Turf Battle in a Shrinking Market
Here is a stark but simple fact: the marketplace offers fewer active buyers than are needed to sustain the current dealer community. A Darwinian fight for survival is underway; an alarming percentage of dealers will go out of business in the next 12 months. Those that emerge will do so because they possess key traits that provide a persistent competitive edge.
How can a dealer leap into this evolutionary winner’s circle?
The answer to this life-and-death question is hidden behind another: where do dealers have the greatest opportunity to impact a buyer’s choice of dealership? This is key. If you know the moment of truth—the moment when the customer is most open to a dealer’s courting rituals—you gain a distinct advantage over competitors. By closely observing the steps a consumer goes through to buy a car, the point of maximum influence ability becomes clear.
Two incontrovertible facts guide us. First, over 80% of car-buying customers use the Internet to gain an information advantage as they prepare to interview dealers who seek their favor. Consumers do this because they prefer to engage prospective dealerships from a distance until they have gained more information and have built trust. Second, an increasing percentage of customers extend their remote engagement further by sending their first expression of interest (a lead) over the Internet, to multiple dealerships. Dealers who survive the dark winter shakeout will have figured out how to seize advantage in the domain of the Internet customer.
Are You Ready at the Moment of Truth?
The moment of truth, of course, is the point where the consumer has sent a lead to 3-5 competing dealerships. The dealer who leaps in front of the pack and first initiates the courting ritual, then is gently persistent with insightful words and offers over time, leaves his competitors clamoring in the dust.
Rapid response and effective follow-up are the one-two punch that knocks out the other guys. Experience shows that dealers who can deliver an immediate response with a price quote every time when a customer submits a lead, and personalized follow-up every time when the customer doesn’t buy, will see at least a 2 percentage point increase in close rate on average. Get these two critical steps right and you’ve made the leap into the winner’s circle. Why? Because so few dealers can pull it off. According to JD Power’s October 2008 Internet Mystery Shop Results, the average response time on Internet leads is over 12 hours1. 32% of leads don’t get answered at all2. And if there is a response at all, 55% of the time the customer receives just one single email3, even though 32% of customers buy 90 days or more after submitting a lead, according to the 2007 Cobalt / Polk eBusiness Study4.
Consumers making decisions quickly in an always-on digital world
Here’s the opportunity: customers want a quick, information-rich response. The July 2008 Capgemini Cars Online Study showed that for customers that are within one month of purchase, 51% expect a response to their request for information in 4 hours5. First time buyers expect the response even faster: less than two hours. If consumers do not receive a quick response, they will walk away. “Half of the respondents will look for a new dealer and 25% will look for a new manufacturer or both for a new dealer and a new manufacturer. This translates into a significant amount of lost business.” The study goes on to note that faster response times had a direct correlation to higher conversion rates. Citing one example, “Capgemini found that when the automaker responded to a customer web inquiry within 20 minutes, conversion rates were doubled”6. A rapid, relevant response increases sales.
Speed is key, but it’s not the only important factor. Evolutionary advantage is also tied to the content of the dealer’s message. We’ve just reviewed the huge disconnect between reality and customer expectations for responsiveness. JD Power indicates that consumers are even more critical of the completeness of the response7. Customers want the dealer’s price, and dealers who hide it hurt their prospects for a sale. According to Forrester Research’s “Auto Site Dealers Must Rethink Price Info” article in June 2006, “…consumers who understand car prices are happier with their vehicles and their dealers. They feel significantly better about their car-buying experience and are more likely to purchase from the same dealer again.”8 Another study found “…auto buyers are no longer willing to settle for anything less than totally honest and consistent pricing.”9 Yet another study shows that offering upfront price correlates directly to significantly increased customer loyalty10.
Though all the data points to the fact that a price quote response right away is key to winning the customer’s business, only 38% of dealers give the price upon request, according to eMarketer’s study Automotive Marketing Online: Negotiating the Curves, June 200811. 18% of dealers will not reveal any pricing information unless the customer comes into the dealership12.
To Price or Not
Some dealers realize that hiding the price is self-defeating. As one participant in the April 2008 Polk Automotive Intelligence Summit said, “…if I don’t give price information to the customer, I’m automatically viewed as the highest price guy in town.”13 A Ford dealer in Dallas which uses an automated tool to achieve quick price quote response recently received a note from a happy customer: “I am writing to you about my recent purchase of a new truck at your dealership. Late one night I sent e-mails to several dealerships, the only email I received that night was from your dealership. Not only was I surprised to get a reply that quickly, the email had several trucks with different options with prices on them. Then I received another reply from your Internet Salesperson saying she would be glad to meet me and set up a time for me to come in. The next morning I called her and we talked, and you happened to have the same truck that I like, so I told her I would be coming in that morning. She said she would have the truck sitting out front for me. I drove the truck on a test run, and all my questions were answered….I will refer all my friends, family, and acquaintances to your dealership.”14
A relevant and transparent response is important in order to build customer confidence and trust. That means the response should include the price.
But how can a dealer do it? No matter the size of Internet department, the reality of car-selling at ground zero (the dealership) is a steady hail storm of distractions that take away salespeople from the incoming lead. Whether it be a test drive, a customer in the finance department, the weekly sales meeting, breaks, lunch or a day off, many conflicting priorities pull salespeople from the task of executing a quick response to the customer. The result? A third of leads go unanswered. The remainder receive a response more than a full business day after arrival of the customer’s request.
