This generation changed the car buying process. Google defined it. You can revolutionize it.
Entitled. Spoiled. Impatient. Apathetic. These are all things you may have been told to believe about Millennials, Generation Y, or buyers under the age of 35 if you re reluctant to assign labels. Whatever name you use to describe this group of consumers, they make up the newest generation of car buyers and are responsible for changing consumer shopping habits and how businesses market to consumers. Millennials have forced dealers to view the automotive retail landscape through different lenses. They ve disrupted old buying habits and old marketing tactics. They know no other way to shop other than how they shop. And they remember little about the economy outside its current state. What s more, other generations are following their lead. Because of their buying habits, Millennials have come under a lot of criticism and scrutiny. Some say they buy for instant gratification, that they re careless consumers who don t research their purchases. Others say they don t want to own cars, that they don t even know or care about the automotive industry. But these assumptions about Millennials are wrong, and you need to know this. If you ve been operating under these false assumptions, what decisions have you made in your dealership that have kept you from capturing their attention and their business? 855.NKD.LIME nakedlime.com 1
Actually Wrong Assumption 1: Millennials Buy for Instant Gratification Millennials conduct months of research online and with friends to gather facts and form opinions before they choose the first dealership to visit. This disrupts the historical trend of consumerism. Millennials conduct months of research online and with friends to gather facts and form opinions before they choose the first dealership to visit It used to be there were three steps in the car-buying process: Stimulus (feeling the need for a product). First Moment of Truth (encounter with the product). Second Moment of Truth (buying experience). That traditional model was interrupted by the internet and changes in the way consumers shop for goods and services, including vehicles. Now, there is the Zero Moment of Truth. The Zero Moment of Truth, or ZMOT, is the new step after the Stimulus when the buyer pre-shops and researches the product. A Google Automotive ZMOT study determined this moment generally lasts two or three months, during which the average shopper will consult more than 24 different sources before taking the first step toward buying a vehicle. This new step in the buying process, the ZMOT, contradicts the assumed Gen Y need for instant gratification. If anything, Millennials are spending more time online educating themselves on future major purchases, like that new car, and where to best spend their money. Is your dealership on their list? 855.NKD.LIME nakedlime.com 2
Disrupt the Process Combating Assumptions: Disrupt the Process It s important that your dealership be present during the ZMOT phase, when consumers are doing their research online, with friends, or in the media. That s one way of combating assumptions about Millennials and making sure your dealership is under consideration when they re ready to buy. Present customers with an attractive buying offer before they ve begun to look elsewhere. There s the disruption. But what can make a bigger impact than simply adapting to this new buying cycle? Disrupt it. Customers who are already thinking about buying a car are doing research during the ZMOT phase consulting at least two dozen sources to find the best price, the highest trade-in value, the lowest interest rates, the most attractive lease terms, and any other relevant information. While this information is helpful to the buyer, it can wreak havoc on dealership retention and dealer profits. There is a way for your dealership to regain the advantage: present customers with an attractive buying offer before they ve begun to look elsewhere. There s the disruption. The average retention rate among automakers was 49 percent in 2012. 1 More than half of your customers will buy a different make the next time around unless you do something to stop them. Waiting until they have entered the traditional buying cycle is too late because they have already begun the search without you. What s more, the consumer Millennial or otherwise who thinks he can t afford a new car and isn t currently in-market won t just show up on your lot to request a test drive. Since the average age of cars on the road was 11.4 years in 2013, 2 that customer is far more likely to show up in your service drive in an effort to hang onto his current car for a few more years and a few more miles. But don t make the mistake of discounting him as a potential sales customer. 855.NKD.LIME nakedlime.com 3
Market to Customers in Your Service Drive You ve disrupted the cycle, generated a quality sales lead, and potentially stopped that customer from defecting to another dealership Marketing to customers in your service drive is effective for many reasons: They already have a business relationship with you, one you ve likely built on trust and pleasing experiences that keeps them coming back. Your dealership knows their current situation because of the information stored in your customer database. If they purchased their last car from you, you know how much equity they have accrued. If they re leasing, you know how long is left on the lease term. If they neither purchased nor leased from you, you still know the condition and trade value of their current vehicle. Knowing a customer s buying and servicing history, along with the current OEM incentives, allow you to put together an attractive offer as soon as the service appointment is made. You read that right prepare an offer as soon as the service appointment is made. It doesn t matter that the consumer is coming for service, not a sale. If you can offer a model for model, trim for trim, term for term match to their current vehicle, at a comparable or even better price, you ve now made them in-market. You ve disrupted the cycle, generated a quality sales lead, and potentially stopped that customer from defecting to another dealership for the next purchase. But we can anticipate your next question: What about Millennials and other consumers who aren t already in your customer database? 855.NKD.LIME nakedlime.com 4
