Unlocking Potential: How Dealerships Could Benefit from a Costco-Type Tire Maintenance Program

In the evolving landscape of automotive sales and services, dealerships are constantly seeking innovative ways to enhance customer satisfaction, streamline operations, and boost their bottom lines. One such innovation, which has gained traction in recent years, is the use of nitrogen for tire inflation. However, taking a page from Costco’s approach to delivering added value could revolutionize how dealerships implement and benefit from a tire program.

The Costco Model: Free Tire Maintenance for Life of Tires

Costco’s success with its tire program provides a valuable blueprint for dealerships included in their Tire Program are the following customer benefits:

● Tire Maintenance including free rotations, balancing, and flat repair

● Nitrogen for tire inflation service and free inflation refills

● Prorated roadside insurance coverage up to five years, provided that the user maintains regular tire rotation through Costco every 6,000 miles.

● Online ordering and free installation of tires purchased from Costco

● Limited waiting with one hour service (appointment required)

By offering their customers a Dealer Loyalty Program package as part of their tire purchase, Costco has created a win-win scenario for both customers and Costco. The incentive for Costco starts with the value it creates for its members, as stated above. Costco also benefits from any incremental sales of items that customers purchase while they are waiting for their tires to be installed or maintained (there is no waiting area for customers other than the nearby food court). Moreover, Costco benefits from future sales as customers retain their Membership to continue enjoying the Tire Program benefits.  

The obvious benefit to dealers in creating a Costco type Tire Program is getting the customer to return every 6,000 miles for tire maintenance.  This is especially beneficial for a dealership’s retention effort for the 70+% of customers that have exceeded 36,000 miles and are more likely to migrate to third party mechanics for their vehicle maintenance.  

The Nitrogen Advantage

Costco was an early adopter of Nitrogen Tire Inflation Systems and it remains a critical component of their Tire Program. Numerous studies, including ones conducted by the National Highway Transportation Safety Administration (NHTSA) confirm that Nitrogen inflated tire service offer consumers several benefits mainly due to its ability to retain tire pressure longer between normal service intervals.  The customer benefits include:

1. Improved Fuel Efficiency: Nitrogen molecules are larger than oxygen molecules which means they are less likely to seep through tire walls. This leads to improved tire pressure retention. According to the NHTSA, under-inflated tires can lower gas mileage by about 0.2% for every 1 psi drop in the average pressure of all tires.  

2. Enhanced Tire Life: Exxon Mobile Chemical has reported that tires maintained better durability and showed less separation at the belt edge when nitrogen was used as the inflation gas rather than air.  Schrader reports that “One of the primary reasons why motorists save money by maintaining proper tire inflation: Tires that wear evenly last longer before needing repair or replacement. In fact, some tire manufacturers advise that just 5 psi below placard pressure could lessen a tire's tread life by as much as 25%.”

3. Safer: The effects of driving on underinflated tires include poor handling, increased stopping distance, and increased chance for a blowout due to increased heating of the tire. According to the NHTSA, 90% of all blowouts are due to underinflated tires.

4. Temperature Stability: Nitrogen gas maintains tire pressure more effectively under varying temperatures, reducing the need for frequent adjustments.

Critics of nitrogen say that most of the benefits can be obtained with proper tire pressure checks by the vehicle owner.  Which is true but what is missing from their argument is how often does the average driver think about checking their tire pressure until the TPMS light comes on?  The answer is not very often.  Even with a TPMS system the driver is not alerted until the pressure has already dropped below 75% of the recommended tire pressure. The NHTSA studies also suggest that one in every four cars on the road today has at least one tire that is potentially dangerously under inflated.

