CRM: It stands for “customer relationship management” and it's a term we're hearing more often in automotive retailing today — for good reason.

As new vehicle sales pull back from recent highs, CRM offers one of the best opportunities to increase profitability and competitiveness of dealerships. Just a 5% increase in customer retention could generate a 25% improvement in operating profit, estimates Deloitte & Touche auditing firm.

Dealers' information technology systems and specialists play important roles in achieving CRM potential. Effective management of IT is critical to ensuring that key databases are current, easily accessible and easily mined.

But, while IT is critical to CRM strategies, it's one function that can't be confined to the IT department. Effective dealership CRM strategies need to incorporate not only a dealership's IT, products and services, but also the people and processes that make those services work for the customer.

CRM is an enterprise-wide approach to understanding and influencing customer behavior through consistent, relevant communication. Its premise is that most dealers aren't capitalizing fully on the huge investments they make to attract new customers. They're losing too much of the profitable service business on vehicles, and they're missing opportunities to keep in touch with customers so they'll come back when they're ready to buy their next car.

These opportunities are too valuable to miss. Dealers typically retain the ongoing service business of only one out of four customers, according to the National Automobile Dealers Association. When it comes time for those retained consumers to buy new vehicles, they're seven times more likely to buy that new car from a dealer if they've remained an active customer.

Achieving that retention is critical to profitability. Research shows it's 10 time more costly to attract a new customer than to retain an existing one.

That's where CRM comes in. Managing the customer relationship lets dealers identify the right customers, target them with the right offers at the right time and deliver that information using the right channel.

The good news: Most dealers already have the information they need to do just that today.

Step One: Database analysis

Many people assume CRM is all about technology. That's only part of the story. CRM really is about the data dealers have and the wealth of information in that data, and how a dealership's people and processes leverage that data.

That's why the first step in implementing an effective CRM program is database analysis. The information that already exists in a dealer management system (DMS) quickly can identify significant marketing opportunities. These include:

  • Sales-to-Service Benchmarking: to determine dealers' customer retention rates. (It's common to find that 70% of the customers in DMS systems are inactive.)

  • Consumer Geographic Analysis: to determine (using area codes, zip codes, mileage radius from the dealer, and other measures) vehicle and service purchase trends and opportunities.

  • Vehicle Ownership Analysis by Consumer: to identify the most profitable potential buyers for high-mileage service and vehicle repurchase campaigns.

Generally, this type of analysis not only identifies definite “quick wins” in the marketing arena, but it can also provide a “report card” on each department in the dealership, including its efficiency and unrealized opportunities to improve operations and customer care.

Step Two: Refine the marketing spend

To take full advantage of the intelligence that CRM generates, it's often appropriate for dealers to reallocate some of their advertising and marketing dollars. Because CRM enables dealers to reach consumers by the most effective medium possible, they can shift dollars from mass media such as broadcast and print into targeted communications vehicles such as direct mail, telephone or e-mail.

The logic is this: fewer than 10% of the consumers who see a $10,000 newspaper advertisement are in the market for a vehicle. But nearly all of the customers you identify by mining the DMS data reach people who are in the market for service or who are reaching the point where buying a new vehicle is a priority.

A new IT paradigm

Achieving these potential gains may require dealers to rethink where CRM fits in their overall budgets.

In some dealerships, for example, CRM spending falls under the IT budget — a budget that often is notoriously lean. As noted earlier, the IT department plays a critical role in making CRM effective, but CRM itself probably should be considered a marketing expenditure.

It isn't an IT function. It's an IT-enabled function that permits dealers to implement highly targeted and effective one-to-one marketing. Marketing that reaches the right customer with the right message at the right time using the right medium.

As Deloitte & Touche noted last year, by diverting a portion of their advertising budget from less effective mass media to targeted one-on-one marketing programs, dealers can expect a 5% improvement in customer retention — and that can increase operating profits by 25%.

That's a tempting target in today's marketplace.

Kelly Kavanaugh is VP of Customer Marketing Services at Reynolds and Reynolds Co.