The Economic Times
With the latest numbers showing Indian car sales falling close to 7 percent in October, the third drop in four months, auto makers are wondering how to attract new buyers. That won't be easy as tight credit, increasingly thrifty consumers and a slowing Indian economy continue to hit demand, forcing some car manufacturers to cut production.
Clearly, winning new customers will require automakers to develop more reliable, exciting, and fuel-efficient vehicles, a task that could take years. But a recent survey by Bain & Co. in the US suggests that automakers have opportunities to improve their business performance in the short term by focusing more on the customers they already have. Especially in these tough times for the industry, one of the most powerful techniques for converting buyers into die-hard fans is providing exceptional after-sales service.
Bain & Co. surveyed more than 1,800 customers who had purchased all the automotive brands sold in the U.S., where car sales hit a 25-year low in October. The aim of the survey was to better understand customers' ownership and sales experience and to assess their brand loyalty. We asked owners to rate, on a scale of zero to 10, how likely they were to recommend their vehicle to a friend or colleague.
By subtracting the percentage of "detractors" who gave scores between zero and 6, from the percentage of "promoters" who gave a score of 9 or 10, we can calculate a "Net Promoter Score" (NPS). NPS is already used in dozens of industries to determine how deep loyalty to a particular company runs among its customers, and how it stacks up against its competitors when it comes to customer loyalty.
The NPS survey for automakers revealed two important findings. First, promoters are nearly 10 times more likely than detractors to repurchase or lease a vehicle of the same make or brand as their current one. Second, promoters are far more likely to recommend their vehicle brand to a friend. Each promoter provides nearly five purchase referrals, while each detractor dissuades two prospective buyers. For manufacturers that emerged as loyalty leaders—Lexus, Toyota (TM), and Honda (HMC)—the value of promoters was reflected in increased revenues . Indeed, high NPS correlated with healthy new-car sales growth; name plates with lagging scores had flat or declining unit sales.
A chance to build or break loyalty
High among the factors that create promoters—and, critically, could help retain them in these turbulent times—is a strong after-sales service experience. The reason is simple: Dealer service is the key point of contact with customers at the critical time when most people are weighing their next vehicle purchase. Owners' brand enthusiasm tends to erode as the vehicle ages and the warranty expires. But it is precisely at this point—about four years after the initial sale—that the leaders capitalise on their loyalty advantage by using maintenance visits as opportunities to reinforce their ties with promoters and win over detractors.
Excellent service not only reinforces relationships with customers who feel loyal to a brand, it can also defuse ill-will that causes disaffected customers to bad-mouth the brand. Indeed, the brand leaders excel especially at turning unplanned repair visits—those critical moments of truth on which a customer relationship can hinge—into opportunities to strengthen customer bonds. While most carmakers aim to ensure that the service experience does as little harm as possible, the leaders set out to surprise customers with ease and convenience when they expect it least and value it most.
The power of nurturing promoters shows up dramatically in data showing how severe the damage can be when a repair experience doesn't go well. Overall, the NPS of loyalty leaders whose vehicles have not needed a repair is a stellar 85. It falls off to a respectable 77 when the vehicle needs a mechanic's attention. But among loyalty laggards, an unscheduled stop in the shop resulted in scores plummeting 29 points to a dismal 19. Owners of those vehicles are angry, and they are going to tell their friends and colleagues about it.
Ultimately, the biggest influence on customer loyalty and affinity for the nameplate is the quality of the vehicle itself. But a bad after-sales experience can erode it just as quickly. In the economy they face today, automakers need to rethink how they win and retain every customer they have.
Karan Singh is a partner at Bain & Company, based in New Delhi. Lori Flees is a Bain partner in the Los Angeles office. Sandeep Barasia is a principal in New Delhi.