Online Automotive Review  Dealers  Feb2007
 

Online Automotive Review Dealers Feb2007

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Online Automotive Review  Dealers  Feb2007 Online Automotive Review Dealers Feb2007 Document Transcript

  • Dealer Edition Online Automotive Review A look at the past, present and future of automotive Internet A Bi-Monthly Report by J.D. Power and Associates • February 2007 Welcome to the first issue of Online Automotive Review—Dealer Edition for 2007. Internet-Only Pricing: Experts Urge Caution One of the questions we at OAR are often asked about vehicle shopping on the Internet is In This Issue whether or not online pricing should be provided. While only a minority of dealers refuse Internet-Only Pricing: to provide specific prices for online requests, the majority provide information, albeit not always the best information for consumers. Almost every dealer has a different approach Experts Urge Caution on pricing—some dealers provide a price for only the vehicle requested; others provide a -3- range of prices; yet others see the request as an opportunity to not only to provide a specific price, but also to use the response to further qualify the prospect. And some dealers are now Online Automotive Behavior beginning to use the Internet as a promotional tool, offering vehicles at prices available only Differs by Geographic Region online. To address the subject, OAR solicited the opinions of two well-known automotive -12- retailers. Online Automotive Behavior Differs by Geographic Region Retail Segmentation: OAR has often reported on the changing behavior of Automotive Internet Users (AIUs): Are All Prospects Equal? more consumers now go online, are impacted by information found online, start their -17- search online, etc. But what role does geography play in behavior? How does a consumer in Houston act and shop differently than another consumer in Los Angeles? Read this article Electronic Financing: to learn more. Good for Consumers, Retail Segmentation: Are All Prospects Equal? Good for Dealers Sophisticated marketers have pursued various forms of market segmentation for a long -28- time. Segmentation can influence design, pricing, marketing communications, training, and incentives, and it can increase media efficiency and enhance communications effectiveness. Marketing to Hispanics OEMs and their agencies routinely create and manage these demographic and psychographic Goes Well Beyond Language clusters at the wholesale level, but what about at the retail level? Are there opportunities for -33- dealers to cluster prospects and customers in some form of segmentation strategy? Electronic Financing: Good for Consumers, Good for Dealers Vendor Source Book The Internet is not only bringing more knowledgeable prospects to the new- and used- -40- vehicle buying process, it’s also changing the dynamics of the financing process—from both the customer and the dealership perspective. OAR discusses why this is good for both consumers and dealers alike. Marketing to Hispanics Goes Well Beyond Language Subscription Information: Log on to Marketing to Hispanics isn’t a “nice to do”—it will soon be a fundamental part of the www.OnlineAutomotiveReview.com marketing plan in virtually all markets. And, as the Hispanic population continues to migrate to register and receive quarterly more evenly across the country, more and more dealers will need to tailor their marketing updates of the Online Automotive accordingly. OAR asked three experts to share their experiences in marketing to Hispanics, Review—Dealer Edition. Archived and to provide ideas to dealers who might be considering their own Hispanic marketing copies are also available on the strategy. Web site. Stay tuned—in the next issue we will test the accuracy of dealer Web site contact information and delve into the profitability of managing customer relationships effectively. Questions? E-mail us at onlineautomotivereview@jdpa.com We wish you the most profitable reading possible. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing: Experts Urge Caution By Bill Williams One of the issues often raised in discussions about vehicle shopping on the Internet is whether or not online pricing should be provided. Some dealers refuse to provide any specific price information while others provide a price for only the vehicle requested; others provide a range of prices; and, yet others see the request as an opportunity to not only provide a specific price, but also use the response to further qualify the prospect. And some dealers are now beginning to use the Internet as a promotional tool, offering vehicles at prices available only online. To address the subject, Online Automotive Review—Dealer Edition solicited the opinions of two well-known automotive retailers: Frank Montebello, General Sales Manager, Norm Reeves Honda, Huntington Beach, CA; and Ralph Paglia, CRM/ eBusiness Director, Courtesy Chevrolet, Phoenix, AZ. Handling Online Price Requests One panelist at the Internet Roundtable offered this advice about the impact of responding to online price requests: if a dealer doesn’t answer with a price, they will automatically be viewed as the high-priced alternative. Online shoppers expect their questions—particularly those involving product, performance, and price—to be answered. If not, they simply move on to someone who will provide the information, so it’s not surprising that the majority of dealers do provide price. If a dealer doesn’t answer with a price, they will automatically be viewed as the high-priced alternative. Ralph Paglia says, “We reply using an e-mail template that is designed to showcase the price quote on the specific vehicle that the customer asked for, or what we have available that comes closest to the specs submitted. We also include in our initial e-mail response a separate grid showing at least three alternative vehicles. The three additional vehicles that the customer receives will normally include one that has more equipment, one that has less, and a fourth vehicle that is either a certified pre-owned, a demonstrator, or a carryover model year. So we send back price quotes on four vehicles, and we have a strict policy against our staff of Internet sales specialists from ever sending back price quotes on one vehicle.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing (continued) Frank Montebello agrees: “Yes, if asked, we do provide pricing on a vehicle based on a pricing matrix that has been set on the current market condition of the vehicle. However, we do send out an e-mail with three questions that encourages communication between the Internet prospect and the Internet sales consultant handling the customer’s request.” Paglia adds, “Our objective is to avoid ‘hanging our hat’ on the sale of one vehicle. We want to emphasize that we have a huge inventory and that we sincerely wish to show the customer that there are many choices available when buying a vehicle from Courtesy Chevrolet. The grid table format we use also makes it easy for the customer to see and compare the different MSRPs, rebates, incentives, and net ‘ePrice’ to the consumer for each of the four vehicles that we send quotes on.” It is clear in the way both Paglia and Montebello approach online shoppers that the online prices they provide are accurate, honest, and fair. Does the online customer assume this is a final price? Or is it clear that there will be further negotiation? Montebello approaches it as price protection: “Being the No. 1 Honda dealer, we do provide aggressive pricing with some room for negotiations. We do, however, offer a five-day price protection guarantee that states, ‘If you find the same new Honda for less within five days, Norm Reeves will choose to pay you the difference or buy your vehicle back.’ Being the only Honda dealer with a price guarantee puts the customer at ease and is deterred from endless negotiating by offering peace of mind.” Paglia’s focus is also on getting the customer into the showroom: “We respond to quote requests with the simple philosophy that every price quote e-mail is the equivalent of a targeted advertisement that is laser-focused on a customer that is actually looking to buy the exact vehicle we are advertising.” Paglia adds, “Are we aggressive? Yes. Do we send price quotes that we actually want to sell the vehicle for? Yes. Will we negotiate with the customer? That’s what the showroom appointment is for, because we use benchmark pricing to offer what we believe are the area’s most competitive price quotes. But we will not lose a customer’s business over a few dollars in selling price, so we inform the customer that the price quoted is an excellent deal. If they have a trade-in, if they are interested in below-market-value financing sources, then the best way for us to serve that customer is to set up a meeting and visit with us so that we can truly provide the kind of professional services that investing so many thousands of dollars should include.” In both cases, there is no overt promise that this is no-haggle or Internet-only pricing. But it is clear in the way both Paglia and Montebello approach online shoppers that the online prices they provide are accurate, honest, and fair. The price quotes are not come- ons or gimmicks. Both retailers also see the importance of moving the discussion from online to in-store, ensuring the purchase process embraces the wide array of related issues (trade in, financing, etc.). Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing (continued) Internet-Only Pricing Online shoppers increasingly expect to buy certain items at lower cost online. The logic is clear: the cost of sales is lowered with an online purchase, and those savings go to the buyer. Obviously, this is more the case in some categories (services, packaged goods, health and beauty aids, etc.) than in others (vehicles, real estate). But there is some presumption among shoppers that savings accrue from purchasing online, that they are part of a special group of shoppers. Perhaps automotive Internet shoppers simply believe that buying online reduces the dealer’s cost or they just want to avoid the traditional negotiating process. Whatever the reason, does it make sense to offer these prospects vehicle pricing available only online? Montebello says, “Internet-only pricing is sold as that it is only valid in the Internet department. We offer a price that can clearly be given to customers on the retail end of the spectrum. It may take a little more negotiating, but it can be achieved. By offering an Internet-only price and having the retail department honor it with little or no question places doubt on the integrity of the dealership.” Paglia adds, “Yes and no, we do offer the hardcore price shopper and bargain seeker a wide array of Internet-only perks, bonuses and giveaways such as gas cards, movie tickets, free oil changes, and cash bonuses for test drives and purchases that require the customer to complete an online coupon and present it at their arrival at the dealership.” When asked if they felt there were any specific advantages or disadvantages with Internet-only pricing, both believe there is a better way to use the Internet than through specific Internet pricing. “The availability of a vehicle’s invoice is accessible to those who seek [the] dealer’s cost on a vehicle,” Montebello notes. “The price paid by that same consumer is almost never what was researched because it is not all about the price. It is about options and catering to a customer’s needs by not selling them a car, but by helping them buy one. We offer services with the ease of assisting them on their online voyage of acquiring numbers on multiple vehicles. An e-price would be more appropriate than an Internet-only price because of the way it’s presented and acquired.” Paglia adds, “When customers take advantage of our online offers, they really come out ahead and truly receive greater value than those that don’t. However, there are many customers that think the giveaways are a gimmick and, despite the high level of interest and volume of responses generated by these Web-only promotions, only a few actually take us up on it.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing (continued) Paglia points to a recent free gas promotion to demonstrate how consumers often interpret value in different ways. “We ran a ‘free gas for a year’ promotion [see www. YouGotGas.com] that for the customers smart enough to take advantage of it was an incredible cash giveaway, with the dealership giving up all or more of the front-end sales gross to those customers that took the year’s worth of free gas in lieu of any additional discounts other than the factory rebates and incentives. But many people gave up $4,000 in free gas in exchange for $1,000 in the form of a price discount.” “We offer many promotions that are designed for the savvy hardcore shopper that are passed up by the convenience customer who is too lazy to print a coupon at home, or will mention the offer only to give it away for a trinket in the form of a discount from MSRP,” Paglia continues. “Our sales managers are no longer even remotely fazed by crazy giveaway offers that could potentially cost all the gross profit in a deal, because they know that most customers will try to renegotiate when they get to the dealership, and the ‘second pencil’ always boots away the promotional offer per the customer’s choice to take the discount instead.” “Always have a disclaimer that states that offers are exclusive of other discounts, offers or coupons. One coupon or promotional voucher per vehicle purchase.” Paglia believes the advantages of online offers is that “they generate a certain amount of interest and inquiries.” The disadvantage? “The entire sales management team must be comfortable with working deals that result in a customer springing the promotion upon the salesman or ASM in the midst of negotiations. Always have a disclaimer that states that offers are exclusive of other discounts, offers or coupons. One coupon or promotional voucher per vehicle purchase,” he cautions. Would Internet-only pricing drive more prospects to shop online? How might it impact compensation plans? Paglia points out, “With over half of all car buyers getting their information online, and more joining the frenzy every day, what would make anyone think there is a shortage of online car shoppers? Courtesy Chevrolet is a single-point Chevy store—with over 12 other Chevy dealers in the same metro area—yet we manage to generate over 4,000 leads per month online using various incentives, coupons, promotional offers, and online-exclusive prize drawings. We don’t just believe that online offers might work; we know they work and we use them to sell more Chevys every month. I have sold a wide variety of vehicle makes—everything from Kia to Chevy to Ford to Toyota to Mercedes-Benz, BMW, Acura, Porsche and Lexus. Customers that like special discounts and exclusive offers populate car-buying demographics across all brands. The nature of what is effective may vary by demographic target segments, but everybody appreciates a good deal.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing (continued) Do Online Sales and Profits Allow for Internet-Only Pricing? If online vehicle shoppers believe that dealers make higher profits with Internet sales, it follows they might believe dealers can afford to offer better (lower) prices. Montebello and Paglia were asked if they felt that was true. Montebello notes that, “Profits from Internet sales are lower, but not significantly, based on a product that has had a large increase in sales over the years. We have a product that has seen record sales and a process that works extremely well to maximize gross profit. Compensation practices have proven successful with both online/offline sales staff due to the pay structure. An Internet sales consultant has a different pay plan versus a retail sales consultant. Compensation increases with the number of units sold on a monthly basis for both.” But Paglia says margins on Internet sales are not lower at their store. “At Courtesy Chevrolet, our 300+ Internet sales each month generally contribute to increased gross profit margins on a model–line-by-model-line basis. Many dealerships make the mistake of looking at aggregate gross profit PVR numbers when only an actual model–line-by- model-line analysis shows the true gross profit contribution PVR comparison between walk-in and online-originated opportunities that result in a sale.” Do either Montebello or Paglia make different assumptions about the cost of sales in setting Internet pricing vs. other types of other sales? According to Montebello, “As a very lucrative and successful Internet department, we have a minimal cost of sale, hence setting the Internet price is solely based on supply, market conditions, and allocation. As far as selling vehicles at a discounted price online, we do offer a discount price that still keeps us in the black. There are other economies that add a significant amount of gross profit to the overall makeup of the deal. F&I products and other dealer-installed accessory purchases have increased with the initial product presentation by the Internet sales consultant. We do offer an array of dealer-installed accessories in the form of a menu with both OEM and aftermarket.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing (continued) Paglia’s approach is that, “Cost of sale is the same; advertising costs PVR are less for interactive marketing. But we want to sell across all targeted marketing segments, and so the key is optimization of each segment. Our overall pricing strategy at Courtesy Chevrolet is based on transparency and full disclosure. We quote the same prices on vehicles, aftermarket items, accessories, and financial services products for each customer regardless of the source of their original contact with the dealership. We use a menu- pricing approach that tends to project a validation perception to our customers, and in reality there is very little deviation from those prices on a deal-by-deal basis. Could there be economies within cost of sale? Sure, but they would probably be more related to the commissions expenses by providing a self-service approach using Web sites as modern-day equivalents of vending machines for dealer-provided products and services. If customers can buy insurance policies online and save money, then why not offer them service contracts, alarms, wheels and other aftermarket items on a discounted basis? Because, just like attorneys, realtors, and physicians, finance managers are professionals who naturally seek to protect their markets by restricting access to their products and services through alternative channels.” Does Internet-Only Pricing Impact Store Operations? Would special online pricing affect the store brand? The opportunity to upsell, or add accessories? F&I? That is, if dealers were to start posting Internet-only deals online, wouldn’t that materially impact other components of the sale? And impact compensation plans? Montebello believes that, “Providing a separate price schedule has been beneficial for our store. Unless you have a fixed price on a vehicle and people know it, you are expected to offer pricing in different forms. For it to be successful, it must be presented in a manner in which it is cost effective for the consumer, with the perceived notion of them getting a deal better than the shopper just walking in.” “Pricing displayed should be the same for all vehicles, both online and on the lot.” Paglia believes that, “Pricing displayed should be the same for all vehicles, both online and on the lot. Using separate coupons and promotions that require Web-based registrations are a way to offer specials and dealers without ruining the integrity of your on-the-lot vehicle pricing.” He also doesn’t subscribe to the notion that separate online pricing hurts upselling or F&I: “We use accessories quite frequently as the actual promotional offer and we do it with the enthusiastic participation of our parts department and Pro Shop accessories center. In fact, the Pro Shop manager is always working with the Internet sales team for more business because we have a higher Pro Shop average PVR than the showroom floor does.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing (continued) As for F&I, Paglia comments, “[The] Finance Department really bends over backwards for the Internet sales teams and works with us to capture more back-end profits than the showroom sales teams produce on a PVR basis. Plus, since the Internet sales team sells [to] twice as many 700+ Isaac score buyers than the showroom floor does (as a percentage of total sales), Courtesy Chevrolet’s Finance Director actively supports our e- business initiatives, because online customers improve the store’s overall credit portfolio and help provide the dealership with a greater ability to get riskier deals that come in from the showroom.” The Bottom Line For Montebello: “Providing a customer with a lower price that what they will typically receive from the retail department is a form of assistance. Our process is set on providing online assistance to the consumer. By asking questions and inviting people to test drive our vehicles, we have noticed that they have received lower quotes than ours, but were reluctant to purchase [from the other dealer] because of a lack of attention and a bombardment of mass e-mails that end up in a spam folder.” “We understand that more and more people are going online to research vehicles before daring to step foot at dealership and to be at the mercy of a sales consultant,” Montebello says. “We have noticed that it is not all about providing a lower price right off the bat—it is about providing information with no hesitation and asking the right questions. By doing so, it becomes apparent that providing a price over the Internet increases that dealership’s volume, which in turn equals more overall gross and customer retention.” For Paglia: “Creating separate prices that are displayed online and are different from what is displayed on the lot is a dangerous strategy. It is difficult enough for car dealers to generate or maintain a trust-based relationship with car buyers that it would be counterproductive to try and incorporate a duplicitous pricing. The fact is there is no longer any such creature as an ‘Internet buyer.’ All buyers are Internet buyers. With over 65% of car buyers going online, a dealer’s online vehicle pricing strategy had better match up with what is displayed at the dealership or advertised in other mediums—otherwise, a credibility gap will be created.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Internet-Only Pricing (continued) “Do we provide discounted price quotes on a one-to-one basis?” Paglia asks. “Yes. Do we negotiate when the customer gets to the dealership? Yes. We do whatever the customer requires in order to get them to buy a car, while trying to preserve as much profit as possible. Customers who are buying their second, fifth, or 10th car from us get treated differently than customers who are buying their first, simply because we have a long- standing relationship with them that has years of trust built into it, and they prefer the convenience of online buying.” Paglia closes by noting, “But all of our customers see the same prices listed on every vehicle whether it is being displayed online or offline.” Dealer Action Notebook 1. Answer the prospect’s questions. When they request a price for a vehicle, provide it. But also use the request as an opportunity to open up a broader dialogue: a. Provide a range of vehicles that exactly or closely match the request b. Ask relevant questions that provide a clearer picture of the prospect c. Help the prospect understand that price is only one element of “value” 2. Be careful with Internet-only pricing: it can put the dealer’s pricing strategy and integrity in an awkward situation. That said, dealers can alternatively post attractive Internet-only offers and promotions: coupons, accessories, discounts. 3. Be careful in measuring online/offline sales profitability. Consider using a model- line-by-model-line analysis to illustrate true gross profit PVR comparison between walk-in and online sales. 4. Don’t overlook opportunities in Parts and Accessories when developing Web- only promotions. Encourage a strong relationship between the Internet team and fixed ops. 5. Don’t assume you have to have the lowest price. Most shoppers are interested in price, but are also interested in other relevant information. The way in which the store responds (letterhead template, no typos, correct grammar, and helpful information) speaks volumes beyond just the price. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 10
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  • Online Automotive Review—Dealer Edition February 2007 Online Automotive Behavior Differs by Geographic Region By Amit Aggarwal In 2006, 67.5% of all new-vehicle buyers went online as part of their shopping process, up from 66.5% the prior year. OAR has often reported on the changing behavior of Automotive Internet Users (AIUs): more consumers now go online, are impacted by information found online, start their search online, etc. Vehicle buyers who are younger, more educated, purchase premium vehicles, and purchase imports are more likely to be AIUs. Not surprisingly, MINI leads the industry with a new-vehicle AIU rate of 91%, while Buick has the lowest rate at 47%. Behavior varies by geography, as well. Among four major regions, AIU rates are highest on the coasts and lowest in the Midwest. These rates have increased over time, but the Pacific and New England sub-regions (as shown below) continually lead the pack. Figure 1: AIU Rates by Sub-Region High AIU Rates Mid AIU Rates Low AIU Rates New England 74.5% West North Middle Central East Atlantic 60.8% North 67.2% Central 60.4% Mountain 69.1% Pacific 75.5% East South South Atlantic Central 69.7% 63.7% West South Central 67.3% Source: J.D. Power and Associates 2006 New AutoShopper.com StudySM (NAS) Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 12
  • Online Automotive Review—Dealer Edition February 2007 Online Automotive Behavior (continued) Domestic buyers are less likely to be AIUs, thus the traditionally domestic strongholds of the Midwest and parts of the South have the lowest AIU rates. In fact, import vs. domestic purchase patterns play a meaningful role in determining online automotive behavior. Figure 2: Relationship between AIU Rate and Propensity to Buy an Import Vehicle—by Sub-Region 75% Pacific 65% New England South Atlantic Middle Atlantic % Purchase Import 55% Mountain East South Central 45% West South Central West North Central 35% East North Central 25% 55% 60% 65% 70% 75% 80% AIU Rate Source: J.D. Power and Associates 2006 New AutoShopper.com StudySM (NAS) The East North Central sub-region, which includes the predictably domestic vehicle- stronghold of Michigan, shows the lowest incidence of both import purchase and AIU usage. The relationship between import purchase and AIU rate holds true under a variety of circumstances—it is generally true that consumers who go online during their new-vehicle shopping process are more likely to buy an import vehicle than are non-AIUs (consumers who do not use the Internet to shop for a vehicle). Additionally, as AIUs visit more independent sites, their likelihood of buying a Ford of Chevrolet decreases and their likelihood of buying a Toyota or Honda increases. Areas where new-vehicle buyers are likely to go online for automotive information also have higher rates of buyers seeking price information and visiting the dealer site (Figure 3). Once again, buyers in the New England and Pacific sub-regions are active, and are the most likely to seek price information online. Interestingly, buyers in these two sub- regions differ substantially regarding dealer Web sites—not only are those buyers in the Pacific sub-region less likely to visit them, but they also rate them as lower in importance than do buyers in New England sub-region. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1
  • Online Automotive Review—Dealer Edition February 2007 Online Automotive Behavior (continued) Figure 3: AIU Online Behavior by Region and Sub-Region Information Found Online Dealer Cost Trade-in Transaction Visited Dealer Usefulness of AIU Rate* /Invoice* Values* Price* Site* Dealer Sites** Northeast Region New England 74% 61% 53% 36% 43% 7.3 Middle Atlantic 67% 52% 45% 34% 31% 6.9 Midwest Region East North Central 60% 44% 40% 28% 30% 6.9 West North Central 61% 43% 46% 22% 32% 6.8 Southern Region South Atlantic 70% 53% 48% 34% 37% 7.0 East South Central 64% 50% 46% 34% 34% 7.1 West South Central 67% 50% 46% 33% 37% 7.1 Western Region Mountain 69% 51% 53% 33% 33% 7.0 Pacific 76% 60% 52% 39% 35% 6.8 Overall 68% 51% 47% 33% 34% 7.0 *Based to all new-vehicle buyers **Based to those who visited a dealer Web site, 10-point scale Source: J.D. Power and Associates 2006 New Autoshopper.com StudySM (NAS) In other sub-regions, fewer buyers find price information online and visit dealer Web sites, and this predictably bottoms out in the Midwest region. This pattern is consistent for many brands, particularly domestics. For instance, the AIU rate for Chevrolet buyers in the New England and Pacific sub-regions is 68% and 67%, respectively, while dipping below 50% in the Midwest. Many of these buyers are domestic marque loyalists whose need to conduct online research is low compared to those with more diverse consideration sets. They consequently have fewer needs or opportunities to receive information about and consider other brands. As a corollary, some import brands actually have higher AIU rates within these domestic strongholds than they do in other sub-regions. For instance, Hyundai has a 78% AIU rate in the East North Central sub-region (which includes Michigan) vs. 68% for the Pacific Region, while Porsche’s AIU rate for this region is 94% vs. 86% in the Pacific Region. In California, consumers see import brands on the freeways and streets, in neighborhood driveways, etc., and are more likely to consider them. In the Midwest, on the other hand, import buyers almost have to be online to receive enough information to overcome the regional inclination toward domestic nameplates. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1
  • Online Automotive Review—Dealer Edition February 2007 Online Automotive Behavior (continued) On the flip side, Buick’s AIU rate in the East North Central sub-region has remained consistently below 40%, meaning that these dealers have seen fewer changes in the new-vehicle shopping process than have dealers in the rest of the country. However, as older buyers exit the car-buying universe, Buick’s future buyer base will inherently have higher AIU rates. Also, any movement by the manufacturer to appeal to a more diverse or different set of buyers will pull in more AIUs. The same story will be true in the Midwest and South for many other domestic brands. Certainly there remain enclaves in which the vehicle-buying process has been less impacted by the Internet, but it is only a matter of time before these changes have rippled through the entire country. Along the way, other innovations will probably first gain traction on the coasts before commencing their inexorable march to the interior. The dealers who stay on top of these trends rather than simply reacting when there is no other choice will be better positioned to benefit from any changes in the new-vehicle shopping process. