This post was originally published on Auto Success
Customer retention has long been recognized as one of the most important factors in a car dealer’s success. Despite the importance, achieving high retention levels can be challenging. One of the key drivers of customer loyalty is how often a customer returns to a dealership for service and repairs after purchasing a vehicle. It’s well known that customers who service their vehicles at the dealership are more likely to not only return for future maintenance but also buy their next car from that dealership. However, a crucial piece often overlooked is the role that service contracts — especially high-mileage service contracts — play in securing these loyal customers.
The Link Between Service Contracts and Retention
Dealers have long understood that customers who purchase a service contract are significantly more likely to return for both scheduled maintenance and unforeseen repairs. Conversely, customers who forgo a service contract are far less likely to bring their vehicles back to the dealership once the factory warranty expires, opting instead for third-party repair shops or independent mechanics.
This trend becomes even more pronounced for vehicles sold with more than 100,000 miles on the odometer. With the rising cost of vehicle repairs, those customers who choose not to purchase a service contract are increasingly less likely to return to the dealership for repairs. On the flip side, customers who purchase a high-mileage service contract are exponentially more likely to return to the dealer where they purchased the vehicle for all their maintenance and repair needs. This creates both a vital opportunity for dealerships to boost customer retention by offering these specialized contracts and peace of mind for customers purchasing high-mileage vehicles.
The Lifetime Value of a Customer
One of the most important metrics to understand in the automotive industry is the lifetime value of a customer. The longer a customer stays with your dealership, the more profitable they become over time. Repeat buyers and loyal service customers cost less to retain and bring in more long-term profit than constantly trying to acquire new customers. In fact, it is estimated that it costs seven times more to acquire a new customer than it does to retain an existing one.
This brings us to the question: how much does it cost your dealership to acquire a single customer? If you can effectively answer that question, you’ll understand why it’s so important to hold onto the customers you’ve already worked hard to attract.
The numbers back this up. According to Modera, 62% of customers who have a bad experience with a company stop doing business with them. In the context of automotive service, imagine a customer who encounters a mechanical issue shortly after purchasing a high-mileage vehicle but has no service contract to cover the repair costs. Without a service contract in place, that bad experience may lead them to abandon your dealership altogether. On the other hand, providing peace of mind through a high-mileage service contract can prevent such dissatisfaction and keep them coming back.
Why High-Mileage Service Contracts Are Key
The bottom line is that retention is directly tied to profitability. According to Modera, increasing customer retention by just 5% can result in a 25% increase in a dealership’s profits. High-mileage service contracts offer an excellent opportunity to capitalize on this by keeping customers engaged with your dealership longer and more consistently.
High-mileage service contracts aren’t just a customer retention tool. They’re an entry point for a broader relationship with your dealership. Customers who purchase vehicles with higher mileage are often budget-conscious and may see your dealership as a gateway to an affordable, reliable vehicle. Offering them a high-mileage service contract not only provides assurance but also cements the value of your dealership and the brand.
For these customers, the appeal of affordable repairs is undeniable, especially as repair costs continue to rise. With a high-mileage service contract, customers are much more likely to choose your dealership for their repair and maintenance needs as the financial risk is reduced. This keeps them coming back and gives you the opportunity to demonstrate the value of your services repeatedly.
Improving the Customer Experience and Profitability
High-mileage service contracts offer several advantages:
Peace of Mind: These contracts provide customers with reassurance that they are covered in the event of unexpected repairs, which is especially valuable for those purchasing vehicles with higher mileage.
Enhanced Retention: Dealers who offer high-mileage service contracts see higher customer retention rates compared to those relying solely on manufacturer warranties or other retention tools.
Future Business Opportunities: Retaining customers with high-mileage vehicles not only maintains current business but also paves the way for future brand loyalty. By providing an affordable entry point and demonstrating commitment through service contracts, dealers can foster long-term relationships with customers. Incorporating high-mileage service contracts into your customer retention strategy offers significant benefits for car dealerships. These contracts not only improve customer satisfaction by providing peace of mind but also enhance retention rates and drive profitability. As the automotive industry continues to evolve, dealers who leverage high-mileage service contracts as a key component of their retention toolbox will likely see substantial rewards in both customer loyalty and financial performance.
