This document discusses how Accenture has developed proprietary econometric modeling techniques to determine the incremental sales impact of each component of an automaker's marketing mix. By analyzing over 150 companies, Accenture has found on average 14% of marketing budgets are ineffectively spent. Accenture piloted this approach with an automaker in South America and was able to determine which factors like advertising, pricing incentives, and product innovations most directly drove sales. This allows automakers to optimize their marketing spending. Accenture argues their approach provides a scientific, data-driven method to improve marketing ROI compared to traditional subjective methods.

1. Making the Big Spend Pay Off
Applying Science to Marketing

2. Figure 1.
Ad Spend per Vehicle
$600
$500
$400
$300
$200
$100
$0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Sources: Advertising Age, Automotive News, Accenture analysis
Note: Data from 1989-1993 are close estimates.
Figure 2.
Incentives as a Percentage of MSRP
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Sources: CNW Marketing Research and Accenture analysis

3. The critical question on an automotive marketer’s
mind today is this: How do I maximize the yield of
every marketing dollar I spend? To increase mar-
ket share by, say, 2 percent, should I change the
feature content of my product? Introduce a new
model? Should I drive advertising? Or rely instead
on incentives and price reductions.
For good reasons, making these investment decisions has been and high-tech computer systems. With Accenture-developed
an imprecise endeavor at best. Until recently, the incremental proprietary techniques and tools, we can now determine the
sales impact of each dollar spent on marketing, innovations and incremental sales effect of every component of the marketing
incentives has been difficult to isolate and quantify. Marketers mix. As a result, these companies have identified an average
have relied on surveys, past sales data, consumer advertising of 14 percent of the marketing budget that is ineffectively
recall, anecdotal information from dealers, and generally soft spent — releasing those dollars to go directly to the bottom
metrics. No scientific methods were available to determine line or be reallocated into investments that grow the business.
which investment dollars drove profit and which did not.
Now, Accenture has piloted a program that proves applying
That has changed. Scientific methodology has now roared into science to marketing works for automakers as well.
automotive marketing — bringing radical new effectiveness to
marketing and product development decisions. The sophisti- It couldn’t be more timely for the automotive industry.
cated econometric modeling of Accenture Marketing Science
can clearly identify the incremental impact on sales of every The big spend
component of the marketing, incentive and product devel- Marketing and product development investment is a multi-
opment budget. A marketer can now see from an overall billion-dollar expenditure for the auto industry. One with
perspective what works, what doesn’t, and what is the optimal frustratingly unclear, and often disappointing, returns. Despite
way to spend the investment dollar. cost cutting efforts, marketing and promotion costs for auto-
makers have ballooned over the last decade. Ad spend has
Other industries have seized the opportunity presented by this increased 73 percent over the past 10 years. (See Figure 1.)
evolution of marketing from a soft science to one grounded in In the United States, total 2002 marketing and sales promotion
rigorous modeling techniques. Over the past six years, Accenture for the average vehicle now stands at US $3,392. Incentives
has invested in building a strong leadership capability in this alone have risen 14 percent since 1995. (See Figure 2.) And
scientific approach to marketing. As a result, our experts have though automakers have added substantial value to their prod-
successfully used econometric techniques in more than 150 ucts in the last decade, most of that value has migrated to
companies in a wide base of industries: financial services, the consumer — and is not realized by the original equipment
pharmaceutical, retail and consumer goods, banking, electronics, manufacturer in the price of the vehicle.
Making the Big Spend Pay Off — Applying Science to Marketing 3