Then there’s the question of the response itself. Is there a price? That’s what the customer wants. Even if the dealer is willing to provide a price, and the salesperson can get the quote out, too often the quote is compromised by human error—math, spelling errors, etc.– or it lacks punch: no new and used car alternatives shown, for instance. These errors and omissions, large and small, weaken the impact of the response.
Under the Internet department structure, the problem with immediate response is distractions that pull salespeople away from their computers. Under a BDC structure, the problems are cost, quality of personnel and management oversight challenges.
Here’s the simple fact. To make the most of the moment of truth– to make the leap up the evolutionary ladder– manual solutions are inadequate. A tool—an intelligent interactive system that operates continuously as the dealer’s digital assistant—is needed to ensure a quote is sent to customers immediately, showing multiple vehicles, both new and used, that surround the customer’s specific request, to every lead every time. If the customer doesn’t buy right away, a clean, professional follow-up campaign must ensue, one that intelligently customizes the message based on the customer’s behavior, and interactively enables the customer to gain more information and reveal when she is back in the market to buy.
That tool is ResponseLogix.
Create an unfair competitive advantage with ResponseLogix
ResponseLogix yields game-changing impact in at least three situations:
1. When the market is strong.
• Here, a dealer is likely to maintain or increase the size of his sales staff. His lead volume is increasing.
• ResponseLogix delivers a 2-4% increase in close rate when the market is strong, meaning a dealer has increased his gross margin by 30% to 70% or more. He has begun to maximize opportunity.
• The dealer can increase his effective market by beating competitors to the punch. 42% of consumers are willing to travel at least 45 minutes from home to buy a new car from a dealership15.
2. When the market is in decline, but dealer wants to maintain the size of his sales staff.
• With lead volume in decline, the problem is how to maintain sales.
• In this environment, adding ResponseLogix gives him a key competitive advantage. Because the opportunity that remains in the market is better pursued by the ResponseLogix dealer than his competitors, close rates grow as competitors’ close rates fall.
3. When a dealer must cut costs:
• Lead volume is in decline. Dealer wants to reduce sales staff.
• ResponseLogix is especially powerful in cost reduction situations, because labor costs can be reduced without reducing customer satisfaction and sales.
• A detailed scenario is helpful:
Let’s assume that in May 2008 a dealer received 252 leads a month. He had a 10% close rate, and he had an Internet cost structure that looked like this:
|• Salespeople (@$60K all in X 3 salespeople / 12 months):||$15,000/month|
|• Internet Lead management (ILM) system:||$550/month|
|• Leads (@$20 / lead avg, including OEM and web lead costs):||$5,040/month|
His three sales guys drove the following gross margin and net profit:
|• Front and back margin @ $1600 per unit sold:||$40,320/month|
|• So his net profit was:||$19,730/month|
But today it’s different. His lead count is down to 200 leads, and his close rate is now 7%. He still has 3 salespeople.
Now the business looks as follows:
|• Front and back margin @ $1600 per unit sold:||$28,224/month|
|• So his net profit was down 86% to:||$2,850/month|
What does a dealer do? He decides to cut costs. He wants to go from 3 salespeople to 2, but he predicts that by doing so his close rate will drop further, to 5%.
What if he can maintain his close rate at 10% by adding ResponseLogix– an intelligent digital marketing system that automates a key part of the salesperson’s job, doing it better than any human being could do? Problem solved. It allows the dealer’s reduced Internet sales staff to focus on serving current customers while knowing that quotes are getting out right away on incoming leads, and that follow-up is occurring for the customers that don’t buy immediately.
|• ResponseLogix (based on 200 leads / 12 reactivations a month):||$1,401/month|
Gross margin and profit impact:
|• Front and back margin @ $1600 per unit sold:||$33,699/month|
|• Net profit:||$17,748/month|
$18K a month profit is not the $20K the dealer was boasting when the market was hot, perhaps, but it’s a lot better than the $3K a month profit with which he could end up.
The point is that for the dealer who must cut back the size of his Internet team, he can’t afford to lose sales as a result. The only way to avoid sales loss is to quote quickly and follow up effectively, every time. That’s what ResponseLogix does.
In summary, whether it’s an expanding market or a shrinking market, the high-performing dealer consistently wins at his competitors’ expense. It’s about survival, and the stakes can’t be higher. He prevails by catching the customer’s attention at the point she is most open to being won over: when she has presented 3-5 dealers with an opportunity to prove themselves. 32% won’t answer at all. The rest may get around to it in over 12 hours. Almost two-thirds of dealers won’t send the customer a price quote unless she’s willing to talk on the phone, or come to the dealership. A faster response—with the pricing information the customer wants—right away every time— with follow-up that is both friendly (i.e., relevant, personalized, not “spam”) and persistent enough to catch the customer when they’re back in the market—achieves the goal. Dealers can’t do it manually: it’s too costly, too hard to manage and too prone to failure. The only viable solution is a powerful, intelligent tool that can act as your ongoing assistant, communicating on your behalf the right way, right away, every time.
1. JD Power, Internet Mystery Shop Results, October 2008
3. 2007 Cobalt / Polk eBusiness Study
5. Capgemini Cars Online Study, July 2008
7. JD Power, Automotive Online Marketing Review, October 2008
8. Forrester Research, “Auto Site Designers Must Rethink Price Info”, June 2006
9. AlixPartners, 2007 Consumer Brands Index
10. Polk, Consumer Expectations for Internet Lead Marketing Study, May 2008
11. eMarketer, Automotive Marketing Online: Negotiating the Curves, June 2008
13. Polk, Consumer Expectations for Internet Lead Marketing Study, May 2008
14. Letter from consumer to Ford dealer in Dallas, TX
15. Zag Consumer Survey, 2008
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