Customer Loyalty

Last week we recognized winners of Polk's annual Automotive Loyalty Awards. One category that gets a lot of attention by our customers is the overall "Make Loyalty" category which basically recognizes superior customer loyalty to an OEM's brand. Since many of the automakers have multiple divisions (i.e., makes or brands), they like to see how consumers react to these separate entities due to the unique position they try to create in the marketplace. This year, Honda won for the U.S. market. But by how much? And how many more repeat sales would have been needed by other brands to beat this year's winner? The point of these questions is an estimation process can be used by automotive marketing managers to figure out what the sales mix needs to be in order to help them predict how they'll help their companies reach their overall sales targets.

How Close Was Each Brand to Beating Honda's Make Loyalty Rate in 2009?

For the 2009 model year, the average make loyalty rate was 44.53%. Honda's make loyalty rate was 54.86%. Toyota missed beating this rate by 0.15 percentage points and Ford missed it by 0.74 percentage points. If I look at the brands, including Honda, that had an above average industry make loyalty rate, there are a total of 10 of them.

But here's what's intriguing to me: is there an "efficiency thing" going on for some brands? Meaning, what dynamic allows a relatively few more sales from past customers to make some brands "win" while other brands need far more sales from past customers to get the same outcome?

Take Subaru, for instance. They missed beating Honda by 6.03 percentage points. But they only needed another 3,914 sales from past customers to exceed Honda's make loyalty of 54.86%. Now if you're Subaru and you only sell just north of 200,000 units in the U.S., yielding another 3,900 units isn't an easy task. But it's worth noting what sales volume deficits exist in order to possibly reach a loyalty target. Now a brand like Chevrolet needed 27,781 additional past customer sales to make them win, yet Chevrolet's overall gap (5.10 percentage points) from beating Honda was smaller than Subaru's (6.03 percentage points). Cross-town rival, Toyota, missed getting the top spot by 849 sales from past customers. In these examples, we have two large volume OEMs and one relatively small volume OEM. So it's not always a size issue that creates the disparities I'm highlighting.

The point is that when companies set targets for sales, much of this will come from past customers. And if there are specific loyalty targets established, managers can conduct a sensitivity analysis to estimate "what's needed" to hit the number. Awards are something to be proud of, but more importantly, hitting sales targets that are built on a bit of science with the use of consumer research and knowing industry trends can make hitting targets a more plausible effort. Here's to 2010... may the best, and most efficient, brand win.

Posted by Lonnie Miller, Director, Industry Analysis, Polk (01.18.2010)

It was my honor to present the 14th Annual Polk Automotive Loyalty Awards at the Automotive News World Congress this week. We’ve discovered over the years that the more you know about customer loyalty, and the more you focus on it, the better. And I can tell you first-hand that we’re seeing more and more of our customers taking their loyalty objectives very seriously. Our 2009 Model Year winners are no exception!

Every year Polk recognizes automotive manufacturers for their superior performance in customer retention. Our Loyalty Awards are based on actual model year purchase and lease activity. This year, we analyzed over 4.5 million household records to determine our winners. In these days of struggling sales and overall automotive industry challenges, the winners this year are a testimony to those OEMs who recognized the importance of spending their resources wisely, and focusing on areas with bottom-line impact like customer retention; which we view as a “must” for automakers hoping to compete.

In our white paper, "Managing Customer Loyalty in the Auto Industry," we share three strategic tips automakers should consider when developing their plans to manage and build their owner loyalty. I hope you find it interesting.

In closing, and on behalf of R. L. Polk & Co., I want to congratulate all of the 2009 model year winners. I hope to see you all again next year at the 15th Annual Polk Automotive Loyalty Awards. Until then, continued success in your customer loyalty efforts!

Posted by Stephen Polk, Chairman/CEO, Polk (01.14.2010)

There has been much recent news and comment with respect to Europe and the sales environment looking ahead. We know from our own experience that the introduction of scrappage incentives can have positive influence whilst in effect, but can also have negative impacts on future vehicle sales. Further, our own analysis has identified unforeseen side effects relative to these programmes with reductions in loyalty rates. Once these programmes ended the loyalty rates returned to normal – demonstrating just how sensitive repeat buyers can be to these types of programmes.

With scrappage programmes coming to an end in Europe, and market-specific influences such as the VAT increase in the UK – it begs the question as to what we can expect in the years ahead.