4. What really sells cars?
A look at one case...
What ate up the value-add in the vehicle? One-third of it The location is South America. The company is a global
was absorbed by sales and marketing cost increases. There automotive manufacturer. Its recent performance has been
is no mystery about why. More products are out there to be exceptional, making it one of the top three brand turnaround
promoted — new categories and new nameplates. In addition, success stories Accenture has seen in its marketing science
the number of media outlets to advertise these products has analyses.
proliferated exponentially.
What the company wanted to know was which marketing
In the United States, there are now more than 550 TV stations, investments would most directly drive further growth. Its goal
18,000 national magazines, 12,500 radio stations and 20 million in collaborating with Accenture was to isolate each component
websites through which to reach the consumer. In that stag- of the marketing mix and measure its impact on sales. Simply
gering abundance of media options, and with the impact of put: to understand what was working for this manufacturer
mass advertising on auto sales difficult to read, it is no surprise and what wasn’t.
that the pendulum in marketing has swung from branded
advertising to trade promotions and incentives. Accenture looked at four drivers of sales over five years —
product innovation, advertising, and pricing tactics and
But the relative effectiveness of each type of spending has incentives. Although the analytical matrix included thousands
remained in question. The precise contribution to sales of of variables, the analysis was able to determine which of those
advertising, product innovation, pricing and incentives — that accounted for 95 percent of incremental change in sales or
has yet to be determined. revenue. Macroeconomic factors were part of the equation
as well, along with competitor econometrics and regional
The correct answer to the opening question, then, “How do I marketing analytics. Collaborating with the client, a predictive
maximize the yield of every marketing dollar I spend,” looms component was included, reflecting future business and
larger than ever. market expectations.
In this innovative program with the automotive industry, The goal was to deliver accurate information, based on custom-
Accenture reached in, applied our proprietary marketing science designed analytics, about this client’s relative return for
methodology — and came up with answers. each dollar in the marketing mix.
4 Making the Big Spend Pay Off — Applying Science to Marketing

5. The product — and product innovation Where does the company go with this information? It is more
In each of this carmaker’s pricing segments — premium, profitable for this automaker to be a price follower — not a
midpoint and value — brand positioning turns out to be an price leader. While it is impossible to withdraw unilaterally
important driver of incremental sales growth. Brands insulated from price promotions, and tactical pricing continues to drive
in one segment with clean price positioning far outperformed a large portion of total car sales, these bold pricing actions
any of the brands that tried to stretch across multiple segments. do not support brand performance over the long term. They
These were the only “winners” based on market share growth. are easily matched, and their effect is neutralized.
Brands with blurred price positioning declined.
The better course: Build the capability for quick response to
Introducing a new model in the value segment, the largest aggressive competitor pricing initiatives. And target customers
share of the local market, contributed greatly to this company’s through CRM campaigns.
recent success. But it was important to learn what effect this
had on overall company sales. Did the launch cannibalize the Advertising
company’s other products? To some degree it did, but it still There is advertising, and there is advertising. Some forms, as
provided incremental growth to the overall brand. And the new this carmaker found, work better than others.
model stole significant share from the competition.
Looking at advertising across three tiers — Tier One, the original
With the exception of new brand introductions, product inno- equipment manufacturing spend on brand promotion, Tier Two,
vations did not grow market share for this automaker. While the regional spend by collectives of dealers, and Tier Three,
significant investment was being made in product “refreshes,” local advertising by dealerships — one clear result emerged.
these minor changes to the vehicle on an annual basis were Advertising was effective in driving sales at all three levels.
found to be counterproductive to the company’s long-term
market share growth and profitability. But Tier One brand advertising delivered the best return on each
incremental dollar spent. It lifted sales in the short and medium
The recommendation was to establish brand leaders with fewer term — and it also boosted long-term base level sales.
models in each segment — since excessive model variants
offered no boost in share performance. Also, the carmaker Given that finding, Tier One advertising at this company was
needed to be selective and strategic with minor product underfunded. The current investment was spent well and
refreshes. Although they are needed to keep the vehicle contributed to brand growth, but Tier One was only a small
competitive and current, they did not offer any sustainable portion of the overall marketing mix. Tier Two was just right
market share growth. Instead, this automaker could beneficially where it needed to be at its existing level of spend. Tier Three
do one of two things. Allocate some of these funds to a higher was being overspent. This third-tier advertising, aimed at
yielding element in the marketing mix, such as Tier One differentiating dealers and driving showroom traffic, showed
advertising. Or focus development efforts on more meaningful widespread differences in effectiveness.
product changes.
It was logical to conclude that the company should increase
Pricing tactics and incentives its Tier One ad spend and decrease Tier Three. But this is not an
Pricing tactics and incentives emerge as the most significant easy action to carry out. Tier One, as an original equipment
drivers of incremental growth in this company’s case. But the manufacturer ad spend, and Tier Three, a dealer investment,
impact is strictly short-term. are not interchangeable pots of money. What is highly useful
here is the knowledge gained. Knowing that Tier One spending
When this automaker dropped prices by 10 percent, the works, what other levers where money is not so effectively
competition matched, and the company showed no growth in spent can be reallocated here?
market share. Models less reliant on incentives had a higher
increase in incremental market share over time. What was
intuitively understood was established here with factual
evidence — including the fact that consumers do not differ-
entiate between incentives and a price change in terms of
willingness to buy.
Making the Big Spend Pay Off — Applying Science to Marketing 5

