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Where Are Automotive Dollars Better Invested to Impact Growth and Sales?
Marketers know this best: they strive to build brand value and customer loyalty today, and in the future, but the impact on revenue is hard to measure in the short term and often underperforms against expectations. The transportation and mobility industries, and especially the auto industry, are not immune to this classic struggle.
A gap exists between an original equipment manufacturer's (OEM) or national sales company's (NSC) desire for customer lifetime value (CLV) and a dealer’s distinct desire to sell vehicles today. This is why many dealers are hesitant to consider collaborative options beyond the incentives system that they have come to know and love. For them, incentives equal cars sold—and one does not exist without the other.
Dealers are not entirely wrong. Incentives are key to making a good number of sales, especially in moments when the customer is close to purchase but needs an additional monetary stimulus. In cases like this, the power of incentives is undeniable. Step back to look at the bigger picture, however, and it becomes quite evident that converging industry and market forces are pushing toward an enhanced customer experience rather than a purely sales-driven approach. By focusing on sales numbers alone, dealers run the risk of establishing short-lived, transactional relationships with their customers rather than creating the lifelong loyalty characteristic of an experiential automotive brand.
So, where does that leave the traditional incentives system? How can incentives be used to change the customer and business dynamic? And how is performance best managed across the network?
Today’s customers are more knowledgeable than ever. They are in the driver’s seat of the negotiation, walking in and expecting an average of 10 percent in discounts, regardless of whether they are shopping for standard or premium vehicles. This confidence stems from their newfound accessibility, mostly online, to industry pricing, offers and statistics.
Price transparency has increased dramatically in the past five to 10 years, with various e-commerce portals for vehicles sprouting up all over the world. Customers no longer walk into a dealership blindly but rather arrive well-informed and well-armed with pricing intelligence and quote comparisons.
Dealers need to be equally prepared with data and insights as those they are serving, yet they lack the resources necessary to build an intelligent and agile customer experience platform. OEMs and NSCs depend on the survival of their dealer networks and are in the perfect position to offer dealers the organizational, operational and technological guidance they need to evolve from a sales mindset to one that also strives to boost customer lifetime value.
Tackling the traditional incentives system first is only natural given that it personifies the automotive industry’s main hurdle and hope for the future: customer centricity. A huge disconnect lies between a customer’s interactions with digital channels and their experience with the dealer, not to mention the gap between the customer data that OEMs and NSCs hold compared to dealers.
Customer segment data sits with the OEMs and NSCs, while dealers withhold specific customer data, making these datasets difficult to match and apply throughout the customer experience. This is where most customer frustration is born during the vehicle purchasing process: with each new interaction, the customer starts his or her journey often from the beginning.
The customer is not the only one that suffers. A more strategic, intelligent and collaborative approach to customer relationship management is the big-ticket path to increased efficiency and revenue for OEMs, NSCs and dealers alike. Multiple manufacturers have admitted that incentives make up a large portion of overall cost, if not the largest. And, since margins are already small and markets continue to shrink, a revamped incentives system has become the first step toward future network profitability and longevity (see Figure 1).
The main objectives of a new incentives system
Each OEM’s or NSC’s actions will be different, but there are three key data pools that strategic decisions and offers around incentives should be based on (see Figure 2). Business leaders that are stuck in the past will automatically feel that these datasets are difficult to retrieve, let alone manage. The good news is that they are not as daunting as they seem, and there are new and emerging technologies that can help.
Three key data pools for a modernized incentives system
The customer journey component is a good example. By opening the gates between OEM and NSC data and that of dealers, an unprecedented, rich database of customer information is now available for machine learning technologies to sift through and make sense of in order to drive better decision making. This combination of algorithms and machine learning can identify the specific conversion triggers and propensity to purchase of each unique customer, not to mention feed this data back to the OEM, NSC and dealer employees in a user-friendly dashboard.
Propensity to purchase is radically important here because it allows sales managers to identify the exact moment when an incentive would effectively bring the customer across the line from pre-sale to active. Better yet, dealers can also see who is most probable to buy without any kind of incentive, thereby avoiding unnecessary discounts and increasing their margins.
