Individualized Marketing. Strengthens Customer Loyalty. and Increases Sales Potential (based on an example from the automotive industry) February 2003

Transcription

1 Individualized Marketing Strengthens Customer Loyalty and Increases Sales Potential (based on an example from the automotive industry) February 2003

2 Abstract According to a study by Mercer International Management Consultants, the automotive industry lags behind other industries when it comes to customer loyalty. Improved customer loyalty could help car makers to increase sales in their dealerships and in branded accessories business. Saab is well known as a car maker with innovative approaches and a unique identity of its own. It is regarded as a prestigious make throughout the world. Saab Germany also employs this creativity and these approaches in communicating with its customers. The idea of individualized, target-group and dealer-specific communication for the 120 dealerships in Germany has developed into a program involving three campaigns per year that Saab uses to stay in regular contact with its customers. Individualized marketing enables the Saab dealers to offer their customers specific accessories and services via mailings. In this context, particular attention is paid to ensuring that each customer is sent only the information and offers that are relevant to their car. The campaigns implemented to date have paid off for Saab sales of the advertised products increased up to sixty percent compared to the previous year. Page 2 of 15 Individualized marketing strengthens customer loyalty

3 Content Customer loyalty potential in the automotive industry... 4 Long-term customer loyalty due to more customer contacts... 5 Reorganization of the Block Exemption Regulation in Europe... 7 Saab: More success due to individualized marketing... 7 Static communication does not meet the dealers' requirements... 7 Campaigns with dynamic communication... 8 Customer segmentation for target group-oriented communication... 8 Great potential among unknown Saab owners... 9 Uniform design of advertising materials with individualization options for the dealer A customer mailing as the central element Preparation of the customer data by the dealer Central Management by Agency Measuring and monitoring success Digital printing is the only way Publishing information and increases sales potential Page 3 of 15

4 Customer loyalty potential in the automotive industry According to the results of a study by Mercer International Management Consultants, the automotive industry still has to catch up when it comes to customer loyalty. Compared to other industries, where frequent customer contacts mostly face little sales volumes each time, the automotive industry is characterized by just a few customer contacts with a high sales volume on average, a customer buys a new car only every five years. Assuming an additional 1.1 garage visits per year, the total is 1.3 customer contacts per year too few for promoting long-term customer relationships. The profit potential in the automotive sector in Europe totals 29 billion Euros. In new-car business, the car makers and dealers share adds up to more than one quarter. For a manufacturer, however, a customer is worth much more than merely the sales price for a new car. For example, the after sales sector has a further potential of close to three billion Euros in the accessories business alone. Segment Profitability (Operative 12% Profit in Percent of Sales) 10% 8% 6% 4% 2% Supplier 2,5 Car Manufacturer 5,5 Profit Potential (Billion Euro): Dealerships 2,1 Used Car Dealers 3,4 Service + Repair Accessories/ Add-on Products 3,7 Insurance Leasing 2,3 Financing 2,7 1,9 2,8 Car Pool Management 1,7 Car Rental 0,4 0% 0% 20% 40% 60% 80% 100% Relative Segment Size (Sales) Source:Mercer Management Consulting 2002 Improved customer relationships would enable carmakers to specifically boost their sales in the after sales sector Effective relationship marketing can help maintain a customer's loyalty to a brand in the long term, thereby increasing his value to a multiple of the new-car price in the course of the relationship. If, however, the customer decides on a different brand, the result is not only the loss of the new-car business, but also of the follow-up business for the next few years, and possibly even the entire Lifetime Customer Value Page 4 of 15 Individualized marketing strengthens customer loyalty

