PCPs have long been thought of as the leading tool for customer retention within the motor industry – but the results we have seen over the past couple of years from service plans are very much comparable.
The businesses with which we work are reporting similar outcomes from the two products and the picture is consistent across franchise dealers, independent garages and car supermarkets.
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In some ways, this should be no surprise. When it comes to building a relationship, PCPs and service plans are actually very similar in that they keep the customer returning in a structured manner over the lifetime of a contract. Within that period, it is up to the dealer to perform well enough that the customer builds up a level of trust and eventually buys another car on PCP or another service plan.
Interestingly, we are increasingly seeing PCPs and service plans sold as complementary products in many used car dealerships. Obviously, new cars are often sold with manufacturer service plans as part of their proposition but, as PCPs increasingly gain traction in the used market, we’re also seeing higher penetration of service plans.
This makes sense. A customer who is financing a three-year-old car on a three-year PCP is a natural prospect for a service plan. Dealers who are able to offer a single monthly figure covering the financed amount and planned maintenance are finding that this proposition has a high level of appeal to customers who prefer a ‘pay monthly’ approach to motoring.
A further development of this overall trend is that we’re seeing what you might describe as ‘simple’ service plan products enjoy much higher levels of sales penetration than their more sophisticated counterparts. The reason for this appears to be quite straightforward – it’s much easier to build a basic service plan product into a new or used car sales process. A relatively simple product that can be explained in a sentence sees a much higher level of penetration in almost every instance because the customer immediately understands the concept and the benefits.
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By GlobalDataOur experience is that adding additional items or elements to the mix only creates a sense of confusion and makes it more likely that the customer will start to depart from their original line of thinking. For example, if you include tyres then you have to explain the many rules and exclusions that normally surround them when they are included in service plans. This is distracting for the customer and, at the end of the day, the tyre element has only a marginal benefit for the dealer. The point is that, if you keep the service plan as simple as possible, then you’re meeting the majority of the service and maintenance needs of the customer and also retaining them as part of your business. There’s no need or real benefit in adding layers of complication.
Serkan Obuz is head of corporate sales and training at The Warranty Group
