Combat Margin Compression
It usually starts with a sinking feeling, when you notice your front-end gross is on a crash diet. No one’s buying new sedans, customer expectations are increasing, and off-lease used vehicles are crowding and clamoring to be sold. While sales are good, you must work harder to sell more, and for less profit.
That’s not a plan that pencils for future success. Fact is, though, that margin compression is inevitable—the important thing is how you handle it.
Look at Costs
First, examine your variable expenses. What’s the interest rate of your floor plan? Can you streamline marketing spend, or improve the productivity of your sales team? Keep in mind areas of optimization that will relieve some of the pressure.
For example, make sure your inventory strategy is consistent with the way you sell cars, and work to improve customer retention, especially in terms of sales and service coordination.
Measure the Right Metrics
Second, make sure you’re using the right metrics.
You have metrics for two reasons. The first reason for metrics is to quantify how effectively your company is working.
The second reason for metrics is to measure whether those efforts are translating to monetary success. If you’re measuring the wrong metrics, you may meet all of your KPIs only to find out that you haven’t met your general goal.
When formulating your KPIs make sure they measure:
- Whether customers are coming in the door
- Whether customers are seeking additional services from your dealership
- Whether overdue tasks are piling up
Look for What Works Now
Best practices change. Technology changes. Your customers’ values change. What worked in the past may not work any longer.
It’s almost always easier to keep up than catch up. Make sure to keep up with industry best practices so your dealership is not left in the past.
Dealerships face shrinking margins today more than they have in the past. There are new ways to sell cars, but in order to avoid margin compression, dealerships should invest time and money into selling cars more efficiently and driving more people to the service lane.
Anticipate the Future
If you anticipate the future, you can focus on innovation instead of trying to catch up to the present. Refusing to change policies and procedures to handle today’s customers is what stops today’s success. An inability to innovate is what stops tomorrow’s success.
It’s not enough to keep up with the competition, you have to beat it too.
Stay current with industry trends, but make sure you’re always looking for ways to innovate too.
Margin Compression is a Real Challenge with Real Solutions
Every dealership experiences issues with margin compression . But if you analyze your costs, choose the right metrics, use current best practices, and look towards the future, you can minimize the impact margin compression will have on your dealership.
Check out these three articles:
Your service department sits at the intersection of success and failure. It’s true: according to Cox Automotive, 85% of customers said the experience with the service department influenced whether they’d purchase another vehicle from that dealership.
But you know that. You know the service drive is the dealership’s most dependable and consistent revenue generator. Yet it also happens to be where customer retention is won or lost, which impacts profitability in very significant ways.
Leverage Technology at the Service Drive
Be sure to apply automated service reminders to your customer communication cadence, as well as recall notices. And don’t forget that customers appreciate it when dealerships use technology (especially mobile) to make the experience easy, from appointment setting to the walkaround.
If your service department is not optimized for speed, convenience, and transparency, you’re potentially losing out on revenue.
Look for Profit-boosting Opportunities
The fact is that your dealership’s service lane is a fantastic opportunity to boost profits. That’s true whether the customer decides to buy their next car from you or not. Every customer should be informed by dealership staff about the service department and the services they offer.
There are multiple ways you can do this.
One way you can introduce new customers, or reintroduce past customers, to your service department is through
IMPROVE MAINTENANCE AND REPAIR SERVICES
As we’ve already discussed, your service lane is a fantastic opportunity to increase your dealerships’ profits. But it’s also underutilized.
In a recent Cox Automotive study, car dealerships only had a 30% share of all service visits. The report says there are multiple reasons why that share of services is so low.
Low dealership service share can be attributed to these five factors:
- Value perception
- Customer experience
- Warranty/Service contract expiration
Where possible, you should strive to fix or improve your dealership in these five categories.
Let’s look at an example from the value category.
The study says most people think dealership services are more expensive than third-party businesses. But the fact is that most dealerships have fairly competitive prices. Dealerships can reverse this perception by adding perks such as price-match guarantees.
Perks like this will help encourage customers to shop around for a good deal. But they ultimately come to the dealership for services at little cost to the dealer.
YOUR SERVICE LANE CAN BE SO MUCH MORE
Your service lane should not be an afterthought when you’re looking for new ways to attract new and repeat business. In fact, it should be one of your primary methods of attracting business.
Your service department can play an important role in your dealership’s profitability. You just need to take the time to upgrade your technology, improve your customer relationship, and change the perception behind dealership services.
You can make many of these changes by leveraging technology and human capital to focus on the customer experience.
Keeping Customers Satisfied
Let’s face it: Few purchase decisions are as complicated or fraught with emotion. Customers come to the dealership with built-in reservations, pain points, and expectations built up over previous encounters or shared experiences. With the average new car purchase price at around $35,000—or more—it’s a big decision, and one that represents not just transportation needs, but also the projected personality of the buyer.
IMPROVE THE IN-STORE EXPERIENCE
All of this makes customer satisfaction a changing, demanding, and crucial priority. That’s especially the case when you consider recent findings from Cox Automotive: Over half of the time customers spend in-store is associated with negative emotions involving the trade-in appraisal, negotiation, and financing/insurance.
