Free services boost customer-pay work

Editor's note: Mercedes-Benz of Draper sells about 800 new and used vehicles per year. The figure was incorrect in an earlier version of this story. 

It's fairly common to spot Ray Gunn, general manager of Mercedes-Benz of Draper, in Utah, tucking his business cards under the windshield wipers of Mercedes-Benz vehicles he sees in parking lots around Salt Lake City.

Gunn jots notes on the cards, dangling the idea of a VIP card that offers free services and an invitation to call him. And the strangers often call, he said.

"It happens a lot," said Gunn. "They are now my customers."

The free services that come with Mercedes-Benz of Draper's VIP Service Rewards card include flat-tire repair, windshield-chip repair, battery test, fluid top-off, car wash, shuttle service, a state emission inspection and on-the-spot renewal, which means the dealership can renew a vehicle registration through the state, saving the customer a visit to a Utah Division of Motor Vehicles office.

"We want to do whatever we can to be competitive with the independent shops," said Gunn. "Part of the VIP card is that you're going to get things for free along with your paid service."

Gunn credits the VIP card for driving service business and boosting revenue. In 2012, customer-pay repair orders were down 3.5 percent from 2011, he said. He launched the card in late 2012 and watched customer-pay work rise nearly 18 percent in 2013. In 2012-17, the dealership has had about a 51 percent gain in customer-pay repair orders, with an average year-over-year increase of 8.5 percent, Gunn said.

"The average frequency we see our customers are three to four times a year," said Gunn. "It used to be once or twice a year."

Mercedes-Benz of Draper, in a suburb about 15 miles south of Salt Lake City, sells about 800 new and used vehicles a year, Gunn said. Larry H. Miller Dealerships in Sandy, Utah, owns the store. Larry H. Miller is ranked No. 9 on Automotive News' list of the top 150 dealership groups based in the U.S., with new-vehicle retail sales of 68,694 units in 2017.

The Mercedes store is the only one of the group's 64 dealerships to offer the VIP card.

The idea for the card came in 2012 when Gunn and his team worried about Mercedes vehicles' ability to run for 10,000 miles before needing an oil change.

"If you look at the frequency that someone comes to a dealership, it could be once a year," said Gunn. "We wanted it to be higher. That's when the VIP card came up. It's not a [loyalty-style] rewards card. This is a card where you get a free service every time you come in."

There are a variety of ways to get one of the free cards. Customers who buy a new or used Mercedes vehicle from the dealership get a card. If a customer bought a Mercedes at a different dealership, but brings it to Mercedes-Benz of Draper for service, the customer gets a VIP card.

"We also send out advertising to known Mercedes-Benz customers who we've never done business with and give them a VIP card to experience service at our dealership," Gunn said.

Since 2012, customer-pay revenue has risen 10 percent each year. Gunn credits the VIP card for propelling part of that growth.

In 2016, about 20 percent of customer-pay repair orders came from people using VIP cards. In 2017, it rose to 23 percent. This year, Gunn expects about a third of all customer-pay service customers will have a VIP card.

The free services cost the dealership about $7 to $8 per customer, Gunn said. But unit count of tire sales, for example, rose 20 percent from 2016 to 2017, Gunn said, because of customers returning more often for other service and replacing tires in the process.

In January, 20 percent of service revenue was from new customers, which Gunn credits to the store's aggressive campaign to mail VIP cards to Mercedes vehicle owners.

While conquest customers are good, the goal of the VIP card is customer retention, said Mike Choate, Mercedes-Benz of Draper's service manager.

"If our customer goes anywhere for anything else, there's a chance the customer won't come back here," said Choate. "If we provide those extra services and they know they can come here for their new tire, or they can get their state registration, they will come here for other services."