IMV39: Media Shifts in the Automotive Industry

The following is a transcript for IMV39: Media Shifts in the Automotive Industry. The original podcast is located here.

Announcer:

Welcome to the Internet Marketing Voodoo podcast, brought to you by MindComet. And, now, here’s your host, Paul Lewis.

Paul Lewis:

Welcome to Internet Marketing Voodoo. I’m your host, Paul Lewis. And today’s topic is ‘How media is shifting in the automotive industry’. One of the things that eMarketer released recently was that automotive spending now will account for over 15 percent of all online ad dollars. In 2007, that equates to over $2.7 billion. My guest today, is Mitch Lowe. He’s the CEO of Jumpstart Automotive and a recognized expert in this area. Mitch, can you tell us a little bit about your background?

Mitch Lowe:

Sure I can give you a little background on me and a little background on Jumpstart Automotive Media. I’ve been involved in digital media, now for about ten years. I started off in corporate finance, had an advertising agency in Chicago for five years, so I’ve been on the agency marketer side of the equation where I got an opportunity to plan and buy and go through reporting and optimization and all the challenges that marketers deal with. I left there to become part of a start up for an automotive publisher called OpenAuto.com, where I was the Senior VP of Business and Corporate Development and got to work with all the car manufacturers, right as the internet was really beginning to take hold, and then started Jumpstart in late 2000.

And Jumpstart is a vertical advertising network that focuses exclusively on the automotive industry. We work with every one of the car manufactures and their ad agencies, so we have a detailed understanding of their strategies and what’s working and what’s not working and how they’re growing and what that means for the overall media community. We also work with about 1,000 dealers, both locally and regionally across the country and understand what they’re doing at the retail level to sell automotive. So, we have a pretty unique vantage point to understand what’s going on within the automotive industry.

Paul Lewis:

Wow. That’s really a diverse set of experience and also dates back quite a while in internet years, that’s like dog years for the rest of us, so that’s a great bit of experience. You mentioned that you’ve been looking at not only what the major automotive manufacturers are doing, but also local dealerships. It seems like people are getting involved at all levels. What sort of activity are you seeing, both at the manufacturer level as well as with individual dealerships?

Mitch Lowe:

The manufacturers have the advantage of having dedicated marketing teams and advertising agencies and just a considerably greater set of resources to work from, so they tend to be anywhere from 24 months to 48 months ahead of what a local dealer may be doing, but that gap is certainly shrinking. The automotive manufacturers, when they look at digital media, really divide their budgets into two main categories. The first is for vehicle launches, so, if a new Honda Accord is coming out they’re focused on how to spend money around that effort.

The other bucket of spending is just trying to reach those consumers that happen to be in market right now. It’s a very unique category, wherein unlike selling beverages or athletic shoes, where you’ve got consumers that are always just falling in and out of market; with auto, you’ve got the largest category of advertising. It’s a $35 billion advertising category. One out of every eight ad dollars in this country is spent on automotive and you’ve got a high ticket item and you’ve got a consumer that’s only in market every four years to buy. They come in market for about 12 weeks and they’re voracious consumers of information about vehicles as they decide which type of car, which brand of car, which model of car, and then they disappear for 12 weeks.

There’s only at any one point, about four and a half million consumers that are actually in market to buy a vehicle, and that’s the one and a half million new cars sold a month, at the average of three months that they’re in market. With 300 million consumers in the United States, that’s only about one and a half percent of consumers that are ever in market, so it’s very hard to find those people. With digital, now that targeting is capable and so the second bucket, which is really the primary bucket of spending within automotive, is trying to reach those people who are actually in market right now. I can reach them. I can influence them. I can speak with them.

Paul Lewis:

Is the way that you determine their market, there’s one statistic that we use that shows 80 percent of consumers do, as you said, three months of research before they buy that car, that you target areas where it’s pretty obvious that the consumer’s doing research and looking for this type of information?

