Marketing class assignment

1. How Auto Makers Keep You Coming
Back
SUMMARY: Automakers are paying close attention to consumer attitudes about sticking with a
brand, because loyalty isn't just an admirable personal virtue to them. It's money in the bank.
That's something every driver should bear in mind when car shopping or wrangling with a
dealer. For carmakers, it costs far less to sell to a satisfied repeat customer than it does to win
one away from a rival brand. Loyal buyers tend to spend more with a brand over time, but
analysts say the days when a car dealer could charge loyalists a lot more than a first-time buyer
are mostly gone-due to the easy availability of price information.
Why do some drivers buy the same make of car year after year? The latest findings about brand loyalty and what car
makers do to keep drivers coming back may surprise you. WSJ "Eyes on the Road" columnist Joe White joins Lunch
Break. Photo: AP.
John Kwiecien, 47, is a commercial photographer who reckons he has owned vehicles
from about 10 different brands since he started driving.
"I don't want to put myself in a box," says Mr. Kwiecien, who lives in suburban Detroit. He
chooses cars that fit his lifestyle at a given time. Right now, he's driving
aVolkswagen VOW3.XE -2.63% GTI, but he and companion Camille Milroy spent part of
last Sunday touring the Detroit auto show with an eye on a Jeep Wrangler Unlimitedto
take on outdoor adventures with their two "big, hyper dogs."
If Mr. Kwiecien is the epitome of the automotive brand-hopper, Susan Imbrunnone, 49,
also from the metro Detroit area, is a classic loyalist. She says she's on her fifth Honda
Civic and isn't looking to switch. "I don't have any trouble," she says. "They're reliable and
they're good on gas."
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2. Auto makers are paying close attention to consumer attitudes about sticking with a brand,
because loyalty isn't just an admirable personal virtue to them. It's money in the bank.
That's something every driver should bear in mind when car shopping or wrangling with a
dealer.
The latest R.L. Polk study of brand and vehicle loyalty in the auto industry, released last
week, found that 48% of people who bought a car in 2012 bought from the same brand
they were already driving. Polk says the three brands with the most loyal customers were
Ford, with 61.2% repeat buyers, Mercedes-Benz (57.7%) and Toyota (54.4%).
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Reasons for staying loyal can vary. For buyers across the vehicle and price spectrum, the
top attributes that inspire a purchase include fuel economy, reliability and pricing,
according to consumer research firm J.D. Power and Associates. In the luxury segment,
though, the top three criteria include performance, quality of workmanship and exterior
styling.
For car makers, it costs far less to sell to a satisfied repeat customer than it does to win
one away from a rival brand. Loyal buyers tend to spend more with a brand over time, but
analysts say the days when a car dealer could charge loyalists a lot more than a first-time
buyer are mostly gone—due to the easy availability of price information.
"There is no more important topic for our industry, in terms of the revenue for different
companies, than loyalty," says Jim Farley, executive vice president of global marketing,
sales and service for Ford Motor Co. F +0.16%
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3. Because auto makers recognize the revenue potential in loyal customers, they are
offering more incentives to stay with the brand. And whether you stick or not, it is often
worth taking advantage of the offers.
The Why Behind the Buy
What makes us drive some vehicles off the lot—and leave others to languish
TOP 5 REASONS DRIVERS BUY A MODEL:
Fuel economy
Reliability
The 'deal'
Exterior styling
Performance
TOP 5 REASONS DRIVERS AVOID A MODEL:
Didn't like its exterior design
Costs too much
Didn't like its interior design
Concerned about reliability
Didn't like the image it conveys
The most basic weapons in the automotive loyalty wars are the cash "loyalty" discounts
that car makers offer at various times, including at year-end and during end-of-summer
clearance time. Buyers shopping around can often have those discounts matched by rival
makers offering "conquest cash" to pry customers out of their old brand. Sometimes
these deals aren't publicly advertised—you'll need to dig in automotive websites and
press the dealer.
Customers who need more than point-of-sale cash discounts to inspire loyalty will find
that car makers are trying to offer more value in other areas.
About a quarter of General Motors Co.'s GM -0.22% Chevrolet dealers, for example,
participate in what the auto maker calls the "GM Preferred Owner" program. Customers
can sign up and get points, or credits, when they get their cars serviced at the dealership.
The reward credits can be converted into discounts on repair work or on a new vehicle,
says Don Johnson, vice president for sales and service at GM's Chevrolet division. Mr.
Johnson says he's pushing more dealers to offer the program.
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4. Maintenance and repair services—done well—can be a key to earning consumer loyalty,
industry executives and analysts say. This is why more dealers are offering such things
as fast, low-cost oil changes to persuade drivers that coming back to the dealership for
maintenance isn't just the road to an empty wallet.
German luxury car maker BMW AG BMW.XE -0.60% has for several years offered buyers
of new BMWs four years of free maintenance. The deal has an obvious benefit to owners,
but it helps BMW and its dealers, too, because, as BMW North America's executive vice
president for operations Peter Miles puts it: "They've got to come back."
Before BMW offered the free maintenance program, only about 42% of customers got
service at the dealership. Now, close to 100% do during the first four years. That gives
dealers more opportunity to nurture a relationship with customers, and potentially preempt any wavering toward, say, Mercedes-Benz.
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Detroit hosts the North American International Auto Show.
Beyond that, BMW and its dealers reward particularly loyal customers with invitations to
golf tournaments, racing events or access to BMW's performance driving track near its
U.S. factory in South Carolina.
Ford Motor Co., among others, uses its vehicle-financing arm, Ford Credit, as a loyalty
tool, using finance data to target customers with offers to end a loan or a lease early—
and to encourage them to pick out a new Ford to drive.
As vehicles have become more reliable, people are gradually widening their shopping
lists, according to new research from J.D. Power and Associates. Only 21% of shoppers
buy without looking at other cars, compared with 29% in 2010, the market research
company found.
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5. Loyalty discounts, service deals and early lease buyout offers have one aim, says Larry
Dominique, president of Automotive Lease Guide and a former executive withNissan
Motor Corp.'s 7201.TO +1.22% U.S. arm: "Their whole goal is to stop you from shopping."
Mr. Dominique says brand loyalty is a factor in the formulas companies use to predict a
car's value at the end of a lease—a figure that directly affects the math determining the
monthly lease payment.
Auto-industry consultancy ALG maps brands according to loyalty and resale value. (See
chart above.) Those with high loyalty and high resale values—Honda, Lexus and
Mercedes-Benz—often aim to charge higher prices based on their brand power.
Bargain hunters, Mr. Dominique says, should look to brands that have high resale
values—an indicator of good quality and attractive design—but haven't yet built a strong
loyalty base. Makes in that category include Hyundai, Audi, Kia, Volkswagen and Mazda
QUESTIONS:
1. What is brand loyalty and how is it measured?
2. Explain why Jim Farley said the following: "There is no more important topic for our
industry, in terms of the revenue for different companies, than loyalty."
3. Of the strategies that are discussed in the article, which do you think are the three
most effective for building brand loyalty? Why?
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