Charging for prepaid maintenance trumps giving it away

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Some dealers think freebies such as complimentary maintenance plans are good ways to boost customer retention. But the efforts are wasted if the free services go unused.

One Nebraska dealership has found success by charging for what it had been giving away. The idea: Make sure customers have “some skin in the game” when it comes to maintaining their vehicles.

H&H Chevrolet in Omaha began experimenting with complimentary maintenance in 2010, but committed to it seriously in 2013 by offering complimentary UltraCare prepaid maintenance plans from third-party provider Performance Loyalty Group.

UltraCare

UltraCare is Web-based software that lets dealerships customize maintenance plans for service customers.
Key features
• Self-administered with no service claims
• Integrates with dealership management systems and provides automated services including appointment scheduling, renewals and upsell tracking
• Customizable, offering items from basic oil changes and tire rotations to niche regional services such as storing snow tires during summer
Debuted: January 2008
Dealerships using: 1,117
Company: Performance Loyalty Group
CEO: Mike Gorun
Headquarters: San Ramon, Calif.
Competing companies: Fidelis PPM, Fidelity Warranty Services (JM&A Group), Resource Automotive, Allstate Dealer Services

‘Discouraging’

“We saw our retention go way up” with the free plans, CEO Steve Hinchcliff says. Indeed, 88 percent of customers returned for service at some point. But, he says, “a large number of people weren’t actively using the plans, or forgot about them after the first visit.”

Customers who visited regularly often spent little. “Some customers would only want the free items,” Hinchcliff says, even if more work was needed. “That was discouraging,” he says. The average service upsell was little more than $65.

The dealership’s experience parallels that of General Motors.

GM began offering a complimentary maintenance plan in 2013 to owners of most new 2014 Chevrolet, GMC and Buick vehicles. But in early 2015, after finding that customers didn’t use the program as often as expected, GM cut the number of free annual service visits in half to just two in 24 months.

With that in mind, and after surveying its customers, H&H in August 2015 began selling the UltraCare plans. H&H charges an average of $255 per plan.

“We thought that it might make a difference if the customer had some skin in the game,” says Hinchcliff.

It did.

Hinchcliff

Although customer retention fell to slightly more than 71 percent, customers began using the plans regularly and having more work done on their vehicles. The average additional service business climbed to $222.

On average, H&H now sells 138 plans a month, bringing in about $35,000 in revenue. In the six months after the transition from free to prepaid maintenance plans, Hinchcliff says, the switch generated $200,000 of additional revenue.

H&H pays Performance Loyalty Group $25 per plan sold, effectively as an administrative fee, and absorbs the cost of any service work that customers need done under the plan.

Mike Gorun, CEO of Performance Loyalty Group in San Ramon, Calif., says H&H’s experience is not unique.

“Everybody thought that giving these things away had a high perceived value, and now we’re seeing statistics that it’s really not the case,” he says. “Dealers giving away the plans aren’t able to get the customer in as frequently, and the ones selling them are finding more frequency and buying more services.”

Of the 1,117 dealerships that use UltraCare, just 6 percent still offer the plans for free, Gorun says, down from a high of 36 percent in 2013. At that time, some of the stores offering complimentary plans also offered expanded plans for purchase.

He says dealers using UltraCare sell an average of $135 in additional services per visit, putting H&H on the high end of the range.

Service-lane sales

Prepaid maintenance plans are often sold at the finance and insurance desk, but most of H&H’s UltraCare sales, 58 percent, are in the service lane.

Hinchcliff says that’s because customers see the advantage of the plans when they visit the service lane.

“It’s a good deal for the customer, and the service writers know it,” he says.

H&H also offers incentives to help retain customers and sell the plans. For instance, customers get a gift card — usually $25 or $50 — that can be applied immediately to any pending service items. If a customer comes in needing a big repair, the gift card can be applied to the repair while the prepaid maintenance helps ensure that the customer will bring the vehicle back for regular service.

Hinchcliff notes that prepaid maintenance plans essentially offer heavily discounted service, and H&H profits little from selling the plans themselves. But they keep customers returning for maintenance, buying additional service and becoming more comfortable with the dealership — and those are the goals.

Says Hinchcliff: “The real victory comes when the customer repeats.”

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Charging for prepaid maintenance trumps giving it away