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation: Are All Prospects Equal? By Bill Williams Sophisticated marketers have pursued various forms of market segmentation for a long time. Segmentation can influence design, pricing, marketing communications, training, and incentives, and it can increase media efficiency and enhance communications effectiveness. Segmentation identifies and clusters consumers in various “buckets” defined by demographic (age, income, education, etc.) or psychographic (inner-/outer-directed, enthusiasts, aspirational, etc.) homogeneity. OEMs and their agencies routinely create and manage these demographic and psychographic clusters at the wholesale level, but what about at the retail level? Are there opportunities for dealers to cluster prospects and customers in some form of segmentation strategy? OAR interviewed three industry experts who view targeting from very different perspectives: David Harris, eBusiness/CRM Manager, American Suzuki; Jon Rosen, Senior Vice President, Web Business Operations, Autobytel; and Steve St. Andre, President and COO, Ford Direct. Segmentation at the Retail Level One approach to segmentation is based on the notion that prospects differ, and it can be approached differently based on the manner in which they contact the dealership: OEM site, third-party site, walk-in, phone, BDC, etc. Prospects, at least first time prospects, come to the dealership with a fair degree of anonymity. One of the strengths of the Internet is that salespeople can open a dialogue and begin to develop a relationship with a prospect well before they enter the dealership. That can make a big difference in how the sales presentation and negotiations are shaped. But, for the most part, salespeople do not have a wealth of information about the prospect at the outset. One of the strengths of the Internet is that salespeople can open a dialogue and begin to develop a relationship with a prospect well before they enter the dealership. So, might the retail salesperson shape a sales engagement based on predetermined contact information? That is, could the sales force create unique strategies for groups such as third-party leads, OEM leads, walk-ins, or others? Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) David Harris suggests, “Segmentation begins with looking at your own customers and ends with finding more of them. Examining customers (new-car, used-car, and service) on a geographical basis is a first step. The geographical segmentation allows you to focus your media expenditure so you can buy print or broadcast in the correct areas. Getting a deeper understanding of the media habits of your customers is also important. Is [television or] the newspaper relevant? How about the Internet? Each of these channels will have variability relative to their reach as applied to new-car, used-car, or service customers. As a second step, I would examine the ‘o’ graphics: demographics and psychographics. This allows you to craft the message that speaks to your target.” Steve St. Andre cautions, “The concept of dealers using clustered or directional information about consumers based on shared characteristics requires careful consideration of how to best use the data to support the in-dealership sales process. There is enormous risk in prequalifying customers based on demo/psychographic information that is facilitated easily via the Web.” “Segmentation begins with looking at your own customers and ends with finding more of them.” Jon Rosen concurs, but adds, “In order to segment their market population, they [dealers] need the ability to identify segments. OEMs go to great expense to target segments with their advertising dollars and have the technology and the agencies to do so. Dealers don’t have nearly the same depth of information about prospects, but one piece of information all dealers have is where the lead came from. Is it possible for dealers to segment prospects based on source of lead? Since dealers buy leads and advertise online, both provide opportunities to identify buyer segments, albeit in a different way.” Harris notes, “Customers come to our dealerships in many differing states of preparation. Today when a customer comes to a dealership through any channel, there should be some basic questions that are asked to allow your team to understand what sort of customer they are dealing with and also allows you as a GSM, GM or dealer principal to measure the success generated from those sources.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) Harris continues, “My general rule follows: the more a customer is willing to tell you about themselves and the vehicle they want, the higher the sales quotient for that customer and the higher the value of that lead. Internet leads have an inherent advantage in that they can ask a bank of questions allowing customers to communicate what it is they want and how they want it. On the Internet, the customer—depending on the depth of the lead—has already told you where they live, what vehicle they want, what configuration, and how they are going to pay for it. Now you can start to work toward a deeper commitment by demonstrating your dealership’s ability to respond to the customer’s desires and needs.” Do consumers really differ based on the lead source? Can retail salespeople prepare and communicate with them differently? Rosen says, “Absolutely. Dealers have two major sources of segment data from Internet leads: the client information provided and the source itself. With leads coming from OEMs, dealer groups, third parties, and others, key differentiators exist. Although there might be slight differences, the buyers as a whole are much more educated today than even five years ago. Whether they are walking through the front door of the dealership, submitting a request online, or picking up the phone and calling, they are looking for answers to their questions. As J.D. Power has reported, 67.5% of car buyers use the Internet during their car purchasing process1. But ultimately, it is how the dealer answers … questions and requests for information that will determine if the customer buys from them or the dealer down the street, regardless of how the customer contacted the dealer.” “Dealers have two major sources of segment data from Internet leads: the client information provided and the source itself.” Looking specifically at Internet-based leads, Rosen says, “A typical segmentation is in the distinction between a customer who reaches the dealership via an OEM site and a customer from a third-party site like Autobytel. Customers generally go to an OEM site because they have already made their brand decision, are probably closer to their make/ model decision, and either have been in-market for a while or are brand loyal. These customers are less likely to go to competitive brand dealerships, so you probably need less conquest marketing around these customers. Customers who come from a third-party site can have just as much brand loyalty but probably also have compared a variety of models and makes, which means that while you must be very focused on marketing the benefits of your brand, you also have a chance to win a customer you may not have had without the Internet from that competitive dealership down the street.”  J.D. Power and Associates 2006 New AutoShopper.com StudySM (NAS) Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) Rosen adds a level to the discussion about lead source to include geographic segmentation: “This leads to another way dealers should be segmenting online customers—those who are in their PMA (local customers) and those who aren’t. The local customers who come in online via a third-party site are not necessarily going to buy from them. If they were, they would be going directly to the dealership Web site, so it is critical that dealerships make sure that they are working with the best sites, the ones that they know will capture those local car buyers who go online. Secondly, dealers must focus on capturing new business from the segment of customers outside their PMA. The Internet, again, is the most efficient avenue for this, providing a trackable way to drive incremental business.” But, St. Andre cautions: “For years, the best retail, third-party training organizations and OEMs have worked with sales consultants in an effort to eliminate the prequalification of customers simply based on external data. The best retail sales channels employ an approach that identifies the customer’s needs and then accurately adjusts the process to meet the specific considerations of the customer. To the extent that the Web can help facilitate an understanding of these consumer needs—in-market timing, VIN of actual vehicle interest, previous ownership—it is an extremely powerful tool that can increase sales and retention.” The best retail sales channels employ an approach that identifies the customer’s needs and then accurately adjusts the process to meet the specific considerations of the customer. “I believe it is a mistake to segment leads purely based on source,” he continues. “As the Internet has gained acceptance as a main source of research for auto shoppers, we are finding that the online population has very similar shopping behavior to the offline— walk-in, phone—population. Both have diverse expectations regarding marketing timing, desire to negotiate, desire to shop multiple brands, and dealers. Our data suggests that the best retail success is delivered by those who employ a strong and consistent sales process across all types of lead sources.” “However,” St. Andre adds, “our data suggests that sales consultants should not be quick to generalize segments of consumers based on source of lead, amount of information entered or demographics, as often we have seen little variance in close rates of these segments. The Web is a tool in which dealers can enhance their sales process through a medium in which some consumers are more comfortable.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 20