5 (LCV). According to Mercer, the loss of one customer can thus cost as much as 300,000 Euros in sales. With that perspective every single customer contact becomes significant. Long-term customer loyalty due to more customer contacts One fundamental prerequisite for lasting customer loyalty is a regular customer contact in the time period between car purchases. However, in this context the communication between manufacturer, dealer and customer has to be considered. The dealerships are independent businesses, and thus they are interested in a customized communication with their customers including information like prices for accessories and services. The manufacturers, on the other hand, want their external communication to be as uniform as possible with the dealers complying with their CI guidelines. This also allows them the central management of services and a better control of brand image. Customers in Automotive Industry New Customers Exisiting Customers Address New Car Address After Sales Potential Customer Marketing Purchase Customer Relationship After Sales Address New Car Address After Sales Approx. 1/2 to1 Year Decision Phase Approx. 3 to 6 Years Car Ownership Effective relationship marketing can maintain customer loyalty in the long term Especially considering the reorganization of what is known as the Block Exemption Regulation in Europe, it will become even more important for manufacturers to be able to influence dealer communication with their customers. Since the new regulation also allows dealers to sell several brands under one roof this influence would give manufacturers a chance to counter an impending loss of brand identity. and increases sales potential Page 5 of 15

6 For the manufacturers, it will also be a question of securing a dominant position for their brand not only among the customers, but even at their dealers, since they are in contact with the customers. Consequently, it can only be in the manufacturers' interest to enable dealers to individualize their customer communication, and thus to support them in establishing successful relationship marketing. In contrast to an advertisement, where competing products can be on the following page, individualized marketing via direct mailing campaigns, for example gives dealers the opportunity to attract their customers' attention solely to their product. Moreover, they can focus on the specific needs and interests of their customers and thus really send each customer just the information of relevance to him at just the right time. The information has to be a real added value to the customer. This is, however, only possible if available knowledge about the customer can be accessed for communication. This requires databases, from which marketing-relevant information can be selected as and when needed and used for individualized communication. Especially in the automotive industry, however, this information is usually available. Based on the purchase of the new car and its service intervals, the dealer is aware of individual customer s attributes, such as his preference for a particular model, a color, optional extras, etc. Page 6 of 15 Individualized marketing strengthens customer loyalty

7 Reorganization of the Block Exemption Regulation in Europe: Two major changes compared to the previous situation relate to the rights of authorized dealers. Up to now, carmakers could, for example, assign exclusive market territories to their authorized dealers, but at the same time prohibit them from selling new cars to non-authorized resellers, such as supermarkets or vendors operating exclusively via the Internet. In the future, however, the manufacturers will have to choose: if the manufacturer grants the dealer exclusive rights in his market territory, he cannot simultaneously forbid the sale of new cars to non-authorized resellers. This would mean that manufacturers give up control of their distribution channels a weakening hardly any manufacturer is willing to accept. The alternative is known as the selective system. In this case, the authorized dealers are still not allowed to sell new cars to non-authorized resellers. In contrast to the previous situation, however, they will in return be permitted to open branch offices or distribution sites anywhere in Europe. In addition, dealers will be permitted to sell several brands under one roof. Saab: More success due to individualized marketing Saab is considered to be a creative carmaker with innovative approaches and a unique identity of its own. Well known as a prestigious make throughout the world, Saab is today part of the General Motors group. The company is active in more than fifty countries around the world and is regarded as a high-quality niche supplier. The German subsidiary of the Swedish carmaker is an example for how successful individualized marketing can really be. Saab Germany is based in Bad Homburg and employs a staff of sixty. The dealer network encompasses 120 authorized dealers. Static communication does not meet the dealers' requirements In the past, the German subsidiary relied on central mailings and advertising materials for individual products for the customer communication with templates for the dealers. A customer contact program on the Internet allowed dealers to download templates, e.g. for letters. The disadvantage of this type of communication was that the dealers could not adapt the templates to suit their needs. In addition, local production by each individual dealer made it impossible to guarantee a uniform Corporate Design, and also increased the production costs for the dealers. Moreover, as with other manufacturers in the automotive industry, it is the Saab dealers who manage the majority of the customer addresses, not the manufacturer. Furthermore, it is up to the dealers to set the prices for accessories, parts, service, etc. the manufacturer can only use recommended prices in his advertising. and increases sales potential Page 7 of 15

