you spend to actually thinking why you want that ad and what that ad has to do for you.
Ok I am getting out of topic. So you have implemented the programs and saw the results. And in the real world things don't go as in the spreadsheet. The retention program works very well with top management, clients are very happy, but their LTV goes down. You are losing money on the program. As they say: perfect surgery, but the patient died. And you are fired.
Boomm!
Of course you don't do that. You do a test.
Here are how you do a test for your new LTV strategy:
1. You set up a limited area and number of clients: it can be a few cities or simply a segment of your clients
2. Inside this limited "test" area you set up half of the clients who are into the retention program and another half that isn't. This is the "control". You will monitor what this second half will do (it shall not change behavior) and compare to the half that is in the retention program
3. You set up a time limit for your test. It shall be enough to see some meaningful results. Considering the reatively long repurchase rates of the automotive field, I believe that 6 months is the minimum.
So you do your test and you see your results. If your LTV increases, go to point 5 of this article. If LTV decreases, it?s time to go back to the drawing board and see how you can change the retention program (Investing less? Spending more? Spending differently? You see your results and decide).
And now is time to make serious money and fight the nonsense of "all acquisition marketing".
5. How to make millions with client retention: showing numbers and getting funds.
Congratulations to you. You have decided to do something - other than "hoping" - in order for your clients to buy again from you. You followed Rule N.1: you aren't losing clients (actually you are losing less clients: eliminate client loss is impossible).
You planned to do, you implemented to do, you analyzed results and they look very good on paper. The increase of LTV multiplied for the number of clients in your company makes serious money. It's free money: it was there but your company didn't get it because they didn't recognize it. And they didn't budget to get it.
Now they recognize it. It's time to budget for it.
So, with your LTV numbers you go to your CFO and ask for money. Not because you think "this marketing program will work". Not because "all competitors are doing this and we cannot be left behind". Not because "it's a small budget, less than 1% of our sales".
No. You show numbers. You show exactly how much profits the company can make if you will implent your retention strategies. If the CFO and the CEO and anybody who has the power to fund a marketing program can read number, they will fund this program and make millions for the company.
Why Retention Marketing is perfect for the Automotive market.
You in the automotive market have many advantages in order to implement Retention Marketing. Because, as powerful as it is, Retention Marketing is not for everyone.
If you woul sell pens or cans of tomatoes I say "forget it". That's why I cringe when I see retention programs done for FMG brands. How can they increase the LTV with such thin margins? 1 dollar? How can you fund a retention program with 1 dollar? You cannot.
But this is not the case with people who sells or makes automobiles.
You have enough money per sale to fund such a program. Yes, compared to the sale price your profits are thin. But in absolute terms they are among the highest in the market. You have plenty of money to fund a retention program.
And you have ways of contacting your clients periodically (service). Not many markets have the chance to see their clients regularly because they have to meet with them. It's a fantastic opportunity for business in the Automotive market.
And you can compute when they are ready to buy again. There is who will trade his car every year, every 2, 3, 4, 5 or more. You can know it and consider it. You will have different LTV tables for different clients and repurchase cycles. It's not simple, but you can do that. Most business cannot.
And finally: your clients are emtionally and financially well involved in this purchase. This is "food for the retention program". You can use it to make offers that are relevant to your clients, because they actually care about their cars. And there is Member-Get-Member potential: satisfied clients talking to other clients and becoming advocates. Not many business can have this chance (long discussions on pasta brands? Come on, it's unrealistic).
I always say that Automotive is the perfect market for retention marketing and LTV-driven strategies. Now you can see why.
The New N.1 Rule for Automotive marketing.
You have heard probably that "it costs 5 times more to acquire a new customer than to sell to an existing one". Everybody agrees on that. And nobody does anything about that.
Well, I don't know if it's 5 times or 4 times or 14 times. What I know - and now you know too - is that focusing on your clients with a LTV-driven marketing strategy works damn well to make profits for your company. Profits that are surely less expensive than profits made from acquisition, profits that are totally measurable (unlike acquisition profits), profits that you can totally forecast before investing (unlike acquisition profits).
Less TV advertising and more direct marketing and services to your clients? You have the numbers. You know how to use it. You decide.
Here is the new Rule N.1 for automotive marketing: grow your clients? Lifetime Value.
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About the Author
Marco De Veglia has worked in marketing communications since 1990. He has been Strategiic Planner Director and subsequently Head of Interactive Strategy for the D'Arcy Group and Head of CRM for Leo Burnett. From 1998 he is partner in Trout & Partners, the international network of brand strategy consultants. In over 10 years he has built brand strategies for several kind of business: products, services, Fortune 500 and startups, becoming the most recognized brand positioning expert in Italy. He is one of the historical members of G-CEM International Partners where he helps companies to build or "keep on route" brand with the new customer experience strategies.
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