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) While there are different points of view on whether, or how, dealers should pursue a segmentation strategy, all three experts agree that process is crucial. Also, prospects today come to the shopping process more informed than ever and better able to protect and retain their anonymity over a longer period. Shoppers can mete out personal information on a measured basis. The notion of qualifying a prospect is hardly new: the difference today is that the qualification can begin far earlier in the process, and a well-designed process will take advantage of helping the prospect qualify him or herself. That self- qualification can, to some degree, be characterized by how they came to the dealership, whether it was via an OEM, third-party, or dealer site. And, it can be enhanced through a process designed to build —with the prospect’s participation—a relationship early in the shopping process. Segmenting Based on Purchase Funnel What if dealers try to segment prospects by their proximity to purchase? Harris offers an answer. “STP: success through process. A great salesperson usually has good processes that he or she follows from which success is generated. Processes allow a dealership to prosper on a consistent basis. It takes luck partially out of the equation and replaces it with hard work. Leads from all sources are opportunities. Would you not answer the phone if it is ringing? Would you not say hello to someone who walks on your lot and ask them how you can help them? Then why would you let a lead sit for even a minute? And if you haven’t heard from the lead, why would you assume that they are not still interested in your services as a dealer? Apply a process to opportunities and strive for consistency. If a lead comes into your dealership, follow up on that opportunity until they tell you they are not interested. This is not a unique selling proposition—it’s something that has been taught for generations. Sales is a numbers game and you have to post the numbers to be in the game. That said, not everyone is a natural salesperson. I believe in specialization within dealerships today. Some people are great at closing business, others are great at developing it, and still others are very adept at maintaining it. Don’t expect your salespeople to do everything. Business is a team sport, and success is generated from the efforts of many—and should be rewarded that way, too.” Harris adds, “The Business Development Center should be managed/measured/ rewarded toward key success metrics. The sales team should be managed/measured/ rewarded toward their key success metrics. Service and Parts, the same. They should all be managed/measured/rewarded through the dealership’s success metrics: profitability. Fundamentally, dealers like to compartmentalize the profit centers within their dealership. Customers don’t see it that way. If they have a bad experience from one department, it can ruin the entire relationship with the dealership.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 21
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) When further asked about whether it makes sense for dealers to segment by time to purchase, Harris says, “Don’t leave business on the table! The average customers take 120 days to buy a car—why would you walk away from it after 30 to 45 days? Even if you don’t sell them the car, what about asking for their next car or referrals? Tracking the source of sales is critical to the success of a dealership. Rewarding salespeople and the entire team for a job well done is also critical. The salesperson and team should benefit individually and as a team. That said, if a salesperson can demonstrate consistent follow- up and development of a customer, then that behavior deserves to be rewarded. Closing the sale is also important and deserves to be rewarded. Balancing the two is a judgment call for the dealership management.” “Don’t leave business on the table! The average customers take 120 days to buy a car—why would you walk away from it after 30 to 45 days?” Harris continues, “Salespeople are typically not trained to manage long-term relationships. Actually, the average tenure of a salesperson in the industry is months, not years. Communication and engagement are important elements that should be handled by consistent elements in the dealership who are focused on the long-term big picture. If you have a Business Development Center, that is a natural place. If not, consider contracting out to a virtual BDC. Remember, BDCs should support both the sales and service side of your business.” Managing Different Lead Value It’s one thing when a salesperson is dealing with a long-standing customer where a shared history exists. The relationship has context. But what about prospects? Are all prospects and leads created equal? St. Andre says, “Yes. Viewing all leads as equal as they are received is a necessary first step to avoid pre-qualification of customers that have yet to engage with the dealer’s sales process. Once sales consultants have identified the consumer’s profile (timing, needs, credit), segmentation of marketing treatment is critical. Our best retail performers react extremely quickly to the initial consumer inquiry, then respond to meet the customer’s needs with a targeted marketing treatment.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 22
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) “All leads are not equal and neither are the customers,” says Harris. “That said, success is best accomplished through the application of a consistent process. Leads should be answered on a consistent and persistent basis. By measuring the success of each lead source, you will identify what works for your dealership and what doesn’t. Do not make snap decisions; instead, try to understand why something isn’t working and limit your investment in that particular source. Conversely, if something is working, do not turn the spigot on 100%. Instead, turn it up slowly, watching if you are moving beyond the point of diminishing returns. You want to look for sales lift and success.” Rosen tends to agree. “All customers are not equal. With that being said, each prospect should be treated equally with the highest level of service. Tracking and analysis is critical so that dealers can determine whether or not to adjust their lead sources—if a dealership receives leads that it doesn’t consider worth treating with high-quality service, then the dealership should not be utilizing that lead source.” St. Andre adds perspective: “We have seen propensity to purchase is less driven by lead source versus the in-dealership process to manage and respond to each customer. Clearly, there are some sources that deliver less quality versus others; however, quality measure has become relatively easy at the retail level via the tracking tools that exist today. We carefully track and measure differences in purchase propensity and timing between lead aggregators, search engines, automotive portals, and various OEM-sourced leads. At the retail sales level, we have not identified discernable differences between sources that we use today. Slight exceptions in OEM-sourced leads having the highest close rates, but generally we see consistency among the sources.” Harris notes, “Not all customers are created equal; some are more profitable than others. A customer who buys a car and has the car serviced elsewhere is what I refer to as a ‘hit and run.’ Sometimes those customers are beneficial to your dealership for hitting sales objectives. In the long run, a customer who is a ‘family member’—one who comes back for service and visits once in a while, like family members who visit on holidays—offers the promise of a lifelong relationship and with it an annuity of revenue and profit. Look at your customer base at a category level: new-, used-, and service. Then look at it geographically, and when doing so, look at each category separately. You may find that your service customers are in a set radius from your dealership. Your new customers are from one part of town and your used customers are from another. The next step is to determine the media habits of your customers. This is a question that often starts with an IWIK [I wish I knew] statement and then requires some reverse engineering. You may not find the answer right away; however, in the closing process or sales follow-up process you can ask your customers the questions to derive the answers to the IWIKs.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) What About Tracking? One of the important advantages of the Internet and e-marketing is metrics—the ability to measure performance and results. “In general,” St. Andre notes, “we have seen a vast improvement in dealers’ desire to understand and track the media that is spent today. One of the challenges is that many retail channels have limited resources to market effectively across the various media types. Our most successful dealers are those who have invested in carefully tracking, to the extent possible, each media campaign through all of the profit centers in the dealership and have adjusted investment allocations accordingly.” Harris agrees, noting, “CRM tied with DMS and accounting. In an ideal world, you want the ability to track all of your cost/profitability elements on an activity-based system. That allows you to track what it costs to generate a sale/activity/behavior and how much profit if any that sale/activity/behavior generates. Now, back to reality, most dealerships need to implement systems that are straightforward and easy to use. Customer relationship management software systems can provide some structure and inject some process into the selling environment. While there are several excellent CRM systems that are turnkey, the dealership should ask itself what are the critical IWIK questions and look at what is needed to answer those questions.” Harris adds, “Dealerships today execute a lot of fire-and-forget marketing. They are selling product rather than their dealership. That is great for the OEMs; however, the long-term economic proposition is in marketing your dealership and its ability to deliver a wide range of products and services to customers in your community.” “Our most successful dealers are those who have invested in carefully tracking, to the extent possible, each media campaign through all of the profit centers in the dealership and have adjusted investment allocations accordingly.” He continues, “In advertising, we often make decisions on the time, content, and context of our advertising. Each channel has variable dimensions. What is consistent is that you want the ability to measure the performance of each channel and the variability within the channel. You can accomplish this by utilizing distinct creative or messages and response tickers. Response tickers or measurement devices can be implemented through utilization of distinct phone numbers in the case of the print and television channels. In the case of the Internet lead, the source can be tracked through the delivery mechanisms … ad-tracking tools such as DART or routing to unique destination pages.