Toyota Motor (TM) may be experiencing its share of quality slips and
bad press about not being as "green" as its reputation suggests, but
Toyota customers have been re-upping with the Japanese automaker at a
rate that makes rivals envious.
It was the second straight year that Toyota led all automakers in a
study conducted by J.D. Power & Associates. Sixty-five percent of
Toyota's buyers last year traded a Toyota for a new one. Toyota's
luxury nameplate, Lexus, finished second, with 63%, followed by Honda
Motor (HMC), at 62.8%.
Behind the Scores
"Toyota's high customer retention rate is particularly notable,
considering that new-vehicle sales have declined in the past year,"
says Neal Oddes, director of product research and analysis at J.D.
Power. (Like BusinessWeek, J.D. Power is a division of The McGraw-Hill
Companies (MHP).) "Toyota maintains its high retention rates by
providing high-quality vehicles and service to its existing customers,
which in turn generates favorable word-of-mouth recommendations that
attract new customers." says Oddes.
Toyota's performance in customer retention is impressive considering
the industry average of just 49%. The highest scoring U.S. nameplate
was Chevrolet, at 56%, owing mostly to the high loyalty rate among
buyers of Chevy pickups and large sport-utility vehicles such as the
Suburban. Ford Motor (F) scored 53%, much of that also owed to its
The lowest-ranking automotive brands score poorly for different
reasons. Mini, for example, scored second from the bottom mainly
because Minis (BusinessWeek.com, 3/29/07) have been sold only since
2001, and not many are being traded in. Isuzu Motors (ISUZF) is the
lowest-scoring brand, but that Japanese brand is barely in business at
all. Pontiac was the lowest-scoring nameplate with no mitigating
explanation for its poor rating of 28%. General Motors (GM) has muddled
the brand for more than a decade with a mixed bag of disconnected
products, poor resale value, and mediocre quality.
Jaguar and Land Rover were the poorest-scoring luxury brands in the
Power study. Land Rover has scored poorly in Power's quality rankings
for years. Jaguar has had poor resale value, as well as notable design
misfires including the X-Type and S-Type. Ford, which owns both brands,
is on the verge of selling the luxury nameplates, possibly to one of
India's two automakers, Tata Motors (TTM) or Mahindra & Mahindra (MAHM).
BMW (BMWG) topped European brands for customer loyalty, at 58%.
Mercedes-Benz (DAI) followed at 57%, Porsche (PSHG_p.F) at 42%, Audi at
41%, Saab at 34%, and Volvo and Volkswagen (VLKAY) both at 33%. The
weakness of the U.S. dollar against the euro will make retaining
customers even harder for European brands in the next few years as they
are pressured to raise prices.
What Keeps Buyers Coming Back?
Marketing analysts say a solid record of quality and reliability
combined with clarity and consistency of advertising keeps customers
coming back. "There are still many companies that do not understand
that consistency of image over time is as important as making sure the
quality is up to snuff and the dealers are doing their jobs properly,"
says independent marketing consultant Dennis Keene, who advises
companies on long-term brand strategy. "BMW not only performs on
quality and design year in and year out, but it's communication as 'the
ultimate driving machine' hasn't wavered since the early 1970s,"
Brands that are surging in customer retention after new-product and
customer service blitzes include Suzuki Motor (SZKMF) and Mazda Motor
(MZDAF), which have gained 19% and 9%, respectively, in the last 5
years. "The improvements that Suzuki and Mazda have made in vehicle
appeal and quality have paid off in steady increases in their customer
retention rates during the past five years, indicating that they have
also been successful in changing customer perceptions of their
vehicles, which can be a daunting task," says Oddes.
Auto executives disagree sometimes about the most important drivers of
customer loyalty—quality, design, or customer handling. But one thing
they agree on is that it's far cheaper to keep a customer under the
brand umbrella than it is to convince someone to change brands.