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New motor finance retention study reveals big opportunities for funders and dealers

DRAMATIC increases in customer retention are within reach for most funders, even in a falling market, according to new research.

A unique study of current practices among dealers representing 17 automotive finance brands, conducted by loyalty and retention specialists Chrysalis Loyalty, has revealed that big gains are available through optimising customer contact strategy.

Dealers confidentially shared facts and figures to reveal their ratio of cars sold per customer contacted, along with descriptions of their approach to customer relationship and renewal management.

While the most successful dealers achieve one new sale for every 1.4 customers contacted many more are reporting only one sale for every 10 customers contacted and even, in a significant minority of cases, one in 20.

But outside of the highest and lowest performance figures, the key finding by Chrysalis is the consistently high performance of dealers who focus in the most structured way on customer loyalty. Measured over an 18 month period, the global average among 2,500 dealers across all the countries in which Chrysalis operates was one sale for every 2.8 customers contacted.

This average was achieved regardless of a country’s position in the automotive economic cycle, including performance in markets which were falling or static overall.

The key finding of the latest research was that renewal rates in dealerships which run a dedicated customer contact strategy are far higher than in those which approach the issue on an ad hoc basis – for example, when instructed to by a brand or finance provider.

Major factors in the success of the contact strategies of the most successful dealers were a clearly defined approach, disciplined implementation, careful integration with existing CRM approaches and a strong focus on individual skills for staff focused on customer renewals.

As new car sales in Britain fall for the second year running, Chrysalis says their findings are good news for the majority of dealers who still have room for improvement in their customer retention processes – and offer the chance of transformational growth for those who have not yet implemented one.

The other major finding in the latest Chrysalis research is that even for dealers with a defined process for renewals, contact is too often limited to one moment in a customer’s journey through a contract. Evidence shows that a more rigorous approach – beginning the moment a customer is first qualified – consistently results in more renewals.

“This is all good news for most funders and dealers because it demonstrates that many of the new customers they need are already hiding in plain sight,” said Mark Fretwell, of Chrysalis Loyalty.

“We have been able to establish a clear link between the lowest renewal rates and a lack of process for some dealers, who often report that their customer contact strategy relies entirely on being instructed to mount a campaign by their brand or finance provider.

“But even when we drill down into the approaches of dealers with a more structured process we see big opportunities for increasing sales to existing customers – backed by real evidence of what works.

“Despite the industry’s reliance on data analysis for many operations there is still a lack of focus on the most effective change points. As an example, we know from analysis that many customers will renew well before they reach a point in their contract where the cost to change may be zero, or when they pass the point of owing less finance than their car is worth. And yet many funders and dealers with a defined retention strategy limit their customer contact to one of those points.

“In contrast, the evidence shows that maintaining a consistent contact strategy throughout the life of a customer’s finance agreement is what maximises renewals.

“Increasing retention is a vital part of business growth and it is striking to see how opportunities to do that are still wide open across the automotive financial services sector.”

Chrysalis Loyalty has made a white paper detailing this latest research as well as best practice advice – backed by case studies – and tips for implementing an effective customer loyalty programme freely available to funders and dealers. 

Download your copy here

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Dealers should focus on higher renewal rates – not pursue a ‘race to the bottom’ on monthly payments

Dealers should focus on higher renewal rates – not pursue a ‘race to the bottom’ on monthly payments, says Chrysalis

DEALER ‘ADDICTION’ to the lowest possible monthly PCP payments is unsustainable for motor retailers and their brands in the long term.

Instead they should be focusing harder on boosting sustainable business by shortening the change cycle – which means working harder to qualify customers.

That’s the view of finance retention specialists Chrysalis Loyalty as evidence grows that longer PCP terms are increasingly being used as a quick fix in an increasingly challenging market.

Many dealers and brands are already losing greater long-term profit opportunities – and risking their relationships with customers – by chasing short term wins from 48 month PCPs.

But if dealers fail to challenge the industry mantra that ‘it’s all about the monthly payment’ they only pursue a race to the bottom, rather than sustainable growth, say Chrysalis.

According to Mark Fretwell, of Chrysalis Loyalty “some dealers are addicted to the lowest possible monthly payment as a way of signing the customer immediately while sacrificing future loyalty and profitability”.

Using the example of switching a 48 month PCP to 36 months on a popular volume brand model, he argues that both the dealer and customer benefit from shorter PCP terms in the medium to longer term.

