Issue link: https://read.dmtmag.com/i/316641
www.PowersportsBusiness.com SOLUTIONS Powersports Business • May 26, 2014 • 35 SOLUTIONS 34 • May 26, 2014 • Powersports Business www.PowersportsBusiness.com Question: Do loyalty programs work? Solid answer: Depends. Sorry. I know you were expecting a quick, definitive answer. So was I. But there's not one. Over the past year or so we have seen the sud- den appearance of computerized loyalty pro- grams in the motorcycle space. It quickly became the buzzword, and everybody was asking if they should jump on, or not. After all, we all use them (think: frequent flyer miles), we are all influ- enced by them, and (come on, admit it…) we even base some buying decisions on them. So now we have loyalty in motorcycle. And the question is, "Does it really work?" Well, I didn't know for sure, so I decided to dig in. Spoiler alert here. My answer is not going to be pretty. But it may help. The first layer of the answer is, please ask a better question. "Does it work?" doesn't quite cut it. Work how? More money in than out? Customers come back more often? There is a decrease in discounting? What do you want to know? So here's my take on it. But, before we start, could we agree to limit this discussion to parts sold over the counter? I know, major units are involved, but that is a much more difficult question to answer. For now, I would like to limit this to just parts over the counter. And that answer comes in layers. Here's the first layer: Do I have better customer retention with a loyalty program than I did without it? And even this is hard to answer. To get to a "yes" or "no," I first have to know what your customer retention was before you installed loyalty. Results will be measured from this baseline. And to get it requires several years of data that is hard to dig out, and even harder to understand. For this reason, I am going to dodge this part of the answer, and tackle it in a later article. Stay tuned. Now, the second layer: Am I getting my money out of this program? Do I get more net cash back with it, than I would without? Let's get back to that baseline thing. You want to know if you are getting your cash out of loyalty. Well, I need know first what you were spending to "buy" your customer's loyalty. Whatever that cost was, that becomes my measuring point to see if you are getting money back on your investment. So, what is your cost of buying customer loyalty? Yeah, it could be the rides, the food, the events, or the community service that you fund. But in reality, it comes down to what you sell your stuff for. Is the price you charge low enough that the customer sees good value in returning to you? And that's about it. DISCOUNTING: BUYING LOYALTY Which brings us quickly to discounting. Think about it. Aren't discounts simply buying the customer's loyalty? And if the other intangibles aren't enough (your location, your beautiful store, your hours, your personable salespeople, your presence on the floor, etc.), they go away. So you sweeten it by adding cash in the form of discounts to the equation. And that cash outlay is the starting point for understanding the value of loyalty. Just how much cash must be returned to the cus- tomer to make them loyal? I started by looking at 81 dealers who have installed loyalty in the past year. I looked at their install date, and then figured the amount and size of discounting they did for the 12 months prior to the install day, and then the 12 months after. Chart A is what I found. Now, my sample size here is a little small — we're in new terri- tory here — but it does give us something to go on. I divided discounting into two compo- nents: First, the percent of parts counter tickets that have a discount (after first excluding inter- nals and wholesale), and then, the depth of that discount, or how much was taken off on the average ticket where discounting was present. Chart A shows three different dealer types, and the percent of invoices that were discounted in the 12 months prior to adaption of a loyalty program and the 12 months after adoption. We see that V-twin dealers dropped their discounted tickets from 36.5 percent to 31.9 percent (down 4.6 percentage points, or 12 percent overall decrease). Metric dealers went from 33.6 percent to 27.7 percent, and a handful of Canadian dealers went from an astonishingly high 46.3 percent of customers with discounts, down to a "respectable" 28.4 percent. Ok. That's half of what we want to know. The metrics of loyalty CHART xxxxxxx xxxxxxxxxxx Source: xxxxxx One of our sayings is: "Nothing happens until something is sold." You can do all the inven- tory control you want, but unless you train your staff to do a good job of selling and taking care of your customers, you won't maximize the capabilities of your department. You must also have an effi- cient process in place to take care of your largest parts customer — the service department. You can significantly improve sales and customer satisfaction for both departments by helping service sell more labor and fulfilling their parts orders on a timely basis. Here are five areas of focus that can improve your sales, profits and customer satisfaction. 1. Recognize the true cost of discounting and implement processes to control it. This chart represents an ATV accessory with a $50 retail price and $30 cost. If sold at full retail, the gross profit would be $20, for a margin of 40 percent. 5 ways to improve PG&A profits, customer satisfaction HAL ETHINGTON DOLLARS & SENSE See Ethington, Page 36 Price Cost Margin Suggested Retail & Cost $50 $30 40.0% $10 Discount Sale $40 $30 25.0% 2nd sale – Total sales/cost $90 $60 33.3% 3rd sale – Total sales/cost $140 $90 35.7% 4th sale – Total sales/cost $190 $120 36.8% 5th sale – Total sales/cost $240 $150 37.5% 6th sale – Total sales/cost $290 $180 37.9% 7th sale – Total sales/cost $340 $210 38.2% V-Twin 19,000 14,800 31,000 4,200 (12,000) Metric 21,000 12,700 26,900 8,300 (5,900) Canada 133,000 18,200 34,000 114,800 99,000 REVENUE FROM DECREASE IN DISCOUNTS, AND COST OF LOYALTY EXPENSE Based on 30,000 Average Invoices over 12 months Cash in from Low Expense High Expense Net Cash Net Cash Dealer Reduction in 3% to Customer 5% to Customer with Low with High Type Discounts etc. etc. Expense Expense TABLE 1 Source: ADP Lightspeed P34x36-PSB7-Solutions.indd 34 5/14/14 2:22 PM