We will be reviewing our most recent global automotive forecasts, with a detailed view on European Car Demand at a Polk EuroCar Seminar in the UK upcoming on 20 January 2010. For those attending, we look forward to reviewing these forecasts with you, and for those who cannot attend – we hope you will follow Polk’s Forecasting Dashboards or engage with us directly.

The current and projected sales trends have caused many vehicle manufacturers and dealers to increase their focus and attention on customer retention and related programmes. Customer loyalty and optimal aftersales programmes drive positive customer behaviours, and ultimately dealer and manufacturer profitability – key in the difficult sales environment. We will explore some of the best practices we have seen at the seminar, including such areas as predictive targeting and multi-channel integrated communications. Aftersales and service matter, and there are opportunities to succeed and drive results.

And whilst there is no doubting the impact of customer loyalty and retention, no brand can excel in these times without converting the highest percentage of active prospects. There are proven approaches to prioritising focus that generate demonstrable results in increasing conversion rates – and particularly with respect to internet leads. We will discuss our experience in this area at the seminar, and the broader effects the internet and social media are having on the industry.

These are indeed interesting times, but there remain opportunities for the taking.

Posted by Norm Marks, Vice President & Managing Director, Northern Europe, Polk (01.13.2010)

Are you curious what impact the Cash for Clunkers program had on customer loyalty to OEMs? Are you interested in some strategic tips for managing customer loyalty? Do you think that understanding what drives customers' decision to repurchase is critical to building loyalty? Have you ever wondered about the financial impact of loyalty on the OEM bottom line?

If your answer to any of these questions is yes, then you may be interested in the white paper that Lonnie Miller and I have put together and released this week. Click here to get your own copy of the white paper.

Posted by Dan Zetu, Analytic Consultant, Polk (01.13.2010)

Are you loyal? I'm not talking about loyal to your job, your friends or your breakfast cereal. I'm talking about your car...or the manufacturer of that car. I'm asking because it's a subject we think a lot about at Polk. So much so, that on January 12, 2010, Polk will be presenting the 14th Annual Polk Automotive Loyalty Awards at the Automotive News World Congress. Winners of these awards are automotive manufacturers that have demonstrated the ability to bring customers back through positive owner experiences. That means they took action—they came back and purchased or leased another vehicle of the same model, make or manufacturer. So, have you been loyal?

I've been loyal. When my first child became of a more social age, I was thrust into a world of school, birthday parties and soccer games. This meant a life of carpooling other people’s kids and their runny noses, sticky fingers and muddy cleats. And, while hiding under a rock would have been my preferred method of dealing with this, it became very clear to me, thanks to my wife, that a minivan would be the proper solution.

And so began my ongoing relationship with the Chevrolet Venture. Other than oil changes, the first lease offered no problems in the way of maintenance. It was reliable and kept me a good distance from the invading children I was forced to transport. The second lease was an equally good relationship. So much so, that with 0% financing, I bought the third. The reliability of the Venture made me loyal. So that's my story, what's yours?

Are you loyal to a specific make or model? Are you a loyal owner? We want to hear your story.

Posted by Jeff Stone, Senior Marketing Specialist, Polk (12.11.2009)

I wanted to analyze sales trends and look at the impact that GM's decision to discontinue the Saturn brand will have on customer loyalty. More specifically, have Saturn owners defected from GM at a higher rate this year? What are Saturn owners likely to purchase when they return to market for their next new vehicle purchase?

From January 2004 – December 2008 over 56% of Saturn owners were loyal to GM, with nearly 30% defecting to Asian brands. During this same time period Saturn maintained a make loyalty rate of 41%. Incidentally, the Saturn ION won a Polk Automotive Loyalty Award for 4 years straight for the 2004-2007 model years.

While Saturn owners have previously demonstrated strong loyalty towards both the brand and GM as a manufacturer, the story changed dramatically in the first 6 months of 2009. Defections to Asian brands are up 22% and loyalty to GM is down 16%, driven largely by a sharp decline in Saturn brand loyalty. Honda and Chevrolet occupied 3 of the top 10 defection destinations with the Honda Civic being the primary destination of Saturn owner defection.

If the results from the first six months of 2009 are any indication of what we can expect in the future, then less than 50% of current Saturn owners will remain loyal to GM and more than a third will defect to Asian imports with a significant percentage of them choosing Honda.

Posted by Lonnie Miller, Director of Industry Analysis, Polk (11.16.2009)

Recently, the importance of customer loyalty in automotive marketing has skyrocketed due to the increased proportion of loyalty sales among total industry sales. Beyond measuring customer loyalty, OEMs and dealers need to understand what drives consumers' decisions to repurchase the same brand. Here at Polk, we attempted to uncover some of the drivers of repurchase intentions through a consumer research study we carried out this past spring.