Car Ownership Simply owning a car, not the exclusivity of the car they own, has become an accomplishment. Wrong Assumption 2: Millennials Aren t Interested in Car Ownership Millennials account for roughly 25 percent of the country s workforce and contribute nearly $200 billion in annual spending. Estimates are that by 2020, they will take over as the majority of the workforce and double their spending power. 3 With the ZMOT in mind, we know how they shop, but knowing why they buy (or don t) has become the focus of many retail studies. One theory has been that younger buyers just aren t interested in owning cars. It s an understandable conclusion, given that vehicle sales to drivers under age 30 shrank to 8 percent of the market share in 2013, down from 10 percent in 2007. 4 Since they re perceived as spoiled and entitled, if they really wanted a car, they d just go get one, right? The reality is that while some members of Gen Y might have grown up in a period of economic wealth, when they entered the workforce, they found that economic conditions were quite different. While 59.5 percent of men and 60.7 percent of women would prefer to change their vehicle as often as they upgrade their phone, for most it just isn t financially possible. 5 For that reason, cars have grown as a status symbol for the newest car buyers. Millennial buyers are 68 percent more likely than those over 35 to say owning a car is a sign of success. 6 While that seems to align with the generation s reputation for being frivolous and materialistic, the status motivator is highest for those with the lowest incomes. Simply owning a car, not the exclusivity of the car they own, has become an accomplishment. 855.NKD.LIME nakedlime.com 5
Make a change today. Combating Assumptions: Know the Market Research tells us that while Gen Y sees cars as status symbols, they are reluctant to buy cars they love only to suffer remorse after realizing how the cost can limit their spending options in other areas. 2 Dealership pricing is more important than ever because this generation needs to perceive value, even at a low price. Dealership pricing is more important than ever because this generation needs to perceive value, even at a low price. With this in mind, dealers who want continued success, particularly in used vehicle sales, will need to regularly and thoroughly evaluate their local market to develop inventory and pricing strategies that meet the expectations of consumers shopping for a car. During the recession, car dealers still retained a more favorable position to profit from used car sales. However, as the economy recovers, buyers are beginning to gain the advantage, as used car prices are expected to fall by 2 percent in 2014. When drivers held onto cars longer, there weren t enough used cars to keep up with demand and so a premium price was possible. Now more and more drivers are ready to upgrade, which will add more supply to the market. Leases also rebounded to 28 percent of all new vehicle sales in the first quarter of 2014, up from 17 percent in 2009, 7 which means more end-of-lease cars will be returned to the used car market in the coming years. Automakers with well-developed certified pre-owned programs are in the best position to deal with a flood of off-lease vehicles. For a Millennial buyer hoping to strike a balance between practicality and the status of a new car, a certified pre-owned vehicle might be a perfect fit. They can feel confident they aren t splurging on something that will instantly depreciate while still having the security and support of the manufacturer programs. For your dealership to capture these Millennial buyers, using market analytics to gain a deep insight into which models are selling in your area will help improve your inventory buying and selling decisions, as well as steer the direction of your marketing efforts. When the right inventory is combined with targeted marketing messages to Millennials sent at the right time, your inventory will turn faster, your retention rates will be higher, and your profits will increase. 855.NKD.LIME nakedlime.com 6
Pulling It All Together Don t Forget: Sell Across Generations While much of this discussion focused on Millennials, they certainly aren t the only generation to whom these strategies apply. In fact, what Millennials are doing is pulling the other generations along with them. So, while Millennial habits might be changing faster than most, the others are adopting the same shopping habits and buying criteria. Disrupting the buying cycle and understanding the market will improve the outlook of any dealership, no matter your target customer. Don t let your own incorrect assumptions drive your business and lead you down the wrong path. Focus on the fact that the buying process has changed and the way vehicles are bought and sold is different. Do that, and you ll see the results for your business now and for the long term. To learn more about Naked Lime s services, call 855.NKD.LIME, email info@nakedlime.com, or visit nakedlime.com. 1 JD Power and Associates 2 Polk Data 3 Intelligence Group study 4 Strategic Vision New Vehicle Experience Study 5 Swapalease.com Survey 6 Nielsen Automotive Study 7 Edmunds.com 855.NKD.LIME nakedlime.com 7