Inability to Retain Customers Costs Auto Makers Billions

Customer loyalty has dropped nearly 10% in 10 years from 49.1% in 1998 to 39.9% in 2008, costing some U.S. auto makers more than $3 billion in lost sales annually, data from a new Experian Automotive study shows.

“The current struggles in the auto industry make it more important than ever for auto makers to keep the customers they have coming back to purchase another vehicle,” says Scott Waldron, president of Experian Automotive, a division of global information-services company Experian plc.

The decline in customer loyalty, in part, is exacerbated by the dramatic increase in the number of available vehicle models, which is nearly 300 today, Waldron says.

The study shows a small rise in customer loyalty can lead to significant increases in revenue. For example, an auto maker with 10 million customers will have see about 1.5 million return to the market in a given year.

A one-percentage-point rise in customer loyalty would produce about $405 million in additional revenues based on an average vehicle sale price of $27,000, the study finds.

If this same auto maker could improve loyalty performance by the 9.2 percentage points lost since 1998, it would generate an additional $3.7 billion in annual sales.

Waldron says auto makers should evaluate data beyond the traditional customer-satisfaction scores to get a better gauge of overall loyalty performance. These include financing, warranty work and customer satisfaction with all dealership interactions.

“Generating customer loyalty is a far more complex process than simply scoring high on initial customer-satisfaction surveys or just tracking whether a customer bought another vehicle of the same make,” Waldron says.

“Auto makers need to factor in all of their customer touch points across the ownership lifecycle to understand the definition of loyalty that is specifically meaningful to their brands and their customers.”

Waldron also believes auto makers should marry their internal data to information such as vehicle registration, consumer demographic and behavioral data in order to create loyalty programs that address consumer wants and needs.