Based on industry-standard CAP residual values and a finance rate of 4.9% he contrasts a zero cash down four year term for the car with a deposit of two monthly payments and a term of 36 months.

The increase in the monthly cost to the customer is less than 10% while the opportunity to renew the vehicle for little or no cost to change comes more than a year sooner.

“The model we use to illustrate this is a representative volume vehicle with an on-the-road price of £29,050* and a £1,000 brand deposit contribution toward the deal,” he explains.

“The temptation for the dealer is to go for a 48 month PCP to achieve a monthly payment of £452. But by encouraging the customer to put down a deposit of two monthly payments and increase the monthly payment by less than 10% to £496, the term can be reduced to 36 months and they will be able to enjoy a new car much sooner.

“If this approach were implemented at scale it would result in a 33% increase in sales volumes from renewing customers over the longer term”

“It is even possible for the dealer to achieve a 100% long term increase in this example by explaining to the customer that a £4,000 deposit and a 24 month PCP will enable them to halve the time in which they can change their car.”

Mark Fretwell acknowledges that such an approach involves much more rigorous qualification of customers. But he argues that the increase in overall sales volumes over time – and the customer goodwill that stems from being able to change cars sooner – will bring substantial rewards.

He says: “Instead of taking the path of least resistance with the lowest possible monthly payment conversations should focus on the bigger picture, which must include how often the customer likes to change their car.

“This is about giving the customer all the information they need to make the best decision for them as well as for the dealer.

“The benefit of a relatively small increase in payment and the addition of a deposit makes for a more sustainable long term strategy.

“If we do put customers into four-year deals we know they will want to change earlier but will inevitably find out that they cannot. They are then less satisfied with their existing vehicle but feel stuck and that can only come at a cost to your relationship with that customer.

“Of course brands can keep increasing their deposit contributions to keep the business flowing, but ever-increasing support of that kind is still not a sustainable business model.

“In such a low monthly rate-driven environment how long will it be before we start talking about 60-month PCPs and how will the customer then feel when their opportunity to change has been pushed even further into the future?

“As we face a more challenging market today than for several years it surely makes sense to work a little harder now to maintain the quality of customer relationships and preserve the opportunities to renew.”

 

*How the quotations are calculated: monthly payments highlighted in bold

PCP length (months) 24 36 48
On the road price £29,050
Brand deposit contribution £1,000
GFV (95% of CAP Gold Book)

February 2018

£13,870 £12,136 £10,188
With £0 customer deposit £525 £452.13
With £992 customer deposit £496.10
With £4,000 customer deposit £502.79

 

Picture credit: freestocks.org

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Chrysalis announce appointment of product and marketing director

Expansion is under way at finance retention specialists Chrysalis Loyalty with the appointment of Mark Fretwell to the role of Product & Marketing Director.

Mark Fretwell – whose automotive data and technology background includes senior positions at CAP and KeeResources – is the first in a series of planned appointments in 2018 as Chrysalis Loyalty accelerates an ambition to be recognised as the global leader in motor finance retention.

Independently owned and UK-based Chrysalis Loyalty currently operates in 12 countries, helping more than 2,500 motor retailers consistently and sustainably generate repeat business by identifying the moment a customer can most cost-effectively trade into a new car.

The company partners with nine major automotive brands and finance providers through their franchise networks and the expansion plans range from deeper and wider British market penetration to launching into new geographical territories worldwide.

Founder and CEO Jolyon Barker said: “We are primarily a technology-driven expert data business and that is why Mark is such a great fit for us at this exciting moment, bringing with him more than 20 years’ experience and understanding as well as an impressive track record of success in that world.

“Mark is also highly entrepreneurial and understands that success means delivering value to both sides so his appointment is equally good news for our customers too.”

Branded as ‘Key2Key’ the Chrysalis Loyalty system has been transformational for dealers, who typically report the doubling of their retention and renewal rates after adopting it. By automating the identification of customers in a position to change, Key2Key addresses one of the most challenging tasks in the dealership, delivering pre-calculated offers that produce high levels of repeat business and are also in the best financial interests of the customer.

Mark Fretwell said: “Smart use of data to remove friction and unlock commercial opportunities is one of the most exciting fields in the automotive world and Chrysalis Loyalty is a real innovator in that space. We already have exciting plans to expand our offering in the UK and elsewhere around the world and I’m delighted to be in at the beginning of this new chapter for the business.”

 

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