The next step involves the system combining the aforementioned customer-specific data points with important bits from product and market. On the product side, factors such as where the model is in its lifecycle and how many units have been sold thus far help to calculate the incentive. When the last pillar of market data is introduced, the puzzle is complete. Marketing data isn’t always aligned with incentive spend. It’s important to look at the factors that influence how easy it is to sell a car at a certain stage (e.g., appearance, year, market awareness). These variables may influence whether a dealer decides to invest more in incentives or marketing to close a deal.
Data points revolving around competing product sales, economic fluctuations and the brand’s growth rate overall are merged with customer and product information to generate an informed recommendation as to what incentive should be given to a specific buyer, at a specific time, for a specific product. Using all this data, the system could come up with a recommendation to support the salespeople in their decision about a personalized offer.
This method of applying data to work backwards toward an incentive offer is of growing interest across transportation and mobility. Multiple manufacturers and service providers are taking steps toward achieving such an integrated system. Volkswagen, for example, recently announced that it will be revisiting its dealer contracts in order to incorporate data-sharing agreements and a revamped incentives program.1
Similarly, FCA is developing a global platform solution that fuses marketing and experience technologies with enhanced data schemes. This includes the previously mentioned concepts of behavior pattern recognition and informed offerings that can be paired to derive personalized campaigns during pre-sales.
Emotion-based technology for automotive
If the customer-centric pillars identified thus far are not evidence enough for the need to step away from price-based approaches, then the emergence of a new model may tip the scales. A German startup adequately named The Neuromarketing Labs has pioneered a method called NeuroPricing®, that allows researchers to register the brain’s unconscious reactions to various price points that happen within 500 milliseconds of seeing the number.
This takes customer rational and emotional behavior metrics to another level, stepping beyond traditional survey methods into more precise ways of deciphering whether the costs sellers set are the ones that customers are willing to pay. For OEMs, NSCs, and dealers, the application of such forward-thinking technologies can make all the difference—especially within the realm of incentives systems. But even without the technology itself, NeuroPricing® depicts the drastic importance of taking customer behavior, including emotions, into consideration when trying to build brand affinity and make a sale.2
Seemingly futuristic, yet completely relevant and readily available.
Making smart marketing and sales investments is anything but easy when efforts are neither aligned nor optimized. In one camp, fixed marketing investments (FMI) are being made into promoting each vehicle; in the other, variable marketing expenses (VME) are being handled ad hoc by dealers, making final costs difficult to track.
At the end of the day, both of these factors contribute to or take away from the overall bottom line of OEMs, NSCs and dealers. An incentives program, like the one depicted in the previous section, marries these two disparate streams and gives all three industry players visibility into the final costs of selling each vehicle, allowing them to quickly optimize their fixed and variable strategies for each customer. With FMI and VME being two key elements in the automotive demand generation system, the ability of OEMs/NSCs to get advertising and incentives right has a measurable impact not only on sales performance, but also on profitability.
Business leaders should establish key performance indicators for their remodeled incentives system. Dealer adoption, most certainly, sits at the core—a system is of little value if it is not being used. OEMs and NSCs are strongly advised to include their dealers in the process of designing a new incentives system; that way, when it launches, dealers are active contributors to the change. Another consideration would be to pair the incentives system with a broader platform meant to enhance dealers’ work, perhaps by including features that help them maintain brand consistency across their customer interactions.
Further evidence of a successful, integrated solution includes the following:
There are, of course, clear methods of identifying return on investment, as well, for a properly architected incentives system. Statistics show that even reducing the amount of incentives by five percent can mean billions in savings for the OEM or NSC (see Figure 3).
Quantifying the ROI of an improved incentives system
As with all moments of great change, a certain amount of culture sculpting is necessary for a new incentives system to be not only created but welcomed. An integrated solution for marketing and sales along the value chain for all parties involved is within arm's reach. e-commerce has already arrived and, with that, the urgency for a collaboration model that is intelligent, agile and streamlined.
OEMs and NSCs must gain a firm grasp on their incentives strategy if they wish to capitalize on the growing opportunity of online sales and the discounts they provide. More so, they need to evaluate and transform their sales channels and network structures as a whole in order to reap the benefits of the unparalleled evolution that customers are shaping across the transportation and mobility industry.
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