Sticking with only one car maker could cost you a fortune – but there are benefits, too
A rule of business is that it is cheaper to keep a customer than find a new one.
It's also a rule today's car manufacturers and their dealers ignore at their peril, especially now there are so many new car brands tempting previously loyal customers to switch. Not long ago, motorists stuck to one brand for almost their entire lives - motorists like David Franklin, who in 2022, and at the age of 84, bought his 55th Fiat.
"Fiat never let me down, so I didn't let them down," he explained. Brand managers would give their right arm for that kind of customer loyalty today. In the 1960s, when Franklin first started buying Fiats, there were around 60 brands in the UK, but by 2020 there were only 40.
By the end of this year, however, it's predicted there will be close to 80. Around 20 of those will be Chinese, including new entrants Denza, Aion, iCaur, Lepas, Xpeng and Zeekr. When there were fewer brands, manufacturers could rely on customer loyalty rates of at least 40%, but this figure is being eroded as more brands come on stream and customer choice increases.
Another reason is the arrival of hybrid and electric power. "There's brand agnosticism with EVs because people are buying into the technology and not the brand," says Tony Whitehorn, former president and CEO of Hyundai UK and operations director of Lexus GB. "For example, when we launched the Ioniq 5 in 2021, the model attracted a lot of new customers who were drawn to the technology but not to the brand."
This same technology is also helping to drive the commoditisation of new cars. They have always been things to be bought and sold, of course, but historically there was also a subjective aspect to one's car choice that was influenced by its brand. This is no longer quite the case. Octopus Energy, for example - which is very much not a car brand - offers a range of popular new and used EVs on lease deals sweetened by thousands of miles of free electricity and a free home charger. The key differentiators between cars are monthly cost and driving range; brand plays second fiddle.
I'm a car buyer who still places a value on a brand, though. We have had five Volkswagens in the family, and I drive a seven-year-old Golf 1.5 DSG that I bought new. Last month I received an invitation from a dealer to upgrade it. "You have been selected by Volkswagen UK to receive a brand-new manufacturer upgrade in March on your current Volkswagen," gushed the invite. I was hooked. Motorway, the car-buying service I used once with great success, valued my Golf at £12,125 in good condition. I reckoned £11,500 was more realistic. The VW salesman offered me a paltry £9600.
Sensing my disappointment, he chipped a measly £1500 off the price of the new Golf and announced that VW Finance would contribute a PCP deposit allowance of £4250. Later, I discovered that during March - what is dealers' peak sales month - this deposit contribution was available to anyone, while I suspect the £1500 discount was cross-subsidised by the salesman's low part-exchange valuation. I should own a BMW. Also in March, BMW dealers were advertising so-called 'loyalty APRs' to existing owners, ranging from 1.9% on the i4 to 5.9% on 2 Series; enhanced discounts and part-exchange offers were also available.
However, Whitehorn says when he was operations director of Toyota GB, he didn't believe giving money away was always productive. "We'd offer owners £1000 if they upgraded to a new Lexus, but such an offer can damage a premium brand," he explains. "Customers think: 'I bought a Lexus because it's a good car but now you're just making it a transaction by giving me money off."
Manufacturers wishing to build brand loyalty now have an alternative to discounts and deposit contributions: the My Car app. By signing up to something like MySkoda, for example, an owner can access a range of services from route planning and EV charging to vehicle health reports and special offers. For the owner the app adds value, while for the manufacturer it's a way to coax the owner to a point where, just like staying with the same phone brand, staying with the same vehicle brand is easier.
Rewards and experiences programmes also build loyalty. For example, Audi Presents offers owners treats ranging from discounts to meet and greets with celebrity brand ambassadors. Later this year it will start offering RS-focused track experiences at Silverstone. A spokesman said: "Audi Presents has a loyal and engaged customer base. Time and again we see increased levels of brand awareness, loyalty and ultimately purchase rates among the 100,000 customers engaged with it compared with those who aren't - something like a 25% difference."
However, Franklin's comment about Fiat never letting him down is a reminder that the best way to foster customer loyalty is simply through a good ownership experience. With more car brands fighting for a share of a new car market unlikely to grow very much over the next few years, that's something every car owner has a right to expect.Â
The Tesla conundrum
Dan Lynch may have two Tesla Model Ys, but the car maker shouldn't take his loyalty for granted. "I used to be an admirer of Elon Musk, but he has said a few things recently that have made me revise my opinion," says Lynch, an operations director. "In any case, I've never been that loyal to any brand. Since I bought my first EV, a BMW i3 in 2013, I've had a Nissan Leaf, a Hyundai Kona and a Polestar, as well as the Teslas.
"I believe that people like me chop and change their EVs because, unlike a new mobile phone where the gains over the previous model are marginal, with each new EV there can be huge differences between brands. There would be more brand loyalty if every car had, for example, a range of 300 miles and the same core features."
The facts
- 40% of car buyers are prepared to switch brands
- 75% of Toyota customers are loyal to the brand
- 25% of new car enquiries are directed towards emerging brands
