Trading profit today for loyalty tomorrow

Goal of 'conversational selling': Satisfaction

Greg Kostern, Johnson Automotive: "The odds of bringing someone back in as a loyal, long-term customer means you might sacrifice some short-term profit."
The gifts of gab
Since switching to a conversational F&I sales approach, Johnson Automotive has
• Lifted F&I product sales from 1 to 1.5 per customer
• Increased F&I revenue per new vehicle retailed by 35%
• Reduced chargebacks by half
• Scored close to 100% in customer satisfaction

Dealer David Johnson likes profit. But he truly values customer loyalty.

That's why for nearly 10 years Johnson recoiled from the hard-sell tactics commonly used in finance and insurance and accepted F&I results that were slightly below where they should have been.

Johnson understood that "the odds of bringing someone back in as a loyal, long-term customer means you might sacrifice some short-term profit," said Greg Kos-tern, business director for Johnson Automotive in Raleigh, N.C.

But when Kostern proposed trying a technique called conversational selling across the group's nine stores late last year, Johnson agreed. Now F&I products are described to customers first and the menu shown later, Kostern said.

With the approach, finance managers rarely hear an objection, he said. The process has lifted F&I product sales, driven up per-vehicle F&I revenue and reduced chargebacks. And the group is now getting stellar customer satisfaction scores.

"The word tracks that I teach my team take the sales pitch out of it, so the guest never feels pressure during the conversation," Kostern said. "The 'nah' type of response typically happens when customers begin to feel the pressure to buy something."

Flawed approach

Johnson Automotive, which has seven stores in the South and two in the Washington, D.C., area, carries the Lexus, Hyundai, Subaru, Maser-ati, Porsche, Fiat, Alfa Romeo and Honda brands. The group sells about 10,000 new and used cars a year. F&I revenue per new vehicle retailed is four figures. But it didn't used to be. In fact, the stores were underperforming in F&I, Kostern said.

He decided the cause was the traditional menu-selling process, in which customers are shown a list of F&I products while F&I managers explain, one by one, the benefits of each. He had long believed the approach encouraged customer resistance and had come up with a new technique while an F&I manager at a Johnson Automotive store in 2010. He moved the menu to the end of the F&I process, teaching finance managers to flip it face-up and show customers payment options only after discussing all the F&I products in an informal conversation. "It gets the customer to lower their guard enough to hear about the products," Kostern said. "It gave us the opportunity to build the value in the product."

Now all nine Johnson Automotive stores use the conversational approach. Kostern, who trains the company's 16 F&I managers at least once a month with the help of an outside coach, teaches them specific word tracks and the use of body language.

"My managers sit back when giving the conversational presentation so that the customer feels more at ease and in control. We don't engage the customer until we show the menu. At that time we lean forward," Kostern said. "These techniques are what prevent the 'nah' type response."

Not everyone says yes, but because the technique builds a rapport, objections are often easier to overcome than with the traditional presentation, he said. "It usually comes down to making [the F&I products] fit in their budget," Kostern said.

Johnson Automotive was selling an average of one F&I product per customer before adopting the conversational selling approach. Now it averages 1.5 products per customer, and its average F&I revenue per new vehicle is up 35 percent compared with where it was before the technique was adopted. Customer satisfaction scores are close to 100 percent, Kostern said.

The number of chargebacks -- refunds of commissions received on sales of F&I products that are later canceled by customers -- are half what they were before the conversational selling process because customers leave confident in their purchase decision, Kostern said. Customers who hang onto extended service contracts and replacement plans such as tire-and-wheel tend to return to the dealership for service, keeping their contact with the store fresh. "The dealer principal wants customer satisfaction and customer loyalty, and the No. 1 way to increase that is by a great experience through the F&I sales process and increasing your product sales," Kostern said. "It drives the customer back to the store."

New pay plan

In adopting the conversational selling process, the dealership group tweaked the pay plan.

F&I managers are still paid pure commission on the revenue they themselves produce. But it used to be a flat percentage on an individual's total gross F&I profits. Now commissions are paid using a two-rate formula: a higher percentage on the individual's gross profits from F&I product sales and a lower rate on the gross profits he or she generates via dealer reserve. The dealer reserve is the share of a customer's interest rate the dealership earns for arranging the loan.

"The main goal behind changing pay plans, besides moving to this conversational process, was to remove chargebacks," Kostern said.

Finance managers now must focus on selling the right F&I product to meet a customer's needs and not rely on a finance reserve to make up the bulk of the profits. But to earn that commission, finance managers must sell themselves first, Kostern said. "This approach keeps them fresh and mentally in the game 100 percent of the time."

And it's better for the customers, he said. "We try to insert conversation and not pressure the customer so that they make the best decision for themselves. And it brings a lot of those stereotypical walls down."

The gifts of gab
Since switching to a conversational F&I sales approach, Johnson Automotive has
• Lifted F&I product sales from 1 to 1.5 per customer
• Increased F&I revenue per new vehicle retailed by 35%
• Reduced chargebacks by half
• Scored close to 100% in customer satisfaction

You can reach Jamie LaReau at jlareau@crain.com -- Follow Jamie on Twitter: @jlareauan

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