Dealerships can improve the client experience by speeding up the process, streamlining the online to in-store connection, and improving transparency. Search for pain points in your process; does your digital retail software not always integrate with the in-store experience, causing duplicate data entry? Is your F&I team using mobile technology to present aftermarket options? Several small improvements in the purchase process will add up to a better all-around experience.
TAKE ADVANTAGE OF TECHNOLOGY
Modern data analysis and updated technology can help improve the customer’s experience. Using modern data analysis tools has been shown to help dealerships make more sales. It can also improve your interactions with customers.
Digitizing dealer processes, like electronic signatures, reduces the customer wait time in F&I offices. Customers report that these are some of the most negative moments during their car buying experience. Shortening these moments allow them to have a better experience.
There’s a variety of ways new technologies can boost customer experience. These types of updates require an initial investment in time, resources, and training, but they’ll pay dividends later.
MODEL YOUR DEAL-FLOW AFTER THE CUSTOMER’S SHOPPING HABITS
The average buyer spends 60% of their time comparing and shopping for cars online. They then spend the rest of their time in a couple of dealerships before making a deal for their new car.
Dealerships can improve customer satisfaction by updating their sales model to fit customer behaviors and preferences.
"...customer satisfaction is highest within the first 90 minutes at the dealership. After that, satisfaction starts declining, and at 2.5 hours into the process, dips below the average satisfaction score and continues its steady decline as time in store increases." - Autotrader
Speeding up the process to fit your customers’ needs can be done with the following three-step deal flow:
- Start the deal
- Structure the deal
- Transact the deal
Starting the deal has to do with digital retailing, credit applications and bureaus, and F&I compliance and reporting. Structuring the deal involves desking and aftermarket selling. Transacting the deal touches on topics like eContracting, accelerated titles, and registration.
Understanding why these things are important will close the customer satisfaction gap.
MAKE DIGITAL RETAILING A PRIORITY
One of the most important elements of your dealership’s deal-flow is your digital retailing.
Most customers value the ability to seamlessly connect online shopping with in-store dealmaking. A seamless shopping experience includes a direct one-to-one connection. This is how customers can finalize terms before walking into the store. It includes continuous-yet-secure engagement. It includes seamless in-store deal completion.
A seamless digital retailing strategy can make up for a variety of other issues.
WITH SOME INITIAL INVESTMENTS, YOU CAN INCREASE CUSTOMER SATISFACTION
Updating your dealership’s technology stack, improving deal-flow, and focusing on digital retailing will lead to higher customer satisfaction rates.
Read the following insights for more:
- Cox Automotive: 2018 Emotional Connections Study
- Cox Automotive: Streamlining the Sales Process to Improve the Customer Experience
- Dealertrack: Digital Retailing: The industry’s leading online to in-store deal-making solution
Nothing beats good marketing, especially when it comes from the customer. That’s the power of customer advocacy, and it’s getting stronger every year. As consumers grow more comfortable with online recommendation engines and social word-of-mouth, it’s true that a happy customer is more valuable than an unhappy one. In fact, one Harvard Business Review study found that “customers who had the best past experiences spend 140% more compared to those who had the poorest past experience.”
An unhappy customer, meanwhile, does considerably more damage. Dealerships can implement advocacy programs by focusing on the last customer touchpoint, and making sure it’s perfect, from a car wash after service to a technology walkaround after purchase.
MAKE PURCHASING EASIER
The modern car buyer spends the majority of their time shopping for a car online. Make sure that you take this into consideration when building your website. There are many customer touchpoints that happen before the customer walks onto the dealership floor.
Additionally, creating a positive online experience minimizes the time a customer is sitting and waiting for loan approval. The whole process improves when you incorporate your online presence into the purchase journey.
Thinking like your customer and removing their pain points can only encourage customer advocacy.
GIVE YOUR CUSTOMER A REASON TO COME BACK
Offering perks like three free oil changes or a free vehicle inspection at 12 months is a great way to get your customers back in the door. Offering free services for the first year gives your customers a reason to come back and be delighted by your customer service yet again.
Free maintenance programs like these are one of the easiest ways to get past customers to come back into the dealership. These experiences can be further improved with text or email updates. These updates can remind them of a free service or give them real-time status updates on the vehicle your employees are servicing. This type of communication helps your customers feel more connected and respected by you and your employees. Coupling great communication with free service can really cement the positive relationship you have developed with your customers.
The more positive experiences your customer has with your dealership, the more likely they will advocate on its behalf. That’s worth eating the cost of a couple free oil changes.
DELIGHT YOUR CUSTOMERS
Most customers are not car people. They do not know how to change their own oil, how to check their own tires for wear and tear, or how to work the DVD player in their new car. Part of delighting your customers can and should include teaching them the basics about their car.
This isn’t to say you need to teach them how to change their own oil, but they’ll appreciate you showing them how to use their DVD player or the Bluetooth setup. These small services take very little time and cost almost nothing, but they go a long way in encouraging customer advocacy.
MAKE THE DEALERSHIP VISIT SPECIAL
According to J.D. Power’s 2017 Sales Satisfaction Study, these types of demonstrations are key: over 40% of mainstream brand buyers want to learn about a vehicle’s features during the delivery process.
The bottom line? Make your dealership experience special, and your customers will return the favor through amplified advocacy and loyalty.