The Foundation

Volkswagen

From launching cars to keeping customers

Situation

Volkswagen had grown to become the third largest car brand in the UK and as a result realised they needed to focus on customer retention, not just acquisition.  But the culture of the company is all about product – the launch of the next Golf or Passat.  They were not set up or used to thinking about customers.

Insight

Insight 1 – after carrying out customer immersion we discovered people were angry about the cost of servicing. Management had been aware of this but not realised the importance, and due to the fact that it was a hard problem to solve, had deferred addressing it.
Insight 2 – we looked at a parallel with Rolls Royce Aero Engines, and in particular their move from selling then servicing jet engines to ‘power by the hour’. With this latter proposition, the airline pays for the time the engine’s being used, and consequently Rolls Royce becomes very focused on preventative maintenance: monitoring engines in flight and staffing engineers around the globe at airports to service engines on the wing. We applied this thinking to VW’s situation by considering how Rolls Royce would change how cars were paid for, if they were in VW’s shoes.

Solution

There were many useful outputs. One example is the creation of new service plans that adopted a different pricing model: instead of charging £550 over 3 years, the price became a £200 one-off initial payment which would cover service in the dealer network for the whole period. This creates happy customers who are delighted to come back for the whole 3 year period, by which time most will be ready to buy another car.  For VW, the loss in servicing revenue could be seen to be more than off-set by the increase in retention through people buying another VW, and the lifetime value that goes with it. Furthermore, analysis showed retention uplift when service in the network was high, and the business case showed investment in reducing servicing prices paid back.

Result

VW retention rose from 42% to 56% over 3 years. About half of this is attributable to new models being introduced, so we could assume the balance is affected by loyalty-related initiatives and other improvements. The value of this is approximately 7% of 90,000 private car sales per year, or £79m pa turnover. In addition, penetration of finance sold through VW has risen, as have sales of the fixed price servicing package, producing additional revenue.