In this study, we asked consumers who bought a new vehicle during the past three years what the likelihood is that they will repurchase a vehicle of the same brand next time they return to market, based on their ownership experience. We also asked them how satisfied they were with a series of factors pertaining to their purchase and ownership experience that we considered as potential influencers behind their repurchase decision.

These influencing factors were grouped into three major categories:

1. Product (brand affinity, product quality, performance, safety, fuel economy, workmanship, drive quality)
2. Customer relations (sales process, customer communications)
3. Monetary (purchase price, sales incentives, financing, cost of ownership)

Our analytical model revealed that product attributes are the most important drivers. Sales process and customer communications also emerged as highly influential, which reinforces the notion that a positive experience during the sales process has the potential to drive loyalty and also highlights the need for constant communication with customers.

Within the product category, fuel economy is a significant attribute that drives repurchase intention, though it is also directly related to the cost of ownership. Purchase price is perhaps less influential than we expected, although there are other monetary aspects that are important such as incentives, cost of ownership and indirectly, fuel economy. A diagram of the derived importance of repurchase drivers is shown below. More detailed study findings are forthcoming in a paper to be published shortly. Stay tuned.

Posted by Dan Zetu, Analytic Consultant, Polk (10.06.09)

Yet another entry in the book of automotive industry challenges this year...talks with GM's Saturn and the Penske Automotive Group fell through. There have to be some very heart-broken dealers out there right now and it's discouraging to see a hopeful marriage fall apart before the bride and groom chose a date.

But let's speculate on a scenario: What if an OEM such as Toyota or Hyundai took the Saturn brand? What a clever, defensive move that would be. Recall that Saturn was to be GM's "import-killer" when they launched the brand in 1985. But this never blossomed. In fact, past conquest analyses from our company showed that most of the Saturn buyers were mainly from other GM divisions. That's not doing the job.

While the Saturn retail model was refreshing and unique (hassle-free and highly customer-centric...recall their tagline? "A different kind of car company"), the product line got stale and investment in Saturn from GM waffled. However, there have been many people talking about what a great opportunity Saturn represented to give US domestic auto owners a taste of an import experience. I think many domestic "loyalists" would come running if they knew another established and growing import manufacturer took the helm. Particularly one with a strong brand image and talent for growth.

Or...would a Chinese entrant seeking to capitalize on an existing North American retail network want to pick up the tab? Is there something here?

Being in the auto industry, this is tough to watch. I feel for the Saturn retail network and their raised spirits which are likely falling today. Let's hope GM can find ways to nurture current Saturn owners and not erode customer loyalty through this brand elimination. GM put good product on the road with Saturn. Let's hope more can be done.

Posted by Lonnie Miller, Director of Industry Analysis, Polk (10.01.09)

Over the last several years, I have spent a considerable amount of time analyzing automotive repair data. Most of these analyses were very specific to reporting dealer performance or optimizing service reminder business rules. However, while conducting these analyses I began to wonder if there was a cause-and-effect relationship between vehicle service events and the likelihood of an owner to return to the dealer for service or ultimately repurchase the brand.

I recently had the opportunity to explore this cause-and-effect relationship, initially seeking to quantify the impact “expensive” repairs have on subsequent service and vehicle repurchase behavior. In conducting the study, my colleague Dan Zetu and I discovered that while "expensive" repairs were statistically significant, other metrics like the days elapsed since an "expensive" repair were more predictive of both service and repurchase customer loyalty. For OEMs and dealers alike, understanding this cause-and-effect relationship can provide the opportunity for targeted incentives for future service visits and an opportunity to re-win the business prior to defection actually taking place.

We have documented our findings in a newly released white paper titled "Mining a 'Hidden Asset' to Increase Brand Loyalty and Sales" that stresses the importance of leveraging data assets, specifically repair order data, to better understand and predict owner behavior and customer loyalty. It is my belief that by incorporating findings like those detailed in the white paper into strategically targeted marketing communications and incentives, automotive marketers will generate a significant lift in their marketing campaigns and much higher return on their marketing investment.

Posted by Brad Smith, Product Manager, Polk (09.01.2009)

What makes us buy the same car or truck again? What makes us even consider the same brand when most consumers have in excess of 300 models to choose from when buying a car or truck?

