19 Jun

The Costco Effect and Customer Loyalty

Costco has certainly built a loyal following over the years, even though it literally charges consumers for the privilege of buying goods from them – and many consumers happily do so. In fact, 85 million consumers who, in 2016 alone, spent a collective $16 billion.

Why do 85 million people pony up $55 and more per year (depending on the type of membership) simply to purchase items from Costco? Good prices and a great customer experience are two key things that have helped the company grow through strong customer loyalty.

And, talking of a great customer experience, did you know about their incredible no-questions-asked return policy? I was refunded the full amount for a gift I ordered for a friend because it did not reach them in time. One would think that this no-questions-asked policy would be pretty risky. However, while there are some who may abuse it, the loyalty it engenders amongst the vast majority more than makes up for any losses it may incur.

In our industry, most dealers certainly don’t have the same sort of policy, (although some do have limited return periods) and I’m not suggesting that dealers should. I’m merely pointing out the power that catering to customers can have in creating customer loyalty — even if it costs a little money. It helps transition repeat customers into brand advocates.

When issues arise between customers and dealerships, decisions are often made from a financial viewpoint, rather than with customer service and the overall customer experience in mind. The dealership employee or manager often factors in the dollar cost of pleasing the customer when making their decision. If that cost is too high, they may lean towards declining or offering a token gesture, but not one that completely rectifies the bad experience as far as the customer is concerned.

Nothing will cost you more money over time than the loss of a loyal customer. A customer’s lifetime value to your dealership across sales and service can easily climb into the hundreds of thousands of dollars range. Yet many dealers end up with an unhappy customer by concentrating on the dollars and cents of a single transaction.

Consider whether you would rather have hundreds of thousands of dollars in revenue in the future, or lose a customer so you don’t take a one-off $200 hit in service or sales.

I know how much I would rather have.



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