The case for selling service contracts well after a new-vehicle purchase

Murer: With all the databases available, if you don't proactively market service contracts to consumers, somebody else will.

Dealerships really ought to pitch extended service contracts to customers who didn’t buy at the time of purchase, says Ken Murer, founder of Automotive Product Consultants Integrated Services Group in Chesterfield, Mo., outside St. Louis.

Not only do dealerships miss a profit opportunity by ignoring those customers, he says, they also open up their customers to an assault by direct-to-consumer marketers.

He ought to know -- he’s a direct-to-consumer marketer himself. The difference, he says, is that his company gets permission to use a dealership’s name and customer data and pays the dealership a commission for the contracts it sells to the store’s customers.

Murer consulted with Missouri regulators when the state solicited industry input into tougher rules for marketing service contracts a few years ago. The tougher rules came after the 2010 bankruptcy and eventual fraud charges against U.S. Fidelis plus a series of settlements involving other extended service contract marketers.

Murer spoke by phone recently with Automotive News Special Correspondent Jim Henry.

How does your company work?

We collect dealer data with their permission. We organize it in our data warehouse. Data like whether a car was bought new or if it was bought used; how many miles did it have on it at the time of purchase; did a customer buy a car from the dealer and now they’re servicing it at the same dealership, or are they servicing it at a dealership but they never purchased a car there.

Are there a lot of customers like that?

We have found by looking at a lot of data that nearly 60 percent of the time people are getting service at a dealership -- oil changes or whatever -- but they didn’t buy a car there. So if 500 people per month come in the dealership, 300 never bought a car there.

We found there’s lots of virgin territory like that. Here are customers you should be marketing to. Here are customers who are more likely to buy, whether it’s prepaid maintenance or service contracts or whatever.

How can you tell which customers are likely to buy? Is it strictly by mileage?

We have 83 proprietary filters before we send somebody a mailing. We de-select people who just bought a service contract at the dealership. Why do you need to buy what you already have? If somebody has a used car, they may be eligible. If it’s certified pre-owned, they already have coverage. But they might be more interested in prepaid maintenance or ding-and-dent. If somebody’s name is down 27 times in a short period of time to buy fleet trucks for commercial vehicles, we de-select them. They’re not eligible. We don’t mail a letter until we think the household is right.

Don’t car owners get a lot of mailings that look like they’re from the Department of Motor Vehicles or the manufacturer? How do they know Automotive Product Consultants’ mailers are the real thing?

In order to legitimize the mailing to customers, we market using [the dealership’s] name, logo and even the dealer’s signature. Using the VIN we can even put an actual picture of the car the person owns.

What’s the downside for dealerships that ignore this?

There are 15, 20 companies trying to sell your customers something, and none of them generates anything for you. And if [the third-party marketers] do business with an inferior insurance company that denies every claim or that forces customers to call 17 times every time they want to talk to somebody, sooner or later [those customers] are going to wind up at the dealership, and guess who they’re going to blame?

If a customer buys a service contract from you, what’s in it for the dealership other than maybe getting that customer into the service department?

The dealer makes a commission. For mail sales, we pay a fixed fee for every sale. Of the people who respond, half call us and half walk into the dealership, so this also generates traffic.

The dealership gives up its data, right?

They provide direct access to the data. The phony direct mail pieces can be pretty convincing. I get them all the time, including the make, model, and model year of my car.

How do third parties get that data?

You think your customer is your customer. But that database is with the car company, the local car club, insurance companies, and the lender that loaned them the money. There must be at least six databases for every customer where that data is going to show up, and if you don’t proactively market to them, somebody else will.

Can’t direct-to-consumer marketers buy registration data?

You’re not supposed to buy registration data specifically for the purposes of marketing. The bottom line is most of them are doing it illegally.

You can reach Jim Henry at autonews@crain.com

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