8 Campaigns with dynamic communication Today, Saab Germany uses a new approach for communicating with its customers. The Saab owners have very different interests and needs, depending on the type of vehicle they own and its age. These individual interests and needs are the focus of today s communications and offers, and each customer only receives the information that is relevant to them and their car. A one-shot spring promotion campaign for the 120 dealers in Germany has since developed into a program involving three campaigns per year that Saab uses to stay in regular contact with its customers via its dealers. Attractive, easy to remember images and key visuals were developed for the spring, summer and fall/winter campaigns Customer segmentation for target group-oriented communication To better target the customers with the offers, three target groups were first defined, based on the life cycles of the vehicles: Target Group 1: Vehicles from 0 to < 3 years. The vehicles are covered by a two-year warranty that can be extended to up to three years. The scheduled inspections almost automatically tie the customers to the car dealer. Consequently, the dealers know almost all the customers in this target group. They are mostly interested in special accessories, including expensive items. Target Group 2: Vehicles from 3 to < 6 years. The warranty for a vehicle in this group has expired. The owners are increasingly interested in low-price garages and the used-car market. The private buying and selling of cars also increases. Therefore, customers in this target group are only known to a certain degree. However, they are interested in the Page 8 of 15 Individualized marketing strengthens customer loyalty

9 dealer's service offers. And this particular target group has the highest sales potential, because it incurs the highest expenditure for repairs and servicing. Target Group 3: Vehicles 6 years. Experience shows that the owners of these vehicles are least likely to be regular customers. This target group is geared almost exclusively to the private car market. In addition, servicing and repairs are often done by third-party vendors or on a "do-it-yourself" basis. Suitable instruments are geared towards bringing these customers back to the dealers. Target Group 3: Cars 6 years and older Target Group 1: Cars0to3years Known Saab Owners Target Group 2: Cars3to6years The owners of older Saabs are often not known to the dealers Great potential among unknown Saab owners As the age of the vehicles increase, more and more customers migrate to independent garages. This means a decline in the number of regular customers and the share of the after sales market held by the Saab dealers. At the same time, however, the value added and the dealers' profit are highest in these target groups. Consequently, dealers are particularly interested in improving customer relationships in this group. and increases sales potential Page 9 of 15

10 The sales potential is highest in Target Groups 2 and 3, where the customers are most likely to migrate to independent garages Uniform design of advertising materials with individualization options for the dealer For the three target groups and their various interests Saab Germany defined special offer packages, comprising accessories and services. To communicate these offers, Saab's agency, MainLine in Frankfurt, developed a variety of advertising materials, such as mailings, showroom decorations, posters and a newsletter, which the dealers can order for the campaigns as required. However, the dealers set their own prices for accessories and services. Consequently, for individualizing their marketing, they also have to be able to communicate their own prices and thus making their customers a specific offer. For individualizing their customer communication it is essential that the dealers are prepared and trained. Thus Saab puts together a complete package for communicating with its dealers. This package contains a cover letter to the dealer, a staff information sheet, rules and regulations, and order forms both for the communication materials and for the advertised parts and accessories. A brochure describes target group-oriented communication and all the available advertising materials. At the same time, each campaign is announced in an advertisement in the Saab Magazine. Saab also supports the single campaigns on the Internet by means of a site that publicizes the campaign period and illustrates all the offered products and services. Dealers can have a link set up, thus making the campaign a topic on their own homepages as well. Page 10 of 15 Individualized marketing strengthens customer loyalty

11 A customer mailing as the central element The campaigns centerpiece builds the customer mailing to offer Saab owners specific accessories and services. For each campaign, special-offer cards are designed for every accessory and every service. Every single card is presented in detail, both on separate order forms included in the dealer package and online as a template. The dealer can enter his price for the respective accessory or service, either on the order forms or in the online card templates, and then instantly order the number of cards he needs. In addition, the part numbers necessary for calculating offers are included in the order forms and also stored online. On the back of each special-offer card, the dealer can enter his own price for the offered accessory or service A card with a "Value Preservation Check" is, for example, geared towards drivers of fairly old Saab vehicles. If the owner of a Saab built in or before 1995 gets his car repaired during the campaign period, and the parts for that repair add up to at least 500, he is discounted with 50 on presentation of the Value Preservation Check. The special-offer card with the check is part of the customer mailing for Target Group 3. To additionally regain Saab owners who use independent garages and thus are possibly not registered at any Saab dealer, the card was also attached to outside mirrors of publicly parked Saabs. and increases sales potential Page 11 of 15