Mitch Lowe:

The qualification that a consumer’s in market is that they’ve been to a search engine and they’ve typed a set of keywords indicating that they’re doing research, or that they’ve visited one of the automotive publishers that are out there, a company like NADA Guides or a Vehix or a Kelley Blue Book. So, if they’ve gone to those sites, not only do you know that they’re in market, but you can actually begin to understand that they’re looking for luxury SUVs versus midsize SUVs, sedans versus luxury sedans. You can get an incredible amount of data and you’re able to target those people based on that set of behaviors.

Paul Lewis:

One of the changes that we’ve seen in online marketplace, recently, is that many premier automotive sites are actually selling out of advertising inventory. They’re booked out already well into next year, which is a far cry from where things were just three years ago. Would you say that’s the biggest change that’s affected the industry? Or are there some other significant changes in the way the automotive industry is using online going on now?

Mitch Lowe:

I think the inventory sellouts, which were very real and just growing are more of a consequence of a set of events. That the reality is, you’ve got an automotive industry that is extremely competitive and the consumers that they’re fighting over are relatively small in number and hard to reach. And the ability to use online for one, better targeting, so now we can actually use behavior to find consumers, as opposed to demographic or psychographic profiling, the measurement capabilities that are there, and what that leads to is less waste, is what’s really driving the increase of dollars, and now there’s just so few outlets to put that inventory that it becomes very prime and so whether that’s search words or display advertising on automotive websites, which, we’re actually seeing some of the car manufacturers trying to buy into 2008 already, in an effort to keep rates down because rates are increasing at high rate year over year. That’s really what’s driving those decisions.

I would say that opening up of inventory now, that’s really been significant over the last six months, has been the use of behavioral targeting. So, if Mary can be found on an automotive website, searching a luxury SUV, to be able to cookie that intender and follow that person to, well, they’re checking sports scores or theater listings or getting stock quotes and be able to serve ads to them, too, while they’re still in that limited window of doing car research, that’s been the greatest area of growth that we’ve seen out there in the last six months.

Paul Lewis:

Right, because you’re still reaching the consumer in the right time window and what’s even more interesting is that you’re catching them where you’re not surrounded by your competitor’s advertisements. It’s around the theater and you’re the only car advertisement in that space.

Mitch Lowe:

That’s exactly right because when you’re on an automotive research, just think about all the content that you’re competing with. You’ve got, not only reviews and pricing and the ability to do side by side comparisons and all, just a very rich content that’s on the sites, but you’ve got competing advertising, as well, and so to reach those same consumers a couple of hours later or a couple of days later, or next week in a less cluttered environment, we’ve seen that the response rates and the performance of those ads are on par with or even better than, the contextual advertising.

Paul Lewis:

Is this convincing a lot of automotive advertisers that have primarily relied on traditional media to begin to swing their media budgets over? Now that they can get a very measurable result and know that they’re hitting the consumer at the right time, to buy, is that pretty consistent across the board with the clients that you’re working with?

Mitch Lowe:

Definitely. With automotive, they’re sophisticated advertisers and these are folks that are spending, already, anywhere between five and ten percent of their budgets on digital. In my conversations with VP of Marketings or heads of agencies in the space, they’re already talking about being at 20 percent relatively quickly. And so I think given the unique dynamics that we’ve talked about that apply to this industry, we’re going to get there pretty quickly. What’s interesting is, I talked a little bit earlier about how manufacturers are always a little bit ahead of regional or local dealers.

We’re now seeing regional dealer associations, for example, Northern California Ford Dealers or Chicago area Chevy dealers buying up front, trying to lock in key inventory where they can – you know, if you think about the challenge that a car manufacturer has, just to reach the four and a half million people that are in market for a new car, right now, think about a dealer, either local or regional, in Cleveland, trying to reach the 35,000 some people that may be shopping for a car right now. And so, the same targeting exists for a local or a regional dealer, doing the same types of geo-targeting on an automotive website, doing local base search, doing behavioral targeting and so for them, it’s even a more attractive proposition to be able to find and literally pull the needle out of the haystack of those people that are in market in their area. So, we’re seeing a very quick adoption of display advertising and search marketing among dealers, where manufacturers are probably seeing a 25 to 35 percent year over year growth from ’06 to ’07 for online, at the dealer level, it’s more like a 50 to 60 percent a year overgrowth, from this year to next.