Monthly payments...design of the vehicle..."cool factor"...great dealer service...it's a hybrid...? The list is endless. But the question is: what matters to you the most? From your perspective, which factor creates customer loyalty?

Here's a proposition for you: Tell me your reasons for customer loyalty in the auto sector and we can see where your reasons stack up to other views. I have my reasons for staying loyal to a particular automotive brand - I'd love to hear your thoughts on this matter. It's a timeless debate.

Posted by Lonnie Miller, Director of Industry Analysis, Polk (08.10.2009)

There's been a lot of talk and media attention to the weak state of the auto industry, so I decided to take a look at a segment of the market that doesn't get covered quite as much: luxury vehicles. Surprisingly, we’re still not seeing the drop in luxury vehicle sales this year that might have been expected considering the current economic and automotive industry challenges.

Sales Trends

Industry trends are showing that luxury vehicle sales have declined 34% year-to-date compared to 2008, less of a decline than the 35.1% drop experienced by the overall category of cars and light trucks. Looking strictly at cars (not trucks), we see a drop of 35.8% from last year...still lower than the year-over-year 38.6% drop for non-luxury cars. We have noticed a slight shift to lower-priced luxury cars, with greater sales declines seen in the higher-end flagship cars such as the Mercedes-Benz S-Class, the BMW 7 Series, and the Lexus LS.
 

The sales trend is better for trucks, although the segment still experienced a decline. Sales of luxury trucks are down 30.4% year-over-year compared to a 31.9% drop for non-luxury trucks. And some brands are increasing market share and sales. The Lexus RX is the luxury truck leader, and has increased its share of the luxury truck market by four percentage points over last year. The new Audi Q5 and Mercedes-Benz GLK-Class have added almost 12,000 units this year through May.

Customer Loyalty

Tracking customer loyalty and competitive financing programs will help identify keys ways to increase share as the industry struggles to recover.

The luxury auto makers still have to contend with declining loyalty. Polk’s most recent loyalty study shows serious declines for Lexus, Infiniti, and Volvo. BMW, Porsche, and Jaguar have all improved their loyalty for Q1 2009, but loyalty in the luxury segment overall is down 1.5 points from the prior quarter.

Leasing

While leasing for luxury cars and trucks has declined from last year, it’s probably not the great leasing deals that are causing defections. Luxury truck leasing is down 47.8% from last year and leasing of luxury cars has dropped 44% since 2008. Leasing penetration is off for most makes, but as credit conditions ease, manufacturers with the best financing programs will increase both loyalty and conquest.

Careful management of customer retention to increase loyalty and implementation of competitive financing programs will be the key to increasing market share until the segment rebounds.

Posted by Rick Vicedomini, PolkInsight Advisor, Polk (07.30.2009)

I was on a web panel last week that addressed how dealers can market to customers and leverage the U.S. "Cash for Clunker" program starting later this month. It's amazing how many questions surfaced about the implementation of this program and the questions that remain in the minds of dealers about what to expect once customers start calling them. The folks at NHTSA (National Highway Traffic Safety Administration) have no small chore to get everyone running a dealership up to speed on this program.

From an automotive marketing view, here are some things dealers can do to prepare and capitalize on the showroom traffic the Cash for Clunkers program will hopefully create:

1. Check in on your past customer base. The $3,500 - $4,500 incentives tied to the Cash for Clunkers program give dealers a perfect reason to reconnect with their past clientele in hopes of building further customer loyalty.
2. Look at the vehicle mix in your local market. Find out what the dominant vehicle age and vehicle segments (e.g., minivan, SUV, small car) are that define your trade area.  And be highly conscious of the domestic and import brand mix in your area. A lot of the qualifying vehicles will be domestic nameplates. 
3. Buy outside marketing lists. At my company, we provide analytically-based targeting tools that help marketers (dealers, OEMs, ad agencies) spend less money on targeting campaigns by using information that's refined to hit the audience they wish to reach. This week, we just launched a targeting model to help find households likely to own a "clunker." 
4. Don't use the word "scrappage" when describing this program to the public in your advertising. The phrase "cash for clunkers" is more common and will result in better web hits from prospective customers. "Scrappage" has been used widely in Europe to describe similar programs, but it doesn't seem to be descriptive enough for the U.S.
5. Make sure you have inventory in stock to enable someone to buy the type of car that fits this Cash for Clunker program. And if you're a dealer who doesn't want to order new units right now (due to inventory and carrying cost concerns), start looking for relevant dealer trades with other stores.
6. Dealers should talk to the OEM marketing reps. I'm aware of several national programs that the automakers are working on to help drive traffic to their dealer network. Find out what is coming, if anything. 
   
