The Pitfalls of Discounting Service?

 

When it comes to sales and service transactions in the retail automotive industry, a main strategy in acquiring new customers or repeat business has always been to offer discounts. Most auto dealer advertisements on television, radio, online, or delivered via any other medium, are based around price discounts. “Save $12,000 off MSRP on this truck,” or “Come in and get an oil change for just $19.99,” are common messages dealerships use to bring in new customers and reignite relationships with those who may have disconnected from the dealership. But are discounted promotions a sound long-term customer acquisition & retention strategy?

In a word, no.

How can this be?

Well, people that “price-shop” aren’t doing so out of any thought of loyalty or future business potential. A more accurate adjective is… “Price-hopping.” The majority of consumers who take advantage of those special discount vehicle ads or service coupons generally have no loyalty to the dealership, nor any recognition of the value of servicing their vehicle at that particular dealership – other than the immediate offer of a good price. When they need service, these consumers simply choose the least expensive option. That level of price competitiveness is suicidal for dealerships hoping to compete with independent repair shops – they don’t have to invest in technician training, quality parts and state-of-the-art facilities.

While dealers hope these newly acquired sales or service customers will stick around and return as a regular customer, sadly, for the most part, this strategy backfires. When these customers need service, they simply run to the dealership or independent that sent them a service coupon with the best offer. And this is why consumers tend to focus on price…it forces a continuous race to the bottom.

Sending out those discount messages costs money… no matter what channel the dealership uses. And, just like any marketing investment, you have to drive enough traffic into the dealership to recoup that investment and then ensure those customers return to the dealership in order to make the whole investment worthwhile.

You can only sell so many $20 oil changes (losing money each time) before it no longer makes financial sense to continue.

Recall customers present a different opportunity that doesn’t require discounting services. These customers have no choice but to come in to the dealership for their repair. Perhaps there is a strategy that can bring in that recall work and produce an increase in additional services?

What if you could offer a discount that isn’t really one, but appears to be so? One that not only brings in new customers, but motivates them to spend additional money?

Recall marketing attracts new customers with no mention of a discount. The manufacturer pays for the repairs!  A good marketing strategy is to offer a discount on services to recall repair customers. Instead of sending marketing to random people (conquest), or existing customers trying to get them back in, consider sending discount offers to customers with existing recall repair work. These are a captive audience as they have to come into your dealership. AND, as they tend to have older vehicles, many end up needing additional repairs. If you arm these customers with a discount in hand before they show up, you don’t appear to be attempting to take advantage of them when you find additional work is needed. And it works!

Dealers who provide recall customers with discount cards in the range of $30-$50, motivate more than half of them (52%), to complete additional repairs at the time of the recall service.

Makes complete sense, right? Now the conversation has changed from “Come to me for a discount even though it might be inconvenient,” to “We know you’ve been inconvenienced by this recall so here’s a discount to use while you’re already here.” This isn’t viewed as a discount since the card is only presented when the customer arrives with a recall repair. And, as it’s not tied directly to the service, it’s never perceived as a discounted service, but rather as a value-added service, as a “sorry for your inconvenience.”

It’s time to take a good look at any customer acquisition marketing tactics which involve deep discounts. They tend to simply result in low retention, less profitability and a shop with service capacity mired in the quicksand of coupon customers.

However, offering discounts to encourage loyalty, retention and acquisition can be effective. If those discounts are used to continue a relationship. If they’re only used as a way to start one, it will probably only be a first date.