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) However, Harris cautions, “For the sales team’s benefit, make sure that they are aware of the message and creative for each ad. Make it part of your sales meeting and also post all of your advertising in a single location so that customers can identify what it is that brought them to your dealership. When marketing, remember: you sell product but market your dealership. Your presence in the business environment has to be unique; otherwise, all you are left selling is price.” “For the sales team’s benefit, make sure that they are aware of the message and creative for each ad.” St. Andre adds, “Sales consultants need to identify consumer needs via different mediums—phone, e-mail, chat—then deliver a sales experience consistent with the consumer needs. Many leads are excellent sales opportunities in 60+ days. Sales consultants should use the various contact mediums to more quickly identify and deliver on consumer expectations.” “I would propose that it is important to ask prospects how they learned about your brand/model/dealership so that you can frame the conversation in terms that are appropriate to the customer, Harris says. “If the customer cites a particular source or review, it is important to be familiar with that review to maintain credibility in the eyes of the consumer.” He goes on to suggest, “As a salesperson, if the customer knows more than you, then you have little value to add to the sales process. Being familiar with the lead experience is best learned through experience. Go out and submit some leads to understand the experience your customers are having. Shop your product and its competitors every day so that you are living and breathing the same things your customers are.” Rosen says, “With an established sales/follow-up process in the dealership that provides an equal playing field for each lead, in time the dealership can track results and identify which lead sources provide an acceptable ROI and which don’t, and take appropriate action on the source side rather than on the customer side. There are many different ways a lead source can qualify a consumer prior to sending that consumer on to the dealer, starting from where and how the lead is originated, what the message is to the consumer on the Web site, and what type of verification takes place regarding name/ phone/e-mail/etc. Dealerships should always check on the lead source’s customer verification process before signing on.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) “Finally, however dealerships segment their lead sources, holding the lead providers accountable for duplicate leads is important,” Rosen continues. “It is not unusual for a dealership to receive leads from an OEM and more than one third-party provider, which could result in the dealer paying for duplicate leads. Dealerships should use lead management tools like Autobytel’s Web Control, which automatically eliminate or flag duplicate leads.” In closing, Harris points out, “The financial measurements are a minimum. Cost per acquisition, cost per sale, lifetime value—these are measurements from the destination points. Look at the sales funnel and trace the economic contribution along that path. Awareness, consideration, sales process. Part of driving your business is reading the signs so that you know you are heading in the right direction. One of the destinations is profitability, but you need to monitor progress along the way to that goal.” Summing Up Segmentation—in whatever form it takes—is basically a means of making marketing more relevant. Knowing the characteristics a group shares allows the marketer, whether OEM or dealer, to create offers or develop communications that appeal to those characteristics, and develop other offers for other groups. Unlike in the past when “qualifying” a prospect meant the ritual of leading a prospect (sometimes unwillingly) through a series of probing questions, today the wide array of lead sources means some qualification can be inferred. But, as all three experts agree, sales processes must be in place to ensure the prospect is fully served. So, as much as this is about segmentation, the issue is also about personalization. The Internet has not only yielded more powerful, informed shoppers, but it has also provided salespersons with opportunities for greater personalization. Using the data inferred from lead source and funnel management, as well as creating relationships earlier in the shopping process, gives the sales team an important advantage in creating personalized and customized sales presentations. And that’s good for everybody. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Retail Segmentation (continued) Dealer Action Notebook 1. While there are a variety of ways to gather information about retail shopper segments (Internet, phone, walk-in), it’s also important to have a means of incorporating that information into an in-dealership sales process. While information and insights can be useful, pre-judging or prequalifying based on lead source is less so. 2. With a wide array of lead sources (OEMs, third parties, phone, walk-ins), dealers have an opportunity to measure outcome and value. Use all of your available tracking tools. 3. Create unique messages or “response tickers” to provide measures on the performance of different marketing channels. 4. Avoid prequalification of prospects based only on external characteristics. Take the opportunity to ask questions, uncover additional information, and create relationships earlier in the process. 5. The volume of information available today, coupled with better and more reliable tracking tools, allow dealers to move beyond customer “qualification” to personalization. Salespeople today, more than ever, can start to build relationships— at least with online prospects—well before they even enter the store. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Electronic Financing Dealership F&I specialists have historically been able to mitigate some of the margin erosion in the sales department. With access to a number of different finance and insurance products, F&I can make an average deal good, or a good deal a whole lot better. And, while the Internet is not only bringing more knowledgeable prospects to the new- and used-vehicle buying process, it’s also changing the dynamics of the financing process—from both the customer and the dealership perspective. The Internet hasn’t replaced the salesperson, and there’s no reason to believe the Internet—specifically, e-financing—will replace the F&I specialist. However, dealers who look for continued revenue contributions from their finance department need to recognize that the playing field has changed. Despite the continued increase in Automotive Internet User (AIU) rates and information sought, online financing activities have not become a consistent part of the vehicle-shopping process. Data from the J.D. Power and Associates 2006 Consumer Financing StudySM shows that among all new-vehicle buyers who finance their vehicle, the rate at which they research financing information online has actually declined during the past three years. However, since a larger percentage of these buyers end up applying for financing online, the overall rate at which they apply for financing online has remained flat. Figure 1: Change in Consumer Online Finance Activities Researched financing online Apply for financing online 40% 36% 33% 30% 26% 20% 10% 6% 6% 6% 0% 2004 2005 2006 Based to new-vehicle buyers who financed their purchase Source: J.D. Power and Associates 2006 Consumer Financing StudySM Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Electronic Financing (continued) The stagnation of online financing research has also held up among consumers who use direct financing compared to those who use indirect financing. Figure 2: Online Finance Research for Direct and Indirect Financing Direct - consumer arranged Indirect - dealer arranged 60% 50% 47% 45% 40% 38% 34% 32% 30% 23% 20% 10% 0% 2004 2005 2006 Based to buyers who financed their new vehicles Source: 2006 J.D. Power and Associates Consumer Financing StudySM There is a large disparity in online research rates between the direct and indirect financing groups. According to David Lo, senior manager of Automotive Finance at J.D. Power and Associates, “Consumers who finance their vehicle directly with their provider are much more likely to research financing online and apply online.” For the dealer, this may represent an opportunity—consumers who arrange their own financing do more online research and may be willing to explore links from the dealer site. On the flip side, the dealer has less competition for those seeking indirect financing. The decline may be related to rising interest rates and the smaller proportion of incentives. Consumer reluctance to provide sensitive personal information may be a factor, but then again, other data indicates that many consumers are comfortable providing this information. For instance, 24% of consumers who finance their vehicles use the “auto-pay” option, where funds are electronically withdrawn from their accounts each month. This represents a small, but definitive step toward electronic financing. Mr. Lo also reports that, “Customers who use auto-pay are much more satisfied with their payment/billing experience.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Electronic Financing (continued) Looking beyond the automotive industry also yields compelling information. In the housing industry, 13% of mortgage applications are made online vs. 46% in person and 33% by telephone, but the overall satisfaction of those consumers applying online is actually higher than that of those applying by telephone.1 In-person applications result in the highest levels of satisfaction, but not every customer wants that experience. It is likely that the rate of automated loan applications and funding will eventually increase, perhaps even dramatically. Vehicle shoppers are going online in greater numbers and doing more research once they go online. That behavior will eventually impact automotive financing as well, representing a sizable opportunity for those manufacturers, dealers, financial providers, and other companies that are ready to take advantage of it. The Opportunity Many consumers obviously arrange financing before they ever step onto the dealer lot, often going with a pre-existing relationship, e.g., their mortgage lender, local bank or credit union. Even among new-vehicle shoppers who fund their loan online, 28% go with credit unions.2 As with vehicle sales, online loan shoppers have many more options to consider, which can represent financial opportunities for both dealers and OEMs. Capital One Auto Finance has seized a major role in this market by utilizing online and offline advertising campaigns, as well as partnerships with companies such as Cars. com. In fact, 25% of new-vehicle shoppers fund their online loan with Capital One Auto Finance.3 Capital One has excelled in gaining the partnerships necessary to reach consumers. Once they reach those consumers, they instill trust and confidence, resulting in a large slice of the online automotive finance market. The advertising and partnerships may draw consumers to the site, but the application must encourage them to complete the financing process. Looking at Capital One’s online credit application, it is clear that the company makes a potentially complex process as easy as possible for automotive shoppers. The site highlights three easy steps in the process, provides many links for additional information, and prominently addresses security and privacy concerns.  J.D. Power and Associates 2006 Primary Mortgage Origination StudySM 2 J.D. Power and Associates 2006 New Autoshopper.com StudySM (NAS)  Ibid Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 0