Paul Lewis:

One of the things that Ward’s Dealer Business mentioned was the top 100 electronic dealers sold 22 percent more vehicles in 2002 to 2001. I don’t have a more current statistic than that, but are you still seeing that trend continue with your clients, that the actual online sale, where people are saying “I wanna buy this car” and sending that order into the dealership, to come pick that up, is that becoming much more typical?

Mitch Lowe:

Well, it’s almost to a point, now, that it’s hard to delineate between the online shopper and the off line shopper, because if you go to any major metro, you’ve got 90 percent of consumers that are doing all their vehicle research online. So, they’re coming into a store, meaning a dealership, with information, with pricing. They’ve narrowed it down. In most cases, there’s been some communication back and forth with that dealership, so if we’re not there, we’re very, very close to it being impossible to say the online car shopper versus the off line car shopper, because it’s pretty much ubiquitous that everybody’s doing research online.

Paul Lewis:

You also mentioned earlier, jumping back a little bit, about the behavioral targeting. Are you using primarily behavioral targeting on a particular website, that is doing it within their website, so say a local newspaper may have a cars section, or an automotive section, and then as they jump over to the sports, you’re catching them? Or are you using behavioral networks that are made up of hundreds, if not thousands and thousands of sites, and some of those sites being automotive and then getting the transference from those automotive sites when they visit other sites?

Mitch Lowe:

Right, that’s a great question. We have two distinct networks, so there’s one set of publishers that are pure automotive publishers, where consumers are doing research on their next vehicle purchase. We tend to stay away from newspaper sites because the quality of those consumers tends to be a little less. They’re typically a classified car shopper, so they’re more of a used car intender than a new car intender. That works at the dealership level, but a car manufacturer is trying to see a new vehicle, so we work with, really, some of the cream of the crop websites, so a JD Power Consumer Center, Consumer Guide Automotive, Vehix, Shopping.com, automotive section, NADA Guide, sites in that area, where we reach a little over 5 million consumers a month that are doing vehicle research. Then, we work with a whole separate set of sites that make up a non-automotive network and these would be sites like FOX News or other leading publishers.

We also work with all the major ad networks, so a Valueclick Media, BurstMedia, TRAVELfusion, where we work with the major properties in those sites. So, collectively, we’re reaching about 120 million unique users a month off of auto sites and we’re able to find those five or five and a half million consumers who are in market and we know the type of car, the makes of car, what they’ve been researching, we know the geo that they’re in, so we can serve that ad either nationally for a manufacturer or regionally for a dealer.

Paul Lewis:

Well, it sounds like a much more exact and better investment of advertising dollars than we’ve had in the past. To quote the old adage, “I know that half my ad dollars are wasted, I just don’t know which half”, maybe that won’t be true in the future.

Mitch Lowe:

That’s certainly the message that we’re trying to deliver, is that John Wannamaker quote has been out there forever that “I know half my ad dollars are wasted, I just don’t know which half”, that’s going away. For those of us that had been in the agency side of the world for a long time, we all know the demographic targeting is really just a best guess as to where my customers may be. Well, the level of targeting that’s now available with digital media, just so far exceeds what used to be possible, that it certainly is the intent and what we try and work on with all of our clients and advertisers is for them to be able to spend a little less on advertising and get equal to or better results, which then, just falls right down to the bottom line in the form of profit. So, I think we’re moving slowly but surely in that direction.

Paul Lewis:

Outside of more effective advertising, what other cost impacts or revenue bonuses are people seeing by using the internet? In other words, are the internet shoppers more savvy? Are they more affluent? Is there less cost in the sales people that there’s less negotiation and haggling and wasted time and cost there? Or is it the flip side, they’re well researched and so margins are becoming thinner? Have you seen any trend information on that?

