Until Henry joined his business, Michael Rosengarden was confident he had all the right policies in place to keep customers coming back to his Mercedes store on Chicago's tony North Shore.
A courteous, well-trained staff. Fair, no-pressure deals. Extended service hours. Free pickup and delivery. Sixty loaners. Limo service. At-home service if needed. Loyalty coupons. And the standard all-day coffee bar.
"We try to do everything possible to make things as convenient as possible for the customer so they'll want to come back," says Rosengarden, president of Autohaus on Edens Inc.
With little measurable success, though. In 2003, repeat customers accounted for only 20 percent of the 830 new units Autohaus sold. That's not out of line with the industry average of 15 percent for the number of first-time buyers who return to their dealership for another purchase, but Rosengarden wanted to do better.
In 2003, Henry showed him how to get some eye-opening results.
Henry is a specialized customer-retention software program developed for Autohaus by Customer Share Group, a marketing consulting firm with offices in Chicago and Boston. In 2004, its first full year of operation, Henry - named for Henry Ford - generated a 33.5 percent increase in overall repeat sales for Autohaus to 219. The number of first-time repeats, a hard-to-get group, jumped 31 percent.
First-time repeat buyers are an especially important capture for a dealership because industry data show that 78 percent of them will repeat again. But why bother with who's buying as long as overall volume is healthy? The answer in a word: yield.
According to San Diego marketing consultant Frederick Reichheld, a five-point increase in retention can yield a 25 to 100 percent increase in profitability. In part, that's because it's cheaper to market to loyal customers than to try to lure noncustomers, allowing the dealership to reduce mass-media ad spending.
But revenue also increases as a dealership's ratio of repeat buyers increases. Transaction prices rise because repeat buyers tend to move up the product chain with each purchase, and service business rises because loyal customers usually don't patronize Jiffy Lube. Indeed, Rosengarden says his customer-pay service business is up about 10 percent since Henry joined the operation.
Says Tom Osenton, CEO of Customer Share Group. "It's about maximizing revenue from your existing customer base."
Henry is designed to identify and reach those buyers. It works with a dealership's data management system. First Henry identifies the store's customers and potential customers. It then categorizes, or ranks, them according to purchase history and other criteria selected by the store, such as income or miles driven per year. The endgame is to determine where each customer is in the purchase cycle and to set up a schedule for regularly contacting and rewarding him.
In the critical first step, identification, Henry downloaded every scrap of information available about Autohaus' customers in the F&I, sales and service files. In a business with traditionally high customer defection rates, Rosengarden notes, thorough customer profiling is crucial to any attempt to build loyalty.
It's a continual process. Customers are asked to fill out short surveys answering questions such as their taste in music or hobbies that are then fed into Henry. Staff members add observations they may have about their customers to the database files.
With a better picture of his customers to work from, Rosengarden then assigns each to one of five categories:
1. Longtime customers, most of whom are multiple repeat buyers.
2. First-time repeats.
3. First-time customers.
4. Service customers who didn't buy the vehicle from Autohaus.
5. Area residents who have neither purchased from Autohaus nor serviced a vehicle there.
"Henry showed us how long buyers actually kept their vehicles," Rosengarden says. "That allowed us to develop a marketing-rewards campaign based on where customers are in the ownership cycle. The point is to determine when they are moving toward a repurchase decision and to get them back into our showroom at that time."
How it works
Rosengarden's outreach process begins a few days after a customer takes ownership of a new Mercedes. The owner is mailed a thank-you note along with a CD by a favorite artist - information gleaned from Henry. The CD comes with a voucher allowing the customer to exchange it, if desired, at any of several upscale retailers, such as Nieman Marcus, that Rosengarden has alliances with.
Six months after purchase, the customer receives a note saying he will begin receiving a magazine of interest to him - information again on file with Henry. "Because you told us you enjoy golf," the note might read, "please enjoy Golf Digest on us."
One year after purchase, the customer is called by the business development manager to see whether there are any problems with the vehicle or the dealership. This conversation, details of which are downloaded to Henry, allows Rosengarden to identify and fix issues that might jeopardize a sale down the road. The customer is then sent an anniversary card and a $75 gift certificate redeemable at any of Rosengarden's retail partners.
Eighteen months after a purchase, a cash customer is sent information on new Mercedes models and contacted soon after to determine any interest in buying another vehicle. If not, the customer is rolled into a three-month and six-month tickler file. Henry's customer analysis found that Mercedes cash customers repurchase every 24 months on average.
Two years after purchase, a customer again receives an anniversary call from the business development manager. This is an especially critical time in the retention cycle because research shows that more than half of customers have determined by their second anniversary whether or not they will repurchase the same brand from the same dealership.
At the beginning of every month, Henry automatically spits out a list of who needs to be contacted that month, for which anniversary, and what level of contact is needed. New buyers are automatically enrolled on the day of purchase.
Henry cost Autohaus nothing to implement because the dealership has become a test site for the software.
The service department also has benefited from Henry's oversight. Every month, Henry prints a list of customers due for service and their phone numbers. Unlike the normal practice of sending out a reminder keyed only to the recommended maintenance cycle, Henry correlates the recommended cycle - every 3,000 miles, say - with a profile of a customer's driving habits on file.
Does he drive 10,000 miles a year or 25,000? Will he get to the 3,000-mile oil change in three weeks or three months? "Henry gives us a much more accurate fix on who is due for service, and the customer gets an actual phone call. We get good conversion from the calls," Rosengarden says.
Henry also has created better-targeted direct-mail sales campaigns for Autohaus. Direct-mail targets accounted for half of all sales at the dealership in 2004 vs. only 7.3 percent the year before, Rosengarden says, demonstrating Henry's effectiveness at picking pools of qualified, interested buyers from a larger population.
"When the CLS (four-door coupe) was launched last year, Henry allowed us to identify those people who were close to their repurchasing point and who were in a position for this to be the right car for them," Rosengarden says. "It allowed us to very inexpensively send out a personalized letter to them, which resulted in some 50 appointments to see the car. From that list, we wrote a dozen orders."
Rosengarden says he also wrote seven orders for the redesigned 2007 S class from the list. "These were S-class owners who had been waiting to see the coupe but who then decided to order the new S class," he says. "Writing 19 orders on vehicles in this price strata from 50 appointments is a terrific conversion rate. It shows the quality of the list Henry put together."
Rosengarden also credits Henry with helping to stave off a sales disaster in 2004. Because of a construction project on the main road fronting the dealership that lasted from July to December, he says, his new-car sales were off 23 percent from 2003. But Henry generated 55 additional units from repeat customers, raising the total of repeat business to 219 units, or one-third of total sales.
"Without the program," Rosengarden says, "we would have been off much more than we were. It has been a significant win-win for us."