Of course, nitrogen alone is no substitute for proper tire maintenance, but in a practical world where drivers too often neglect vehicle maintenance, it can be an aid in reducing the effects of their negligence.  Implementing a Dealership-Based Tire Program

1. Incorporate a Tire Maintenance Program into every New Car Sales Package: Tire maintenance and oil changes are the only two services that a new vehicle owner usually requires in the first two years of ownership.  Incorporating a Tire Maintenance benefit package with every new car sold increases the likelihood that when the manufactures’ warranty expires the customer will remain a loyal customer. While the OEM will include some portion of this benefit, adding the elements of the Costco Model, like nitrogen gas for tire hazard coverage will enhance the OEM benefit and demonstrate the dealerships concern for the customer’s safety.

2. Incorporate a Tire Maintenance Program with Service Packages: Whether it’s having their front end aligned or purchasing new tires, incorporating a dealership Tire Maintenance Program as part of that service can create a value-added benefit that helps a dealership differentiate themselves from tire stores and other competitors.

3. Create a Loyalty or Membership Program: Just as Costco uses membership to add value, dealerships could implement a Dealer loyalty program where customers receive nitrogen inflation services as a perk. This could be structured as a one-time benefit for purchasing a vehicle or as part of a tiered membership program with annual renewals.

4. Promote Long-Term Cost Savings: Dealerships can emphasize the long-term savings associated with a Tire Maintenance Program. By highlighting benefits like increased tire life and improved fuel efficiency with nitrogen, free tire rotations and road hazard coverage, dealerships can help customers see the value in investing in purchasing tires or other services, thus enhancing overall customer satisfaction and loyalty.

5. Educational Campaigns: To effectively market the Tire Maintenance Program, dealerships should educate their customers about its benefits. This can be done through in-store promotions, digital marketing campaigns, and informational brochures. Providing clear, accessible information can help customers make informed decisions and appreciate the added value of a Tire Program.

6. Automated reminders: Just like an oil change window cling or a digital notice, it is important to remind the customers about the road hazard benefit and how important it is to return to the dealership for tire rotation and nitrogen tire service to maintain coverage.

Operational Considerations

While the benefits are clear, implementing a Tire Maintenance Program requires careful planning and creating a different service culture.

● A Customer Centric Strategy:  Costco’s approach to its tire program is deeply rooted in its customer-centric philosophy. The company prioritizes customer satisfaction by offering transparent pricing, high-quality products, and exceptional service. The inclusion of various services without additional fees reflects Costco’s commitment to delivering value and convenience. Costco has established its tire program as a key component of its broader value proposition. This strategy not only enhances the shopping experience but also strengthens member loyalty and reinforces Costco’s reputation as a trusted retailer in various product categories.

● Lifetime Customer Value: Back in the 1990’s legendary Cadillac dealer Carl Sewell published a book titled “Customers For Life”. His goal was to make every customer, a customer for life.  He did the math and calculated the LCV of a customer for car sales, parts, and labor to be $332,000.  In today’s dollars that number is close to $1 million. How much are you willing to do for a customer that could potentially spend one million with your company?

● Vender Selection: Selecting the right vendor for implementing a tire maintenance program is a critical decision that can significantly impact your dealership’s operations and customer satisfaction.  Opting for a vendor that offers competitive prices, great customer service, full marketing support, staff training and cutting-edge communications technology like the Drive 1 mobile app which will help automate most of the program while giving the customer a valuable communication tool.

Conclusion

It's easy to get caught up in the mechanics of sales and transactions. Companies often focus on numbers—revenue targets, sales metrics, and transaction volumes. However, a growing body of evidence suggests that prioritizing the customer needs over the transaction can lead to far greater long-term success. Embracing a customer-centric approach is not just a nice-to-have; it’s a strategic necessity that can drive sustainable growth and foster enduring loyalty.

By adopting a Costco-like Tire Maintenance with a loyalty program, dealerships can significantly enhance their service offerings, differentiate themselves in a competitive market, and build stronger customer relationships. With a focus on customer education, strategic bundling, and effective implementation, a Tire Maintenance program can become a valuable component of a dealership’s service strategy, driving both customer satisfaction and business growth.