7. Don't forget to integrate deals from other incentives/promotions with the Cash for Clunker incentive. 
8. Lastly, use what's fundamentally worked in the past to draw in people who are likely to buy a new vehicle. Remember, this is still about selling a new car or truck, so some of the proven marketing messages and techniques should still be considered when getting the attention of the "clunker" audience. 

I'm intrigued by what really goes through an owner's mind when they find out they have a car or truck that's discontinued.  I'm sure a lot people don't care or don't really realize a particular model is retired after a while.  It's expected, right?  But for some, a vehicle defines who they are.  And it just might irk these customers to know they bought a vehicle the brand chose to pull from the product line-up...or worse yet, they bought a vehicle from a brand that's simply going away. So when, for example, Pontiac announced they're "going adios," what do those poor Solstice convertible owners think?

There's a lot written about customer loyalty, lost customers, conquesting, etc.  But right now, when sales are down and customers are nervous about the economy, this is important stuff.  It's really important to keep good customers interested in your brand.

I recently had the pleasure of participating in the Automotive Customer Centricity Summit 2009, hosted by Thought Leadership Summits (TLS) in Marina del Rey, California. We heard from some of the most respected thought leaders in the industry on the topic of Customer Centricity – the evolution of automotive CRM. We witnessed how Collier Automotive Group leverages technology to improve the showroom experience. And, the aftermarket showed us how collaboration and vehicle personalization can create not only profitable customer relationships, but can drive brand loyalty by appealing to an individual's need for self-expression.

Tactical efforts to improve customer experience are important. But, I feel that the fundamental challenge in the current automotive industry is its inability to consolidate customer touch points (vehicle purchase, sales satisfaction index [SSI], Captive Finance, warranty, CSI, customer pay service) into a single customer-centric view. Without this singular view, we see customers bombarded with often conflicting messages and offers from the OEM, the Dealer and the Captive Finance source, which invariably drives down credibility and damages the overall brand experience.

More importantly, this often impersonal approach to communication contributes to the defection of retail service customers into the aftermarket as the vehicle ages. As a result, dealerships are losing share of the aftermarket. According to the AAIA, in 2008, dealerships' share of the automotive aftermarket fell to below 30%, the 6th consecutive year of decline. This not only impacts short-term dealer profitability, but long-term repurchase consideration and loyalty. In today's challenging economic times, dealerships and OEMs can't afford to lose loyalty or vehicle sales. Maintaining customer relationships and customer loyalty to a brand is essential to not only prosper... but to survive.

If you’re like me, you probably hear the term “loyalty” all the time. It’s become a bit of a buzzword in many industries, and the automotive sector is no exception. But, especially with the current state of the auto industry, I’d say that customer loyalty is much more than a catchphrase for OEMs and dealers. Loyalty (which we define at Polk as repeat purchase) is necessary for survival. Without repeat customers, a dealership or OEM simply won’t make it.

This may seem obvious to anyone in the automotive industry. What’s less obvious is how to measure customer loyalty. After all, there’s no industry standard, leaving different organizations to come up with different ways of calculating this key metric.

Polk decided to take a look at this issue in a white paper we recently released. It’s called “What is the Best Way to Calculate Transactional Loyalty?” In it, we look at two approaches to measuring loyalty: the disposal and household methodologies. You’ve probably heard of disposal, which basically assumes a one-to-one trade-off – every time someone buys a new car or truck, they get rid of one in their garage…often, the oldest one. We compare and contrast this approach to the household methodology. The household methodology takes a more comprehensive view all of the vehicles owned by a household and calculates loyalty even when the consumer doesn’t eliminate a car or truck.

What did we find? You’ll have to read the white paper for all the details. But, I’ll give you a clue. One of these two approaches makes it possible to calculate automotive customer loyalty for a far greater percentage of the market. This same approach gives faster results. And, this way of measuring loyalty is more aligned with market share.

I’m not saying that there’s a “one size fits all” approach to measuring automotive loyalty. I know that different organizations have different needs. But, in general, our white paper shows that the household approach to measuring customer loyalty outperforms the disposal methodology. (A caveat: you can measure disposal loyalty a few different ways, including with surveys. For a more “apples-to-apples” comparison, we looked at the disposal methodology as measured with vehicle registration data.)

Intrigued? Want to know more? I’d suggest downloading our free white paper.