How Experience Impacts the Lifetime Value of Your Customers

October 27, 2019 in Customer Experience

The former sales manager of a large dealer group once shared his perspective about automotive consumers. "Get all you can out of them, because it’s the only car you will ever sell them," he said.

This shortsighted perspective is what kills the car buying experience for many of today's consumers. 

When sales professionals view car purchases as one-off transactions, assuming that the only profit they'll make is the profit on this particular deal, they're missing out on significant revenue opportunities among current and future buyers. 

In this article, we'll look at automotive customer lifetime value (ACLV) – as well as the value referrals bring to brands and dealerships – and why providing an exceptional car buying experience is mission critical for our industry.  

Today's Flawed Car Buying Experience

Let's follow the path through the buyer’s journey for a typical consumer - we’ll call him Joe.

Joe goes online to research his next car. He spends 14 hours visiting 7 websites to narrow his choices among 3,000+ different make/model/trim combinations. All the while, Joe gets inundated with a sea of automotive information from specs to professional and peer reviews, to ads, videos, and articles. 

When he thinks he knows the car he wants, Joe searches inventory at local dealer websites, finds the right car at the right price, and submits his contact information and vehicle of interest. 

Meanwhile, he values his trade online using price ranges generated by algorithms. He guesses at his vehicle’s condition, gets a price range, and expects the dealer to honor that range, vehicle sight unseen.

The dealer contacts Joe and an in-store appointment is scheduled. Joe drives an hour to get to the lot, only to find that the price he was quoted is contingent upon factory incentives for which he doesn't qualify. Beyond that, the dealer is offering much less for his trade-in than the price range he received online. 

Joe is having a bad car buying experience, and he’s receiving service consistent with a dealer who views this as a one-off transaction rather than recognizing Joe’s automotive customer lifetime value. 

Overhauling the Car Buying Experience 

There is no question that today's car buying experience needs to be improved. Here are some key tips to help you improve CSI and enhance automotive lifetime customer value.

  1. Get to know your customers better. Ask questions, answer questions, listen and learn. Find out who the primary driver of the vehicle will be, how the vehicle will predominantly be used, and which features the primary driver finds most important. Build trust by building rapport. 
  2. Clearly explain any and all contingencies that exist with vehicle prices you feature online and/or vehicle prices you quote. Honor your prices after all contingencies have been explained. Manage your customer’s expectations about price and leave no room for misunderstanding.
  3. Implement personalized trade-in evaluations at your dealership so customers don't arrive with unrealistic values from online algorithms. Used cars are as unique as the people who drive them, so enable your customers to connect with professional appraisers who understand the factors that impact value across all makes, models, and markets. 

Automotive Customer Lifetime Value is Higher Than You Think

Why should you improve your processes to provide a better car buying experience to your customers?  Because an improved process can net you thousands upon thousands of dollars. 

Based on our analysis of the following metrics, an automotive customer is worth tens of thousands of dollars in net profit over their car buying and service lifetime (their automotive customer lifetime value.)

  • Average lifespan in the U.S.
  • Average age of first-time car buyers
  • Available car purchasing years
  • Average car ownership length, in years
  • Average number of lifetime car purchases
  • Retail gross per unit profit (new and used averaged)
  • Average service appointment cost at routine service increments 
  • Less advertising costs per vehicle sold

This formula for automotive lifetime customer value is a baseline number, since it doesn't take into account major service repairs, warranty sales, or other vehicle-related revenue that can't be readily predicted. Even so, from this perspective, Joe’s potential value to the dealership is considerable. 

There is also a likelihood that a very satisfied customer will provide referrals for the dealership. In this way, one excellent customer experience can lead to many excellent experiences in an exponential fashion. Word of mouth referrals require no advertising costs, further increasing profitability. 

From this perspective, Joe’s car buying experience has a new importance. Choosing to view him as a one-off transaction is an unrecoverable mistake. 

Automotive customer lifetime value means that providing an excellent car buying experience is, and will continue to be, the single most important success differentiator in our industry. 

Download our report (produced in cooperation with Black Book) to see the actual numbers and calculations for ACLV.