Automotive OEMs and dealers often talk about capturing customers for life. They toss around terms like customer lifetime value (CLV), which is the expected lifetime profit from a relationship with a customer.
However, most OEMs and dealers fall short of truly capturing and leveraging CLV using real numbers, much less using the power of predictive analytics. That is due, in large part, to some basic misunderstandings regarding CLV, such as what should be included in the calculation.
Leveraging the best practices below, OEMs and automotive dealers should keep these in mind the next time the discussion in the showroom turns to capturing customers for life:
- A holistic view of the customer is essential. Therefore, CLV should include the entire family and next-generation drivers. That one loyal customer can multiply down the road.
- Dealers and OEMs should be on the same page regarding what should encompass CLV. It should include all potential future spending, such as new and used vehicle purchases, finance & insurance products, service and parts, etc.
- CLV is an exercise in math, segmentation, and advanced analytics. That might sound daunting, but it’s quite doable with the right partner.
- The result of your CLV analysis should be a score or the “CLV Score” – which can be applied to each customer and used to understand which customers are truly more valuable.
Knowing who has the potential to bring you the most profit gives your marketing team clear targets to focus on. In addition, it allows you to create customized experiences and offers, so that your customers take actions driving engagement and loyalty.
One example might be in after-warranty goodwill. Wouldn’t knowing the CLV of your customer when making rapid investment decisions be powerful? The answer is an unequivocal yes.
John Mendel, former EVP of American Honda’s automotive division, recently told an industry group, “As an industry, we’ve identified the lifetime value of the average customer. However, applying real-world knowledge to optimize the loyalty of every individual customer is the proverbial golden goose. I don’t know of anyone in the industry today who has put real-world analytics to work to optimize the ROI of each individual customer.”
The power of CLV can drive profits higher for OEMs and automotive dealers, if they pay careful attention to how well they are calculating the CLV Score, how effectively they are making decisions with CLV in mind, and how powerfully they are targeting their best potential customers.
CLV done right can truly capture customers for life, and increase revenue without increasing the risk.
Contact us for more information on the missing horsepower of CLV in the automotive industry and how unleashing it can help your business.