Lin Lei - Chairman, TNS Sinotrust

Following an apparent slowdown of the auto sales market, retaining customers after the initial purchase will become a bigger threat to dealers, especially those in the 4S (sales, service, survey and spare parts) space. According to our monitoring data, the service customer loss of the entire auto industry hit 30 percent in 2014. This is the result of a number of developments within the wider industry. Firstly, the previous profit formula used by most 4S dealers was sales-oriented. Because of this, their after-sales services were mainly focused on technical competence of the car rather than aftercare, management, marketing or service. But as the auto market has rapidly developed over the past few years, many drawbacks of the after-sales model have begun to surface. The approach is inconvenient for many customers, offers low flexibility and does not instil customer trust. At the same time, we are also witnessing the steady growth of the auto service industry in the guide of car repairs and maintenance, as well as other business models catering to the customer who already owns a car. Customers, especially those out of warranty, are more likely to choose well-located and low-cost express repair chain stores and garages, and this has further raised the loss rate. Added to this is the impact of the Chinese government’s anti-trust regulations targeting the auto industry, that direct heavy penalties on auto parts monopolies, in order to further open up the auto parts market and allow consumers greater freedom to walk away from 4S dealers’ after-sales services.

Faced with the increasing customer loss, what should automakers’ and 4S dealers’ after-sales departments do? Based on our experience working with auto makers and dealers, we suggest the following solutions:

  1. Have a full view: Make a good use of data to analyse customer value and diagnose the severity of customer loss

    Automakers have accumulated an enormous amount of DMS data, but their customer data analyses are usually focused on a given period of time, say a certain quarter or year and seldom used to provide a wider view of the customer pool. However there is valuable customer insight to be found within the big data. For example, by analysing customers’ activity and spend in dealerships, we can derive information on which customers send their cars for maintenance as scheduled, which choose 4S dealers for repair but not maintenance, and which have already betrayed their 4S dealers (within or out of the warranty period). We can then categorise them into “regular customers”, “occasional customers” and “betrayers”. These groupings help us measure 4S dealers’ customer retention and the strength of their business operations.

  2. Guard against gradual loss: Strengthen customer care, maintain ties with loyal customers, and retain those about to leave

    After categorising customers and understanding the severity of customer loss, automakers and 4S dealers should further strengthen their ties with customers and try to minimize further loss. But how? According to our data, despite the inevitable loss of customers, existing customers still make up the larger proportion and should therefore be where automakers focus their attention. To prevent further customer loss, automakers need to build closer ties with these existing customers. For example, highlighting the value of 4S service by offering to customers a more comprehensive, sophisticated and professional maintenance service. Using the customer data on 4S visits and spend, we can offer different degrees of incentives, service fee reductions and other value-added services to make them feel valued and respected, in the same way as an airline’s membership system. Advanced computing programmes can also identify customers that may leave and provide warning, allowing dealers to contact and renew the relationship.

  3. Learn from mistakes: develop relevant solutions to retain and win back valuable customers

    Understanding why customers have been lost is crucial if dealers are to move forward and improve retention. First, there is a need to distinguish between high-value customers and low-value ones. High-value customers are those who are willing to pay extra money for higher efficiency, quality and value-added services – ultimately those who we don’t want to lose next time round. For this group, it is essential to understand who we are losing them to: the biggest competitors; chain stores, local neighbourhood outlets, online providers? We also need to know their strengths and weaknesses, and why customers are choosing them, whether because of high efficiency, a convenient location or a more thoughtful service.

Once the landscape has been mapped out, automakers and 4S dealers should focus on improving their current services according to their own resources in order to leverage their differentiated strengths and compete against alternative business models. This can often mean designing localised services to provide a more convenient experience, or creating distinct value-added services which personalise aftercare for the customer.

By taking the three steps above, we believe that 4S dealers can transform an unwieldy and unprofitable after-sales service into a refined and efficient one that retains valuable customers, remains competitive and drives profits.