Today’s changing economic climate may be driving changes in your operations, from the vehicles you stock to the advertising you buy. While tough economic times and lower-than-forecasted new-car sales may tempt some to cut marketing expenses until good times return, this approach carries hidden costs: Reduced exposure typically equates to reduced sales. Instead of cutting back on advertising expenses, reallocating dollars to the most effective and efficient forms of media can drive the results you want in a down-market: more sales and lower per-sale costs.
If you’ve been through an economic slowdown before, you know the routine: When the lot is missing what’s hot and full of what’s not, the showroom can get eerily quiet. It’s not surprising that when revenue significantly slows, the ax comes down on expenses. Those who have survived and even grown when sales are off, however, have learned a lot of good lessons – one of them being the importance of maintaining overall marketing spend so that you remain in shoppers’ consideration set when it’s time to buy.
Alex Vetter, senior vice president of sales at Cars.com concurs. “Now is not the time to cut ad budgets,” said Vetter. “Instead, it’s the time to get really smart about how you are spending your dollars. Now is the perfect time to review planned spending and focus on media that deliver a measurable return on investment, while cutting those campaigns and outlets that don’t.
“I’m regularly asked by our customers what they should do to weather the current climate,” said Vetter. “I stress the importance of shifting dollars to media that efficiently and effectively deliver in-market buyers. Unlike a costly ad on cable or radio that may reach your target audience, online car-buying sites guarantee an audience of hand-raisers, and they offer the tools to effectively match them with inventory on your lot. Online doesn’t just work in a down economy, it works in any economy. That’s where I’d put my money.”
Industry experts expect that dealers will heed Vetter’s advice and make greater use on online advertising as part of the media mix moving forward. In fact, they predict internet spending will increase at least 20 percent in 2008. The reason is twofold. First, although web ad spending has annually grown more than 30 percent over the past few years, it is still a remarkably small portion of most dealers’ total ad budget, and there is considerable room to shift funds from traditional to online media. Second, online spending is measurable, and it measurably impacts the bottom line. Just as the use of direct mail – the internet’s most direct predecessor – actually grew during the last six recessions, so too will online spending.
For dealers looking to optimize their media mix, Vetter offers the following advice:
Fund Your Advertising for an Upturn
Sure, advertising appears as a cost on the balance sheet, but it should really be looked at as a strategic investment. “While there might be less upper-funnel volume today than a year ago, people are still buying even during a recession – and there is yet to be an official declaration that we are in one,” said Vetter. “Fund your advertising based on the inevitable upturn, and you’ll get stronger long-term results than cutting during the downturn.”
Vetter’s advice is supported by evidence from studies conducted during and after the recessions of the 1980s and early 1990s that showed that companies that maintained or increased their advertising expenditures averaged higher sales than those that eliminated or decreased advertising – both during the recession and for three years following. Three years after the recession, sales of companies that aggressively advertised during the slowdown rose 265 percent versus those that didn’t keep up their ad spending.
Go Where the Shoppers Go
While there are still plenty of lower-funnel buyers in the market, when disposable income is down, shoppers don’t spontaneously decide to buy a car. They get cautious; they consider the necessity of every purchase, and they take more time evaluating their options making research an even more imperative part of the car shopping process.
“Since many consumers have been forced to make rapid and significant adjustments in their household spending, they are more carefully researching new- and used-vehicle purchases online,” Vetter said. “That said, they’re still buying cars. To reach them, you need to be online as they do their research.
“The average shopper on Cars.com spends 30 minutes a month on the site, and 80 percent of these visitors purchase a vehicle within six months. Those numbers haven’t changed, despite the economic environment,” said Vetter. “While disposable income may vary, nobody has disposable time. When people spend time online researching a purchase, you can be certain they have a very short purchase horizon. Shoppers online in this economy are people to which you have the best shot of selling a car. If you’re not there, your competitors will be.”
Cut Your Media Fat but Cut Wisely
Vetter suggests dealers thoroughly measure media performance before deciding what needs to be cut. He cautions against uniformly cutting your total spending because you risk undercutting the performance of an advertising medium shown to deliver a high return on investment. “Look at what’s been delivering results and at what cost. Measure every step of the conversion process and determine where sales originate,” he advises. “In this climate, you’re likely to discover performance issues that could have been overlooked in good times. Now is the time to trim that fat. If an ad buy can’t be measured, don’t buy it. If an ad buy isn’t delivering, find out why. This is not the time to fund a search party for potential buyers; real buyers are already raising their hands.”
Double Down on Media That Perform
Recession-proofing your media mix begins by determining which media offer a demonstrated history of results and allocating more dollars in that direction. While Vetter recommends cutting out the poor performers, he adds that smart dealers are doubling down on the media that deliver the highest ROI. He recommends reinvesting in the media that work rather than drop the savings to the bottom line. There is plenty of evidence that marketers who maintain spending during a downturn, and do so effectively, will emerge stronger than competitors who reduce spending.
Vetter said that there is evidence to support this in the internet departments he works with. “While overall sales volume is down at many stores, sales within internet departments are up.”
Process Matters More Than Ever
Regardless of how you are splitting dollars, Vetter says it is essential to have a rock-solid process in place to capitalize on the traffic your media plan is driving. In this economy, there needs to be a focus on the sales process, the lead management process and the advertising process. “Successful dealers are getting good at being fast, responsive and informative,” Vetter said. “The store has to be ready to give shoppers the information they want on the first ring. The owner and the general manager have to monitor customer touchpoints and ensure that everyone works toward the primary objective: closing leads.” All leads coming into the store today must be considered “hot leads.” To win the sale, salespeople must respond quickly, provide a quality response and stay with shoppers until they buy.
In the end, those dealers who reallocate their advertising mix for greater efficiency in this economy, rather than arbitrarily eliminate campaigns to save money, will be stronger and more profitable. “Those who move more of their money to media with high investment returns will inevitably be spending a larger portion of their budget online, because that’s where the shoppers and buyers are. And that’s the most effective way to recession-proof your media plan,” Vetter said.