Loss-leader advertising can result in profit gains
Loss leader advertising basically means selling a product or service where the business actually takes a loss to get the customer in the door.
Despite the implication, dealers don't necessarily have to take a loss for loss leader advertising to bring in more service-department business.
In the automotive repair business, an inexpensive oil change seems to be the rule when it comes to loss-leader advertising. Since oil changes are a common reason customers visit the service department, it makes sense to include an oil-change service special.
The most effective way to get customer in the service drive is to use the word “free” with your advertising. But simply offering a free oil change or other maintenance service can result in a multitude of customers that are reluctant to buy any additional services.
Giving away free services cuts into profits substantially if other service work isn't up-sold. One method to overcome the customer that's only after the freebie is to offer a free service in conjunction with another paid service.
As an example a free oil change can be offered when a set of tires or a brake service is purchased. The word “free” can be used in the advertisement in bold lettering or a starburst to get customers' attention.
Other considerations for a freebie can include services that are relatively low in cost for the dealer. Some examples may include:
- Free multi-point inspection.
- Free air-conditioning system check.
- Free battery and alternator check.
All of these have great potential for an up-sell. An hourly apprentice can perform this work, rather than a flat rate technician.
Using a coupon that gives a discount on maintenance and repairs is another way to get customers. Instead of using a percentage discount, show the actual dollar amount of the discount. That works better on the consumer psyche.
For example instead of offering a 10% discount, tell the customer this: spend $100 take $10 off; spend $200 take $20 off, and so on.
Keep track of what works and what doesn't.
It makes good profitability sense to continue using the loss leaders that work and discontinue using the ones that don't. With each coupon that's used, create an operation code for each specific special. Most dealer management systems can track specific op codes. To make it easy on the advisors, have the op code printed directly on the coupon.
To analyze how each coupon is performing, run a report on the DMS to find the frequency of use. More importantly, run the report so it shows total sale amounts of parts and labor for the entire repair order. This will give a good indication of which coupons work best for up-sells.
Which advertising works best?
If several advertising medias are used, use different op codes for each media. Using different op codes for each advertising company and media type will help to determine which company or media type gives you more advertising bang for your buck.
An equation that works well for determining which advertising company or media types work best is the advertising to sales ratio. Divide the total repair order sale (where the coupon is used) into the cost of the advertising. The company with the lowest percentage would be the better future chose for your marketing campaigns.
As an example:
- ABC Community Flyer: advertising costs $2,000 / total RO sales $40,000 = 5%
- XYZ Neighborhood Coupons: advertising costs $2,200 / total RO sales $30,000 = 7%
Since the main purpose of using loss-leader advertising is to increase retail traffic, it's equally important to get the customer to return for future service work. Make sure your key employees are aware of your advertising campaigns and the ultimate goal of customer retention.
Fixed-operations expert James Clausen is a veteran of the auto industry.
Questions or comments about this column?
Send us an e-mail at Dealers@wardsauto.com.