This afternoon we released the findings of our 2012 Customer Experience Payback Study. With all the buzz around the importance of elevating the customer experience, one can’t help but think….is it worth it?
The study answers that question.
We went back and interviewed customers of five year old vehicles to see what they did when they came back in the market. Did they remain loyal to the brand? To the dealer? Did they defect? We then asked them, based on their overall experience with the dealership they bought their car from, their level of satisfaction. This is what we found:
We wanted to know what the result would be in incremental sales of moving satisfaction up one level, or one box if you will. This means that customers who were Very Satisfied are now Completely Satisfied, and so on. If we did this, we found the following:
We found it would result in 46 incremental sales. At an average gross of $1,401 (according to NADA) this results in a gross profit on the sales side of $64,669. By the same analysis, the boost in service GP is $41,646.
Bottom line – the increase in annual gross profit by elevating the customer experience up one level is $106,315 per year.
So yes, there is a benefit to delivering a better customer experience.
One thing which I didn’t address in the video (since I know it’s already a little long) is the downside of not delivering a good customer experience. That will remain the subject of a future posting. To tease you a little bit, the downside is much more dramatic than the upside.
Thanks for hitting the site and let me know what you think.
Chris
Republished with author’s permission from original post.
Chris –
Several years ago, I wrote about an extremely innovative auto dealer, Michael Price, and how he has dialed-in the culture of the group of dealerships he leads and also optimizes the customer experience. The result, as you suggest, is tremendously monetizing: http://www.customerthink.com/article/how_auto_dealer_group_builds_trust
We can also see what happens, monetarily, at the opposite end of the customer behavior spectrum, where poor experience causes customer risk and loss: http://www.customerthink.com/article/negative_word_of_mouth_customer_alienation_and_sabotage
Michael Lowenstein, Ph.D., CMC
Executive Vice President
Market Probe (www.marketprobe.com)
Thanks for your comments Michael. Your example from the auto industry is particularly pertinent and shows that “not all car dealers are created equally.” Clearly many are doing very good jobs at delivering exemplary customer experiences and we need to highlight these. Appreciate you passing this along.
Thanks for sharing the recent Maritz study. It's music to my ears. It reinforces what Michael and I worked on so hard. Moving the “somewhat satisfied” to “completely satisfied” is the hard part. It takes a lot of things – the intensity of a dealer-operator, the buy-in of employees, re-engineering frontline processes to align with customer expectations and so on. So many things have to change. It evolves into a complete change in the culture of the dealership itself – this is what trips up a lot of dealerships, but the customers love it when the processes are aligned the way they want and need.
Mike Price
Michael,
These are 2 great articles. Thanks for republishing them here. I will share them and the recent Maritz research with my managers.
Mike Price
Michael:
I think you hit the nail on the head when you said “It evolves into a complete change in the culture of the dealership itself” since there can be a perception that if a dealer changes just one or two things, that magically customer satisfaction scores will increase. You have demonstrated this is not the case but rather, it is a total dealership effort. Appreciate you chiming in.
This is proof that loyalty rules! Every business needs to read this study, even if they aren't in the automotive industry. While the numbers may not apply to other industries, the concepts surely do. Years ago Vanderbilt University did studies on typical front-line, retail focused businesses that indicated the satisfied customer is not a loyal customer. An average or satisfactory experience isn't good enough. To create loyalty, the company must take it up to a very satisfied or completely satisfied rating – and the results are worth the effort.
For the past few years I’ve seen a lot of articles promoting CX because experience leaders perform better. The case generally made is that CX leadership is correlated with better growth, stock price, etc.
Yet these studies don’t really “connect the dots” and show how improving CX actually drives business performance. Correlation doesn’t mean causation.
We need to move beyond this high-level stuff and start sharing more examples like Chris just did, showing the bottom line impact at companies or industries, of making CX investments and then getting a return that will make the CEO and CFO sit up and take notice.
Chris, thanks for helping answer the “Is it worth it?” question for auto dealers!
Thanks again for your comments Shep and Bob. As I write, we are putting together a summary of what happens when automotive dealers let their customer experience scores slip. My goal is to have that for you next week. It’s pretty dramatic and continues to build the case for what we know intuitively, but the work is assigning a dollar value to it. Stay tuned!
…..are out there. The reason that more of it isn’t published is principally just that most companies doing this extremely well don’t want to reveal “the secrets of their success”.
I can again use Michael Price’s auto dealerships as an example. Several years ago, I presented to, and conducted workshops for, the national meetings of Toyota Financial Services and Lexus Financial Services. My presentation included some of the approaches and results of Michael’s “Find-Serve-Keep” model which covered prospecting, selling to new customers, selling to current owners, and customized retention processes. Here is just some of what Price Automotive Group has been able to achieve:
– 67% of business was either repeat or comes to the dealerhsips on referral
– 97% of their customers were A or B credit scored, making completing transactions at favorable loan rates much more likely
– Sales per representative was 13.5 per month, compared to the industry average of 9.5. Sales process, customer-centric culture, and staff loyalty were all major contributors here.
– There was an emphasis on streamlining the sales and F & I (finance and insurance) process. Of the 75% of customers who completed their transactions in under two hours (a key process goal), 100% said they plan to repurchase at the dealership, 97% plan to service, and 67% have already referred others.
These were real results, and impressive from any perspective.
Chris has a follow-up post which found that declining sat scores had nearly twice the negative impact – $191,000. Ouch!
Giving a Worse Customer Experience Delivers $191,000 Less To the Bottom Line
Chris
An interesting study. It suggests that over time, increasing customer satisfaction levels increases the probability that an average customer will repurchase their next car at the same dealership.
Putting aside unknowns about the quality of the original research (and 47% of customers being ‘completely satisfied’ suggests there is a problem with scale development); the article has at least one serious flaw. It makes no mention of the COST to a dealership of increasing levels of customer satisfaction by one level. It could well be that the cost to a dealership of increasing satisfaction by one level across the entire customer base would be much more than the benefits you calculate. As you provide no data we cannot know. But we do know that you can’t make the claim in your title without providing the underlying data.
You know what you have to do.
Graham Hill
@grahamhill
My actual experience has been, at each individual dealership rooftop in our group, taking CSI to the next level allowed us to streamline departmental operational costs and helped us enhance employee productivity. It was all good in the long run. Employee empowerment went up and employee turnover went down. Upfront there were huge, even scary, costs due to the fundamental culture change. Certain costs were permanently realigned, too. Over time we were able to leverage operational costs. By empowering employees and streamlining processes CSI jumped, departmental costs dropped, and gross per employee went up. My concentration was never really on CSI scores, however. I focused in on streamlining frontline processes for the sake of employee and customer loyalty. Michael Lowenstein consulted with me and I used his proprietary customer loyalty research to guide me.
Mike Price