Which advertising source was responsible for that sale my dealership just made?
That’s the $10 Billion question that we’ve all been asking ourselves for decades. And it’s even more relevant today as inventory and incentives grow, margins compress and sales volumes decline. Following that same logic, as volumes decline and your ad budget remains the same, your cost per sale goes up and your margins go down. In this environment, you must be acutely aware of which marketing dollars are essential and which are wasteful. They key involves learning to trim the fat without cutting into the muscle.
Don’t Ignore the Data
In my experience, these decisions are often made in a knee jerk fashion as the reality of the changing market applies pressure to do something, and do it now, to save profitability. All too often I’ve seen decisions made on “past experience” and not on sound data or reasoning.
Does the following sound at all familiar?
“I’ve always had the TV spot on the 11 O’clock news. I know it works. If I take it away, the customers will stop coming.”
“We’ve been successful for 50 years; I know what works and I’m sticking with it.”
The danger with this ‘set it and forget it’ mentality is that both the consumer and market have changed (and are continuing to change). To effectively compete in this increasingly competitive and changing environment, deeper analysis of what’s working (and what’s not) is needed. You can no longer afford to NOT be making data-driven decisions when it comes to advertising, even if what the data is telling you is counterintuitive to your beliefs.
Find the Right Mix
The average dealership spends close to $600K per year in advertising, with Digital (33.6%) and TV (24.2%) being the two largest sources for that spend. (NADA Data 2016 report.)
A wide variety of advertising expenses fall within “Digital” (33.6%) alone: your dealership web site, paid search, display advertising, social media advertising, third party leads, and third-party classifieds sites….just to name a few.
Which marketing channel is responsible for that sale? As much as we’d all like to pinpoint the source of each sale with precision, the reality is that there is no one vendor or channel responsible for making that sale. It is the combination of your marketing efforts, along with your in-store processes, that ultimately drive the sale.
From a marketing perspective, it’s essential you’re asking yourself these questions: “Do I have the right marketing mix? Am I spending where customers are making their decisions about what, and where, to buy? Or am I stuck in that ‘this is how it’s always been’ mentality?”
Today’s modern buyer consumes media differently than in the past. When we look closely at how dealers spend their marketing dollars, it’s astonishing to see the misalignment in dealer marketing spend vs. where the consumer is spending their time and making purchase decisions.
US Consumer Media Consumption
That’s right, the average in-market vehicle buyer is spending 75% of their time using digital media to make their decision about what to buy and where, while the average dealership is only spending 34% of their marketing budget on digital. Wow. What does your advertising budget look like?
Measuring Marketing Effectiveness
Up until recently, a dealership’s only way to measure the effectiveness of their marketing budget was to calculate a cost-per-sale based on sales by traffic source from their CRM tool. More savvy dealers take this a step further and look at the profitability of each sale that is attributed to a marketing source to calculate an ROI.
ROI is a much better way to measure marketing effectiveness, as it is a key driver of profitability. Be careful to balance ROI with volume considerations as well. Measuring strictly on cost-per-sale, or ROI, can cause you to limit yourself on volume. Profitability is driven by margins (ROI) AND volume (market share). The best way to measure how effective you are, volume-wise, is by measuring market share. Market share bakes in underlying macroeconomic trends and gives you a much better picture of how effective you are volume-wise.
Beware the De-dupe
Depending solely on your CRM tool to calculate marketing effectiveness can lead to making inaccurate decisions. Most CRM tools out there in the automotive retail space were not built to understand whether your marketing mix is working or not. Rather, they were built to manage sales processes to make your sales team more efficient and effective.
As part of those processes, CRM tools perform one key task that is counterproductive to understanding the (multiple) factors that contribute to a sale. That task is de-duping. Most CRM tools de-dupe inbound leads across different sources. This de-duping generally boxes you into a first-click attribution model. Meaning, the first source to deliver the lead to you is the one that gets the credit, but this is flawed.
We know that consumers take a long and winding path, especially in the digital world, visiting multiple websites and seeing multiple text, display, retargeting and even online video ads on their path to purchase. In other words, they interact with many (think multi-touchpoint) sources that influence their purchase.
And, just as first-click attribution is flawed, last-click attribution, or last-touch attribution, is also flawed as it discounts all the messaging the customer was exposed before that last activity. Bottom line is any single-click attribution model, whether it’s first or last, doesn’t capture the full picture of marketing activities that ultimately contribute to any single sale.
Embrace Multi-Touch Attribution
Without getting too technical, the only way to understand how your multiple marketing investments are affecting your sales is to use a multi-touch attribution model. A multi-touch attribution model helps you understand the relative importance your multiple marketing channels are making to each sale. The most sophisticated businesses in the US use multi-touch attribution models to refine their marketing spend mix to optimize sales and marketing ROI. A good multi-touch attribution model will have its roots based in multi-variant testing that isolates cause and effect of various strategies and methods.
As I mentioned earlier in this article, many companies outside of automotive retail are relying on multi-touch attribution modeling to optimize their marketing mix. Some of the notable players in this space include: Impact Radius, C3 Metrics, and Full Circle Insights to name a few. Additionally, there’s a recent whitepaper written by SAS that’s a great reference.
I have seen some auto-retail-specific tools as well; Clarivoy comes to mind.
I encourage you to do your own research, especially if your dealership is still using a single-click attribution model to inform your digital marketing budget allocation. Dealers that understand and embrace the importance of implementing a multi-touch attribution model will master their marketing mix and outperform those still plugging away using single-click attributions. Forward-thinking dealers who adopt these changes now will likely make it through this difficult cycle in much better shape than those who don’t.