  • Online Automotive Review—Dealer Edition February 2007 Electronic Financing (continued) Capital One’s Auto Loan Application The loan applications on dealer sites are generally not as comprehensive. In the following example, the first page is almost entirely “legal speak” that explicitly states the company may “disclose the above nonpublic information to . . . companies that perform marketing functions.” The actual intent of the message is innocuous, but it certainly does not inspire trust. The application itself is bland, provides no instructions or hints on how to fill it out, and actually requests more personal information than the Capital One application. Dealer Credit Application Which one seems more professional, reputable, and trustworthy? This does not mean that dealers must spend a lot of money to redo the application process. Instead, dealers can simplify the language used, provide hints and/or instructions regarding the process, and add the dealer contact information in multiple places in case the applicant decides they would rather pick up the phone. Dealers may also choose to link to the OEM site or partner with financial institutions instead of going it alone. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 1
  • Online Automotive Review—Dealer Edition February 2007 Electronic Financing (continued) eContracting The electronic financing experience continues even after the customer gets to the dealership. With the recent rise in eContracting, electronic finance has become even more integrated into the dealer process. Simply stated, eContracting is the ability of a dealer to forego paper contracts in favor of submitting an electronically signed contract using a signature pad to capture the customer’s signature. According to the J.D. Power and Associates 2006 Dealer Finance Study,SM which surveys dealers about their finance experiences, the main perceived benefit of eContracting is related to speed and accuracy. EContracting can result in fewer rejected contracts (which can impact customer satisfaction by eliminating return trips), delays in processing, increased speed of cash flow (through faster funding), and a long-term reduction in contract processing fees. Although only 7% of dealers currently use eContracting, 75% of those that do say they will increase their use of it in the next 12 months. Dealers report that fragmented lender participation in the e-Contracting community is the primary driver of their decision to wait to fully open their doors to this technology. Dealers certainly are hesitant to adopt the technology due to costs, glitches, etc., but what may be a larger deciding factor are the complications and costs associated with multilender e-Contracting systems. Absorbing the costs of multiple signature pads and integration of different software systems can become very costly to a dealership. Technology training on multiple platforms will be costly and time-consuming as well, especially given the high employee turnover at dealerships. EContracting also has a positive impact on the consumer experience. According to Lo, “Consumers who had their loan processed using eContracting are more satisfied with their application/approval process, particularly with the ease in filling out paperwork.” And while only 3% of customers currently report that their contract was processed using eContracting,4 this proportion is likely to increase in the near future. Conclusion All these disparate electronic financing trends point in one definitive direction: electronic financing, in all its forms, can benefit both dealers and consumers. It seems inevitable that in time a myriad of electronic financing options will be available to consumers and that more of them will be willing to utilize these options. It is up to dealers to remain informed on all fronts so they can take advantage of the eventual opportunities and not be relegated to playing catch up.  J.D. Power and Associates 2006 Dealer Finance StudySM Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 2
  • Online Automotive Review—Dealer Edition February 2007 Marketing to Hispanics Goes Well Beyond Language By Bill Williams There has been a great deal written about the size, growth, and importance of the Hispanic population in the United States. With nearly 40 million individuals of Hispanic origin in the country, there’s no question that the economic power of the segment is having a profound impact on all product and service categories. The growth of Spanish- language media, online and offline advertising, and Spanish language on retail packaging are the most obvious illustrations of that impact, but it goes beyond the obvious to include product development and distribution, as well as organizational structure and sales training. Most importantly, businesses—including dealers—that are prospering in this new age of cultural, linguistic, and consumption diversity are those that see the changes in demographics not as an anomaly or a “regional” issue, but rather as the leading edge of more profound changes to follow. These businesses and dealers see marketing to Hispanics as a strategy, not as an occasional event. Marketing to Hispanics isn’t a “nice to do”—it will soon be a fundamental part of the marketing plan in virtually all markets. Marketing to Hispanics isn’t a “nice to do”—it will soon be a fundamental part of the marketing plan in virtually all markets. And, as the Hispanic population continues to migrate more evenly across the country, more and more dealers will need to tailor their marketing accordingly. Online Automotive Review—Dealer Edition asked three experts to share their experiences in marketing to Hispanics, and to provide ideas to dealers who might be considering formalizing their own Hispanic marketing strategy. Commenting for this article are Pablo Villarreal, Sales Director of the International Department at Prestige Ford, Garland, TX; Sara Hasson, Vice President, Automotive Marketing, Univision Television Group, Los Angeles, CA; and Ralph Paglia, CRM/eBusiness Director, Courtesy Chevrolet, Phoenix, AZ. A Complete Program Dealers located in and around large Hispanic enclaves have had experience in how to best attract and serve the needs of these buyers. Pablo Villarreal reports that sales to Hispanics represent nearly 40% of the store’s total unit sales. And while some of this growth could be simply attributed to the dramatic growth of the Hispanic population in the region, Prestige Ford takes a fair measure of credit by also having reoriented its marketing strategy to better serve this expanding population. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Marketing to Hispanics (continued) Villarreal says, “We opened the International Department almost 10 years ago. International does refer to our focus on Hispanics, but it also creates in us the recognition that we are focused on serving a multicultural population. The International Department is a totally separate area of the dealership: a separate entrance [and] a staff of 25 people, all bilingual. A sales manager and sales force, F&I, telemarketers all in an area totally focused on serving the needs of Hispanic shoppers and buyers. It’s a dealership within a dealership, in which the entire process can be managed in Spanish. And, even many of our service people are bilingual. But when an International Department customer needs service, we always insist they come to Sales so that our salesperson can go with them to the Service Department. It’s part of the important relationship building that Hispanic customers value.” Ralph Paglia shares many of those same experiences: “Courtesy Chevrolet began seeing an increase in the purchasing power of the Latino community many years ago. At that time, a conscious decision was made to recruit and hire Spanish/English bilingual salespeople. Since then, we have developed our bilingual sales force to the current ratio of 50% of the sales team.” Both Paglia and Villarreal oversee comprehensive marketing programs aimed at Hispanic prospects. And both agree that it goes beyond pure measured media advertising to include a wide array of communications, especially those that bring the dealership more deeply into the community. Paglia says, “Our Latino marketing strategy incorporates the following tactics: www. LatinoChevy.com, a dedicated ‘Spanglish’ Web site completely separate from our general market Web sites; television advertising and commercials produced in Spanish and featured on popular Spanish stations; radio commercials in Spanish; ‘talking’ online credit applications where the shopper is coached in Spanish; promotional partnership with a regional Latino grocery store chain; print advertising in Spanish publications; ‘SuperFeo’ advertising campaigns that makes use of our exclusive superhero Latino character dressed in costume.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Marketing to Hispanics (continued) A screen shot from the home page of www.LatinoChevy.com shows the information and menus available in Spanish. The site described as “Spanglish” also shows the information in English. The photo of the truck changes to show various Chevrolet vehicles. “What works best in our market,” says Villarreal, “is TV. But Hispanics respond across an array of media. The key is consistency. We create our own TV, radio, newspaper, and direct mail [ads]. About 35% of our total store budget goes to the International Department advertising. We also have our own unique Web site, www.felixpablo.com.” Note that the felixpablo.com site allows prospects to access virtually all dealership activities, including F&I, in Spanish. A screen shot from the home page of www.felixpablo.com A screen shot from the new- inventory specials page, or the shows the information and menus available in Spanish. “Especiales de Carros Nuevos” page on www.felixpablo.com. The box in the center rotates from the greeting to show various photos of Ford vehicles. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Marketing to Hispanics (continued) “Promotions really work in our market,” Villarreal adds. “Rebates, low-interest-rate promotions, [and] factory offers work well here. Ten years ago, there was no OEM advertising in Spanish. So, for us, the more OEM advertising to Hispanics, the better; and our [dealer association] dedicates a good portion of the overall budget to Hispanics.” Dealers, along with OEMS, have been spending considerable time and resources in trying to better serve Hispanic vehicle shoppers. “With the Latino population becoming larger and more affluent, it is imperative for franchised dealers to establish and maintain a dedicated Spanish-language and bilingual marketing strategy. “ Indeed, OEM spending in the segment has been focused on a number of sales and marketing areas. Sara Hasson reports that, “Each manufacturer invests at different levels at different times, depending on regional requirements. DaimlerChrysler is conducting multicultural marketing seminars for general managers. They realize how important the Hispanic market is to their success. The same with GM recruitment and training: they have to assist dealers in locating people to be successful salespersons.” Hasson also points to the “Hispanic Sales University run by the general sales manager of a Nissan dealership, which includes 12 weeks of paid study. They train and help place qualified salespeople.” In pointing out other changes in the Hispanic marketing landscape, Hasson reminds that “there are more media options available today. There are six major TV stations in L.A. today, while there used to be only three.” “With the Latino population becoming larger and more affluent, it is imperative for franchised dealers to establish and maintain a dedicated Spanish-language and bilingual marketing strategy. [A] portion of your ad budget should be based on the local demographics and be adequate to effectively communicate with Latino car buyers in that dealer’s area of responsibility,” says Paglia. Some Buyer Differences Villarreal believes that Hispanic shoppers—like all prospects—want to be treated with respect and that they share a general consumer skepticism about and aversion to the negotiation and purchase process. But, there are nuances that are important to keep in mind in selling to Hispanics. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Marketing to Hispanics (continued) “If you’re good,” he says, “you’ll find the hot buttons, whether your prospect is Hispanic or non-Hispanic. A good walkaround is an important icebreaker with Hispanics; you can find good common ground. But Hispanic shoppers are getting more and more sophisticated. One of the implications of OEMs spending more money in Spanish- language advertising is that Hispanics are learning more and more product information. So, as they see and hear more about torque, etc., they come in wanting to hear more about it.” Villarreal also provides some tips for salespeople serving Hispanic prospects: “First, don’t leave the spouse out of the process. Hispanic families share in purchase decisions. Newly arrived Hispanic families all work when they arrive; females don’t have the family support groups they had at home, so they tend to look for work. So they join in the purchase decision—even if they appear quiet during the negotiations.” Hasson adds, “When non-Hispanics buy, it tends to be very ‘me-oriented.’ Among Hispanics it’s more group or committee—very ‘we-oriented.’ Hispanics tend to go outside for advice. Hispanics are more interdependent than independent. And Hispanics typically prefer to buy a high-end model, a loaded Corolla versus a low-end Camry. So there is plenty of room in F&I to make profit, especially as Hispanics generally prefer dealer financing.” “When non-Hispanics buy, it tends to be very ‘me-oriented.’ Among Hispanics it’s more group or committee—very ‘we-oriented.’ “ Another area Villarreal suggests salespeople be sensitive to is finance: “Financing is a very critical phase of the process.” Hasson concurs: “Hispanics report considerable prequalification prejudice, in which credit questions are asked way too early in the process because of the misperception that Hispanics can’t afford to buy. Plus, they are often faced with an F&I process that doesn’t offer a Spanish-language option, or a Spanish-speaking F&I representative. [It is] a very big area of sensitivity.” Villarreal adds, “Financing is a relatively new phenomenon in Mexico; until recently, credit was not available. So, the idea of credit, borrowing, interest, etc. is new to some. And, as many don’t own a home yet, the vehicle will be the biggest purchase they’ll be making. So, the vehicle delivery process is also important; smart salespeople make the delivery an event, because it is an important achievement for many Hispanic buyers.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Marketing to Hispanics (continued) In terms of overall suggestions to dealers in developing an Hispanic strategy, Villarreal says they should either “commit fully or not at all. A big part of the commitment is having proper staff in place. It’s impossible to deliver on promises to the Hispanic shopper if people and process aren’t in place.” And, Villarreal says, “It’s more than language. Just because Hispanics’ command of English—or a non-Hispanic’s command of Spanish—improves over time doesn’t mean there’s a deeper understanding [of the transaction]. With Hispanics, the shopping and buying process is more personal. It’s an issue of trust.” The Future There are those who believe that, as time passes, Hispanics tend to become “Americanized.” Indeed, Villarreal says that as second- and third-generation Hispanics come to his store he sees some acculturation taking place. “Education is the biggest differentiator,” he says. “Most of our customers come from northern Mexico, where there is an upper and a lower class, but historically not a middle class. But, as Hispanics gain more education, we see some Americanization.” Hasson says she sees “retro-acculturation, a resurgence in pride in being Hispanic—not striving to align with Americans, just living as Hispanic Americans.” “Hispanics are already paralleling non-Hispanics,” she adds. “With some OEMs, like Nissan, Hispanic sales are driving total … sales. Some brands are embraced by the Hispanic marketplace … L.A., Dallas, and Miami are already Latinized. Data show that in 2020 there will be 44 million Spanish-speaking people in the U.S. as opposed to 27 million today.” Hasson observes that, “Non-Hispanic whites want to believe Hispanics will become Americanized—that won’t happen. I believe the non-Hispanic culture will become Latinized.” And, Paglia adds, “We have learned that younger, second-generation Latinos have rapidly growing buying power and, like any demographic segment, respond to different messaging than the more traditional Anglo-American, non-minority market segment.” There is no question or disagreement about the size and growth of the Hispanic population in the United States, and that there are sub-segments within the segment based on country or region of origin, time in the United States, age, etc. The key for successful retailers is to understand the makeup of the local trade area and, as Villarreal says, “commit fully or don’t commit”—do it right, or don’t do it at all. Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Marketing to Hispanics (continued) Dealer Action Notebook 1. Use a mix of Spanish language media—including Internet—but be consistent. 2. It’s important to become a trusted member of the Hispanic community. Look for or create events and promotions with which to associate. Make sure the commitment is perceived by consumers as genuine. 3. Hispanic shoppers and buyers tend to be “we-oriented,” not “me-oriented”: make sure you are communicating with everyone involved in the purchase process equally. 4. Hispanics tend to prefer buying a more richly equipped vehicle, and will often move down a segment in order to move up in a model series. 5. F&I is a very crucial area: offer Spanish language assistance, forms, etc. Recognize that for some (but not all) Hispanics purchasing a vehicle is new territory. Also, do not try to prequalify credit too early in the process. 6. Don’t assume that Hispanics over time will become fully acculturated. One can become “more American” without becoming “less Hispanic.” Copyright © 2007 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. 
  • Online Automotive Review—Dealer Edition February 2007 Vendor Source Book The Vendor Source Book is a recurring feature in the Online Automotive Review—Dealer Edition. The intent of this section is to provide the dealer community with a comprehensive list of potential partners for every aspect of selling and marketing vehicles online. This installment is dedicated to firms that can assist dealers with F&I services, including software, training, systems, and more. Company Web Site Phone Number ADP Dealer Services Group www.dealersuite.com (800) 225-5237 American Financial & Automotive Services, Inc. www.afasinc.com (800) 967-3633 Auto/Mate Dealership Systems www.automate.com (800) 371-3970 Dealer Intelligence www.dealerintelligence.net (954) 727-8101 F&I Resources www.firesources.com (508) 624-4344 Millenium 3 www.m3auto.com (877) 632-8866 National Credit Center www.nccdirect.com (877) 709-7222 Quantech Software www.quantechsoftware.com (877) 611-0622 Reynolds and Reynolds www.reyrey.com (937) 485-2000 Safe Guard Products International, Inc. www.safe-guardproducts.com (800) 742-7896 700 Credit www.700credit.com (866) 273-3848 The Impact Group www.theimpactgroup.com (800) 667-2614 United Car Care, Inc.. www.unitedcarcare.com (800)571-6412 Universal Warranty Corp www.universalwarranty.com (800) 285-5520 J.D. Power and Associates in no way endorses the companies on this list. It is meant for informative purposes only. If your company would like to be added or deleted from this list or included in future Vendor Source Books, please contact us at onlineautomotivereview@jdpa.com. Online Automotive Review February 2007 Contact and Advertising Information Gene Cameron onlineautomotivereview@jdpa.com Executive Director, Media Solutions Wendy Olson Killion Subscription Information Editor Kristina Wines Logon to www.OnlineAutomotiveReview.com to register and Senior Account Manager, Client Solutions receive quarterly updates of the Online Automotive Review— Dealer Edition. Archived copies are also available on the Web site. Bill Williams Senior Contributor Advertising claims cannot be based on information published in Amit Aggarwal this publication. Reproduction of any material in this publication, Senior Contributor including photocopying of this publication in whole or in part, is prohibited without the express written permission of J.D. Power Nathalie Gallmeier and Associates. © 2007 J.D. Power and Associates, The McGraw- 0 Copyright © 2007Design and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. Layout and J.D. Power Hill Companies, Inc. All rights reserved.