Mitch Lowe:

There’s two major things. There is absolutely the case that the consumer’s much better informed when they come into a dealership and so the average time that a consumer spends in the dealership has been cut into about a third. And so, instead of having to go through all the negotiation process and deal with different parts of the dealership, most dealerships have set up that you’re going in and you’re talking to an internet sales manager that can walk you through the whole process. Where you might have been there in the past for three or four hours, now you’re in there for 45 minutes or an hour, so there is a lot more efficiency that’s happening there. The by-product of that is consumers when they’re filling out their customer happiness surveys, are indicating a much higher degree of satisfaction with the retail dealer experience, which has long been a sore spot among consumers, so, there is a marked improvement there.

The other advantage of digital media is in the ability for an advertiser to get learnings. With the automotive market spending so much money on advertising, television was traditionally, a long period of time between creating the footage, turning it into a commercial, running it and you didn’t really know what was going to touch the hearts of consumers. With digital, now you can try a whole bunch of different creative executions very quickly and find out which ones get the best response rates. You may find that a certain brand attribute actually speaks to your consumers far better than what you may have guessed that it was and you can take that learning and then transfer that back across your television spots, your radio spots, your print work, those types of things, so there is, even though digital right now, may only be seven, eight, nine percent of the overall spend, the learnings of it are actually being applied across the full budget, so, there’s a greater gain from internet advertising that just in the share of budget right now.

Paul Lewis:

Can you walk us through maybe a success story with some of the metrics that you use to determine that that was indeed a success?

Mitch Lowe:

Difficult to get into metrics just ‘cause I don’t want to share one client’s results versus another, especially since we work with all of the car manufacturers, but I think it’s more of a ‘proof is in the pudding’. Ford and GM recently did investor conferences where they talked about how they were quickly moving dollars away from broadcast to traditional media, into the internet because it’s just simply better targeting, more measurable and they can prove results and they’re learning that they can play with their media mix and do cost reductions in certain areas, which are certainly helping. At the dealer level, we’re able to find that the cost of selling one car through traditional media may be four- or five-hundred dollars, whereas the cost by using different digital media techniques, whether it’s doing search or whether its doing display ad, if it’s targeted just at people that are known to be in the market for a car, can actually get into the hundred to one-hundred fifty dollar range, so you’re seeing cost reductions in the 60 to 70 percent area, so, really significant savings that when spread out over an industry this large has a very material effect.

Paul Lewis:

Yeah, absolutely. As we wrap up, here, can you give us any predictions you have for the digital media marketplace and how this will be evolving?

Mitch Lowe:

I think we’re gonna continue to see for the next three years, that growth of 30 percent plus, at the manufacturer level and 40 to 50 percent at the dealer level. It’s gonna become where 15 to 20 percent of a media plan is being dedicated towards digital. The creative is gonna get a lot better. The use of video is gonna happen a lot more. The reporting and optimization capabilities are gonna continue to improve and so, if you look at just the blocking and tackling, that we’re sort of through the stage of ‘Does it work?’, and now are at the point of ‘Great, how do I use best practices in this area?’ How does that apply to search and how does that apply to display and within display? What are best practices on automotive sites versus using behavioral targeting to reach those same people off of automotive sites? And you’ll start getting into the sequential, creative and different learnings that occur there. So we’re through the hard part, now and as the industry starts to mature, we’re just starting to deal with some of the best practices that are out there.

Paul Lewis:

Great. Well, Mitch, thank you very much for your time today.

Mitch Lowe:

It’s been great. Thank you for having me.

Paul Lewis:

For more information on Mitch Lowe and Jumpstart, please visit www.jumpstartautomotivemedia.com. For more information on Internet Marketing Voodoo, please visit us on the web at www.internetmarketingvoodoo.com. I’m Paul Lewis, your host. Keep it real ‘til next time.

Announcer:

For more information on this week’s topic, visit internetmarketingvoodoo.com. This podcast has been brought to you by MindComet, The Relationship Agency.

[End of Audio]

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