A new U.S. automotive service market study from Daytona Beach, FL-based DMEautomotive (DMEA) reveals that aftermarket chains — not independent service providers — are dealerships’ biggest business threat, and that loyal customers of both independent service providers and aftermarket chains spend more on service that dealer loyalists relative to other customers.
This comes from a DMEA study titled The Changing Service Loyalty Landscape that surveyed 4,000 U.S. vehicle owners and analyzed the decision-making process behind service center selection; consumer loyalty rates and demographics; and industry share-of-wallet realities for dealerships, independents and aftermarket chains. DMEA is an automotive marketing firm servicing automobile dealerships as well as aftermarket companies.
DMEA says the overarching picture that emerges from its study is one of a hyper-competitive market in serious flux, marked by a low rate (23 percent) of loyal auto service customers. The firm defines service loyalty as a combination of spend and frequency. In its study, DMEA identifies three core service customers: “loyalists,” who both visit and spend most at a type of service outlet; partial or “swing loyalists,” who either visit or spend most at a store type, but not both; and “disloyalists,” who neither visit nor spend most at a particular store type.
The survey reveals low loyalist levels across the industry, with more than three in four customers in play and not tied to one service center type. Overall, loyalists represent only 23 percent of the service market, while swing loyalists make up 50 percent and disloyalists 27 percent. According to DMEA, loyalists may represent the service shopper minority, but they drive the lion’s share of each type of service outlet’s revenue. With the 23 percent of dealer loyalist customers driving 62 percent of revenue, dealership revenue streams are the most loyalist-dependent. However, aftermarket chains, which generate nearly half their revenue from non-loyalists, are the least loyalist-dependent.
DMEA also points out that the so-called poaching of dealer customers by independents is very low. Only 10 percent of the annual service spend of a dealer’s customers migrates to independents, and independent customers only spend 13 percent of their service wallet at dealerships. Rather, the firm’s research shows that dealers are losing nearly three times more business to aftermarket chains.
Among all dealer customers, $162 of their annual service spend heads to aftermarket chains, while only $59 goes to independents. In general, the data reveals that, when both dealership and independent customers spend elsewhere, the majority of dollars travel to aftermarket chains. And, the migration isn’t reciprocal: dealerships capture less of the aftermarket-loyal and independent-loyal migrating spend (at $102 and $82 annually, respectively).
Dealer-loyalists are intensely valuable to dealerships, generating roughly two-thirds of their total service revenue. And DMEA’s survey reveals they have other uniquely valuable traits …
• They’re the wealthiest service customer: with an average household income of $72,017 versus independent customers at $57,081 and aftermarket chain customers at $69,249.
• They’re the most compliant: 70 percent of dealer loyalists report “always following manufacturer service recommendations,” versus roughly half of aftermarket chain and independent customers.
• The survey — which gauged how price-obsessed different service customers are by age, primary store loyalty and other factors — found that dealer loyalists are dramatically less price-driven than independent loyalists and especially aftermarket chain loyalists.
• Store attributes like competitive prices, frequent sales events, frequent coupons or discounts, and different price options for parts indexed between two and five times more important for aftermarket chain loyalists than dealer loyalists.
Given that dealer loyalists have deeper pockets, are less price-conscious and follow strict service schedules, one would imagine they would spend and service the most. The opposite is true, according to DMEA, and aftermarket chains and independents also grab significantly more spend and share-of-wallet from their loyalist bases.
Loyalists Dealer Independent Aftermarket Chain
Annual Spend: $1,105 $1,191 $1,178
Spend At Store: $884 $1,024 $1,001
Share-of-Wallet: 80% 86% 85%
Because dealer loyalists drive their vehicles 1,000 miles less (on average) each year than aftermarket chain loyalists, they service less frequently. For instance, the percentage of aftermarket loyalists who service seven or more times annually is nearly three times higher than the percentage of dealer loyalists that do, according to DMEA. So, the 77 percent of service consumers that are now non-dealer loyalists are a high-value, high-spending opportunity. The firm argues that, if dealers imagine that the aftermarket revolves around a series of unprofitable oil changes, that perception needs to be revised.
Doug Van Sach, vice president of strategy and analytics at DMEA, points out that all service stakeholders can get complacent, because, as the revenue pie grows, their businesses are growing too — especially dealerships where, on average, nearly half of all profits come through service. He said complacency is bad in light of major attitudinal, spend and demographic shifts underway in an increasingly volatile, disloyal service market. “Every player needs to not only retain loyalists, but must also find innovative ways to attract the new — and as our reports will show — younger and more demanding segments,” Van Sach said.