Thursday, December 13, 2007

When Loyalty Does Not Include Customer Service

J.D. Power and Associates published a list of the retention rates for the various car manufacturers in early December 2007. The list indicated Toyota Motor Sales USA, Inc as the car company with the highest retention rate at 68.9%. General Motors Corporation came in second with a retention rate of 64.7%. At the very bottom (and I do mean bottom) was Isuzu Motors America, Incorporated with a retention rate of 1.6%.

There are two interesting points that can be made from this release. The first point is that the scoring is now done by car company and includes all the makes and models produced by that company. Thus, the retention rate for General Motors includes customers moving from Chevy to Buick to Cadillac ot GMC and any other brand produced by General Motors. I think this is the right way to measure retention sincemany customers often change brands but like the company (e.g. General Motors). This hits home to me since my father always bought an Oldsmobile and from that heritage I have purchased a number of General Motors cars. I was disinclined to change and buy a Ford Motor Company car. I did buy a Chysler 300 at one time. I think migration between brands is a natural phenomenon in the United States and am willing to accept this premise for scoring without further consideration.

The second point that I find intersting is that customer service does not appear to be included in the retention discussion. Neal Oddes, director of product research at J. D. Power cited improved quality in general and the introduction of several well received products in the last couple of years as factors that probably drove the increased retention for General Motors.

When I think about the idea that customer service is not mentioned, perhaps the reason is that customer service is more a function of the dealer than the car manufacturer and hence should not be included in the measurement scheme. Certainly, the dealer has at least as much impact on retention as the product quality or new product innovation. That is another study that I would like to see done. I would want to see the impact of the dealer's service operation on retention. Within the last 18 months I worked with one of the car manufacturers with respect to their service operation. It was clear after a brief study that service plays a major role in repeat business for car dealers.

The bottom line is that car manufacturers could dramatically increase their retention rates if they would insist on having more control over service quality at the dealer level. Some car manufacturers will say they impose service standards, but my brief experience led me to conclude that service quality comes from the dealer ownership. My one liner to every service operation is that every service encounter requires two repairs; namely one must repair the product and one must also repair the customer. The customer repair is ALWAYS the most important.

1 comment:

Charles said...

Hello Professor,
I agree that the repair department is very important to brand loyalty because when your car breaks down, it is most frustrating. I think Toyota has captured the lead because they have designed the product to have the fewest breakdowns, so they have the fewest encounters with the repair department of the dealership.


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