Auto Insights: the new business benchmark

Change is occurring to the customer experience at vehicle dealerships.

2016-02-08

The importance placed on a customer’s overall experience at vehicle dealerships is changing rapidly. Franchisors are placing far more emphasis on creating a positive customer experience as a means to influence brand differentiation.

The Australian retail market has evolved rapidly in the last few years, so that today, most new vehicle models of the same class or category have similar features and pricing, with little differentiating features. As a result, many franchisors are now placing an increased importance on the customer experience and have accordingly increased rewards and obligations on the dealers.

Whilst the majority of franchisors do not operate retail outlets, they exert influence by controlling vehicle product, dealership presentation, dealership standards and now even more, the customer experience. The customer experience and retail customer interaction is commonly measured by a Customer Service Index (CSI), calculated by survey’s completed by customers.

Franchisors have taken the initiative to promote positive customer service, rewriting their dealer agreements to incorporate a CSI component. The CSI component is a significant factor in determining dealership incentives, which is a key contributor to overall dealership profit.

Virtually all vehicle brands, and in particular luxury brands, have made changes to enhance the experience of their customers. They have placed a greater focus on the entire life-cycle of the buyer’s experience, from a buyer’s initial contact with a dealership, through to post-purchase servicing.

Where to from here?

With Ford and Holden to cease local vehicle manufacturing by 2017, they have undergone restructuring in preparation for their future as importers and distributors. This has included an emphasis on improving the customer experience. As an example, Holden introduced a lifetime capped price service offering on all vehicles ever built, dating back to 1948.

Ford has used the Apple stores as a benchmark to partake in a multi-million dollar overhaul of its showrooms. They made changes to the customer experience by providing iPads for customer use in showrooms and they are emailing customers fixed quotes for vehicle servicing. They have also implemented a concierge service to greet customers in the new vehicle showroom, in an effort to further personalise the customer’s experience. A number of other brands have implemented similar initiatives.

With the knowledge that customers can compare vehicle models and pricing over the internet, Ford has also allowed buyer’s access to the same vehicle specification data the vehicle industry uses internally. This data is model specific and allows potential customers to review features against other vehicles in its class. Ford, however, only allows customers access to this data on their dealership iPads, Hyundai offers this information on their website. This is a trend we see continuing.

With continued pressure on gross profit margins from new vehicle sales, franchisors and retailers are now focusing on the increased profit margin generated from repeat customers, in comparison to the lower profit margin generated from conquest customers.

Moreover, as the parts and service department typically contributes significantly to dealership profit, it makes sense to focus attention on the vehicle service experience. Where a dealership provides capped price servicing, it is critical to ensure a positive customer experience and the likelihood of repeat sales and service business. The customer service focus today, just in the service department, includes the following actions which are routinely followed by dealerships:

  • Personalised meet and greet
  • Advance notice and agreement on the repair and cost
  • Express service
  • Washing/vacuuming vehicles
  • Vehicle loan or pick up service
  • Loyalty rewards
  • Extended service hours
  • Follow up/reminder calls and SMS
  • Photos of repairs and damage emailed to customers
  • Walking customers to their vehicles
  • Follow up CSI survey

Advancements in technology and increasing customer expectations mean that dealerships will continue to evolve and maintain their focus on improving the customer experience. In many respects, in this regard the automotive industry is following the trends of other industries retail outlets.

Adopting franchisor systems and taking advantage of ensuing IT and automated processes provided, can allow dealerships an efficient and cost effective way of enhancing the customer experience, improving customer retention and ultimately bottom line profits. The danger is that dealerships adopt new practices and overlay them onto existing systems and processes, resulting in increased costs, whereas taking advantage of franchisor developed systems should decrease costs. Whilst there may be debate between franchisors and dealerships about the most appropriate methods and systems required to improve the customer experience, there is no argument that success in this area can only improve customer retention and dealership performance. The challenge for franchisors and dealerships is to agree on the best approach to achieve this goal and in collaboration, develop efficient and cost effective systems to execute the agreed approach. Any duplication can only result in inefficiency and unnecessary cost.

Whilst technology in this situation can offer a more efficient process, it is important to review the expense and cost structure of a dealership to ensure the efficiency translates to profit improvements, with particular focus on technology and staffing costs.

ShineWing Australia offer a strategic financial analysis of dealerships. This analysis can be used as a tool to deliver improvements in both efficiencies and dealership profitability. Customer experience and customer retention are key elements to future success and profitability of dealerships. The ShineWing analysis tool can assist franchisors and dealerships in reviewing and restructuring businesses in this and other key areas.

If you would like further information on this article or trends occurring in vehicle dealerships in relation to current facilitates, please contact Brett Fowler, Partner at ShineWing Australia.