Why Relationship Marketing Has Never Worked for the New Car Purchase

It has become today’s conventional wisdom that the key to long-term success is for marketers to try to make “customers for life” through relationship marketing. Cost of customer acquisition is so high that marketers try to maintain customer relationships through sophisticated retention programs.

So much for today’s thinking. It doesn’t work today and has never worked when it comes to buying a new car.

Harvard Business School’s Working Knowledge (a free on-line newsletter) in its May 18, 2016 issue, explores the new car-buying process. Author Sean Silverthorne. In an article entitled “Fix This? Why It Is So Painful To Buy a New Car?” writes:

“Consumers routinely list buying a car as the worst shopping experience imaginable,” he writes.

Silverthorne goes on to document the new car buying experiences of Harvard Business School Prof. Leon Schlesinger, Senior Lecturer Jill Avery and Asst. Prof. Ryan Buell. All reported difficulty working through the process.  He adds, “So it may be comforting to learn that even world-renowned professors at Harvard Business School have as much pain shopping for a new car as the rest of us.”

There have been attempts to improve the process, which he calls “pockets of customer-service experiments over the years.” He cites the now defunct Saturn’s move to fixed prices. He also notes that high-end dealerships “can make car buying feel like a trip to the spa.”

However, he concludes, “Little has changed in the high-pressure business of selling vehicles.” He then poses the question, “What should the industry be doing to make customers feel better about spending tens of thousands of dollars on a product that loses half its value the moment it is driven off the lot?”

Industry’s Structural Problem

That structural problem is the “deep divide” between manufacturers and dealers. While manufacturers spend millions of dollars on image advertising to promote the brands, the dealers care little about the long-term brand value and instead put their emphasis on the transaction. Car salesmen come and go so quickly, one scarcely ever finds the same salesman when he/she comes back to the dealership 4-6 years later to buy another new car.

Silverthorne writes, “Incentives are not in alignment. Manufacturers are focused on the long-term mission of building brands and customer loyalty, while dealers just want to sell cars today.”

He outlines the current “faceoff” between Lexus and some of its dealers.

“Lexus wants to experiment with Saturn-like ‘no-haggle’ pricing, responding to complaints, especially from younger-generation buyers, that negotiation is frustrating, time consuming, and not at all transparent. Dealers, meanwhile, like things the way they are. They argue that American consumers expect to deal, to feel like they are getting the best price possible.”

That conflict between relationship marketing and transactional marketing occurs often in big-ticket consumer items where the customer buys infrequently. But, owning a car goes beyond the sale. There is routine service, body shop and other special services, but the disconnect also is apparent between the new car salesperson and the service department. This disconnect might be helped through incentives.

Possibly Solution

Ms. Avery presented a possible model for car dealers based on a recent trip to a rug bazaar in the Middle East.  She notes the vendor first offered tea and food to the customer and started a wish-list discussion. It was only when the customer agreed on the product that the price negotiation began.

“Buying a car could be a beautiful experience,” says Avery. “Imagine if cars were sold this way, this would help dealers build loyalty and trust,” Avery says.

Prof. Schlesinger adds, “And that opens the door, to the notion of lifetime customer value, where the dealer benefits from many years of sales and service to the same customer. No longer would the current transaction have to be a fight to the death between buyer, sales rep, and the unseen manager in the backroom.”

Sidebar:

This Writer’s Experience

For more than 15 years now, I have purchased new cars quickly, easily and with no hassles. How?

I made friends with the fleet leasing director at the dealership. He is not a car salesman but can sell cars. However, he lives by relationship and understands the importance of lifetime customers.

My typical new car buying experience lasts about a half hour. I sit down with my man, tell him what I want and what I want to pay, in terms of monthly payments. He shows me what he has and invariably he has just what I want and at the right price. If I come back later in the day I can usually pick up my new car.

I have purchased three of my last four cars from him.  Once when I went in, he steered me to another manufacturer because they had a better incentive plan than his manufacturer.

That’s relationship marketing.