6. Accenture Marketing Science: What we now know
What this company’s case establishes is that the scientific
methodology of Accenture Marketing Science, which works
Accenture doesn’t leave so successfully in other industries, applies just as definitively
in the automotive industry. While its application will vary
you with the analysis company by company, case by case, Accenture Marketing
Science can produce information that is vitally useful to the
profitability of any carmaker.
and wish you luck. We
How much does each component of the marketing spend
are the people who help contribute to vehicle sales? We can statistically determine
that. What is the relative effectiveness of different marketing
you use this information levers? Here is the data. We can explain now — with more
than 90 percent certainty — the incremental impact on sales
to turn your business of marketing investments in advertising, pricing and product
innovation. As a result, an automaker can expect to free up an
into a higher performing average 14 percent of the marketing budget and put those
dollars to work in elements of the mix that pay off with higher
enterprise. incremental growth.
With that knowledge, automotive marketers can make highly
informed decisions on how to allocate spending to drive
more sales.
6 Making the Big Spend Pay Off — Applying Science to Marketing

7. After completing this work with our South American auto- industry. We can help you translate those numbers into
motive client, we were pleased to hear what a senior executive strategies that improve the auto business specifically. Three,
of that company said: Accenture can work with you to turn analytical results into
working realities. Does the analysis call for improved incen-
“This is the best piece of marketing strategy work I’ve tive management? We can deliver that. Does it call for more
ever seen here from an outside company.” direct marketing? We can design and execute those market-
ing programs. And four, we measure and monitor results on
Standing on measurable results an ongoing basis to make sure the changes are having the
Accenture has always stood on measurable results — and intended impact.
delivers those results again with the demonstrated effec-
tiveness of marketing science in the automotive industry. Working with original equipment manufacturers and suppliers
at every level for more than a decade, Accenture knows the
Accenture Marketing Science presents a clear opportunity to automotive industry in depth and detail. Now, applying our
enhance the performance of the auto business. But for an advances in marketing science, that partnership between
automaker to leverage that opportunity to its fullest requires Accenture and the industry reaches a new level of high-per-
more than a thick packet of statistics. Accenture people don’t formance teamwork. One that can turn marketing investment
leave you with the analysis and wish you luck. We are the into a clear winner for automakers — and help tip the playing
people who help you use this information to turn your business field in their direction.
into a higher performing enterprise.
If that’s what you’ve been waiting for, let’s get together
Our ability to do that with unsurpassed expertise comes from and talk.
a number of clear advantages. One, our proprietary method-
ology, Accenture Marketing Science, integrates all marketing
elements. Not just advertising, not just pricing, not just product
innovation — but all of these. Two, we do the vigorous quan-
titative analysis, but we also understand the automotive
Making the Big Spend Pay Off — Applying Science to Marketing 7

8. About Accenture
Accenture is the world’s leading management consulting
and technology services company. Committed to delivering
innovation, Accenture collaborates with its clients to help
them realize their visions and create tangible value. With
deep industry expertise, broad global resources and proven
experience in consulting and outsourcing, Accenture can
mobilize the right people, skills, alliances and technologies.
With more than 75,000 people in 47 countries, the company
generated net revenues of $11.6 billion for the fiscal year
ended August 31, 2002. Its home page is www.accenture.com.
Copyright © 2003 Accenture For further information, please contact:
All rights reserved.
Accenture and its logo Rodney Wright
are trademarks +1 313 887 2122
of Accenture. rodney.n.wright@accenture.com
John E. Cunningham
+1 313 887 2200
john.e.cunningham@accenture.com
Visit us at www.accenture.com/automotive