12 The mailings can vary both in the number of special-offer cards and in terms of their content, depending on the offers defined for the individual target group For every target group the mailing packages are comprised of a different number of special-offer cards with partly variable content. In addition, each mailing includes a card with the specific campaign image, together with a card containing specific dealer information. Preparation of the customer data by the dealer The customer data have to be structured and prepared by target groups, ready for the mailings. As the dealers manage their customer data themselves, they are in charge of this preparation. A sample sheet included in the dealer package shows how the data need to be prepared. In addition to the mailings, the dealers can also order other advertising materials, such as posters and showroom decorations (PoS materials) or a newsletter. The dealer can choose individual images from the special-offer cards included in the mailing for his showroom decorations. These advertising materials also automatically include the prices specified by the dealer for an accessory or a service. The newsletter is available in a standard and an individualized version. In both versions the newsletter s inside pages vary only in the dealer-specific prices for the special offers. The individualized version, though, allows the dealer to design the front and back page to suit his particular requirements. Page 12 of 15 Individualized marketing strengthens customer loyalty

13 Central Management by Agency All the dealers customer data, along with their orders for the required mailing packages and other advertising materials, are collected centrally at MainLine who developed the entire campaign and manages its implementation. The pooled customer data are used to compile a database containing the versions for the three target groups and up to twenty prices per dealer. This database is the prerequisite for printing the mailing packages. To make handling and shipping of the mailing as simple as possible for the dealers, and to cut costs, the agency centralizes all mailings. This also allows to reduce shipping fees to a minimum. Compared to the previous system with distributed printing by each dealer, centralized printing cuts costs even more. It also means that even small dealers with only few addresses can benefit and send mailings to their customers at low cost. Measuring and monitoring success Of the total of 120 Saab dealers in Germany, more than 70 already actively participated in the campaigns. With up to 18,000 mailings per campaign, containing over 140,000 target group-specific special-offer cards, Saab addressed its customers who had cars up to ten years old at least once during One of the key success indicators is the increase in Saab Germany's sales. Compared to the previous year, sales of the advertised products and services rose by a total of up to sixty percent. Accessory sales per new vehicle were up about twenty percent on the previous year. Individual products from the summer campaign like an armrest or a key even recorded sales growth of more than 300 percent. A personal survey of about six dealers, and a written survey of fifteen, revealed a customer response rate of up to ten percent not considering services and follow-up sales of the dealers due to attractive offers like a remote-operated key. Encouraged by their success, some more active dealers are asking for more individualization of the offered products and services including their own special-offer cards. and increases sales potential Page 13 of 15

14 Thanks to this kind of communication, Saab Germany can establish a uniform design complying with international CI Guidelines, but still account for its dealers individualization requests for their customer communication. Realization through digital printing Up to now, realizing an individualized communication with print media was simply impossible even if for economic reasons only. However, the example of Saab Germany shows that digital color printing now offers a way to being successful with printed products for individualized campaigns. The Saab advertising materials with dealer-specific prices were printed by DIMEDIA, a full-service provider in Hanau, Germany, using a NexPress 2100 digital production color press. As Saab confirms, the result was not only improved quality compared to the previously used digital printing system, but also a twenty percent reduction in costs. Be it invitations, customer information, such as brochures and catalogs, or mailings with individualized special-offer cards: digital color printing gives a new meaning to applications like quick turnaround, short runs, print-on-demand or 100% variable data printing. Only digital printing offers the freedom to realize advertising messages in sophisticated, high-quality style in print media. Instead of having to print thousands of copies, it can produce thousands of documents each with a run length of "one" economically and technically efficient. Individualized content and quick production of even the shortest run lengths are key elements of 1:1 marketing. Thus, the combination of CRM and digital printing meets the most important demand of 1:1 marketing: supplying the individual customer as quickly as possible only with information that is really tailored to his interests. Page 14 of 15 Individualized marketing strengthens customer loyalty

15 Publishing Information 2003 NexPress Solutions LLC with the support of MainLine Communications and Saab Germany. NexPress Solutions LLC 1447 St. Paul Street Rochester, NY Phone Fax for the application in the automotive industry MainLine Marketing Communications GmbH and Saab Germany. MainLine Marketing Communications GmbH Eschborner Landstraße Frankfurt am Main Phone Fax Saab Germany GmbH Siemensstraße Bad Homburg v.d.h. Phone Fax and increases sales potential Page 15 of 15

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