After a record-shattering 2016, automakers are dealing with the difficult task of maintaining or growing volume and margins in a market that is expected to decline by 6 percent or more from last year's high.
Inventories are on the rise, prompting car companies to try and boost sales through their standard marketing strategies of increasing advertising and improving purchase incentives, such as cash rebates, lease offers and low-cost loans. Yet those strategies—if executed in the usual way—may not deliver more than the usual results, causing a negative impact on residual values and brand equity.
Although unit sales might have hit a peak in 2016, the months and years ahead are expected to be strong by historical standards. However, to avoid a sharp decline in top- and bottom-line results, marketers should make more effective use of digital channels and tools to optimize spend per vehicle and more precisely target buyers with a higher propensity to close.
In the U.S., total automotive marketing spending is about $35 billion per year and climbing, with roughly 10% of automotive sales revenue consumed by marketing expenses. Almost two-thirds of the money is variable marketing spend (i.e., purchase incentives); the rest is fixed marketing spend, which covers traditional advertising and marketing as well as digital channels.
The primary challenge for marketers is making sure those dollars are being allocated wisely, between the fixed and variable categories, and also within each category. In particular, they need to answer some big questions, including: What is the right combination of incentive offers—lease, loan and cash—to maximize sales volume and profit? And how should those offers be implemented across specific media channels and properties, both traditional and digital?
Marketing organizations must be able to answer these kinds of questions accurately and quickly. There are three key steps that automakers can and should address to maximize the efficiency and effectiveness of their marketing activities and investments.
Incentives and advertising programs can have a big impact on each other. Yet automakers have traditionally treated fixed and variable marketing spend as separate activities managed by separate organizations, with the sales organization or a dedicated incentives team responsible for planning and managing incentive programs while the marketing organization is responsible for advertising and brand marketing.
Bridging or eliminating these silos and thinking holistically about fixed and variable marketing expenses can improve coordination and make the marketing process much more efficient and effective.
From an organizational perspective, that means breaking down barriers between traditional functions and agreeing to a standard set of cross-functional metrics that provides a single source of truth for measuring both marketing and incentive activities. The goal is to enable the people who plan, manage and execute incentives to directly coordinate and collaborate with their counterparts in brand marketing, and for both groups to jointly plan the company's advertising and incentive programs.
One of the underlying challenges that improved coordination helps address is the issue of attribution— understanding the exact link between actions and results. The car-buying process is changing, leading to a major transformation on the retail side of the business. Understanding how marketing dollars are applied in the new buying ecosystem is critical to success. For example, was a recent lift in sales attributable to a new incentive program, or was it actually the result of a Tier 2 media campaign that the company rolled out at around the same time?
In the auto industry, the advanced analytical tools and measurement capabilities required to generate deep insights like these are still in the early stages. However, most automakers now recognize the importance of identifying and proving the impact of marketing activities in real time, and they are starting to ramp up investment in this area.
With traditional media, marketers in every industry have long struggled with the issue of latency—the delay between when a marketing activity occurs and when the results can be measured, a problem that is particularly acute in automotive due to its long purchase cycle. In digital media, latency is sharply reduced or eliminated as there is often zero lag time between action and measurement, enabling companies to quickly iterate, learn and improve their marketing programs.
Digital innovations are creating new and valuable opportunities for marketers to harness the power of data and analytics to drive growth and improve the customer experience.
One example of a potentially game-changing innovation is to give brand marketers advanced analytical and social media tools—along with real-time inventory visibility—so they can develop and execute laser-focused marketing programs in geographic areas with surplus inventory. By targeting micro-segments of consumers with personalized offers based on their individual needs, preferences and geographic location, automakers can proactively manage inventory surpluses before they occur, greatly reducing the need for costly sales incentives to move aging inventory off the lot.
Another innovation example is the use of analytical tools to understand individual customer moments, which helps marketers deliver the right content and messaging across the entire purchase cycle. This is especially important now that the purchase cycle is no longer linear, as consumers engage on multiple platforms and media. Through all of those customer moments, marketers have endless opportunities to influence preferences and decision-making.
As automotive sales descend from their record highs, marketers must find new ways to grow or at least maintain sales volume and margins. To succeed, automotive marketers need to adopt a more holistic approach to brand marketing and incentives. They should also consider embracing new digital tools and innovations that can improve coordination across functions and boost overall marketing efficiency. This transformation will not be easy; however, companies that pull it off will likely have a significant advantage in an increasingly competitive marketplace.