Automotive Industry: The Future of

Automotive Marketing and

Distribution
The business of selling cars is changing. New competitive rules will apply. With these changes comes a shift
in power.
Who will be the winners and losers in the revolution that is radically reshaping the marketing, distribution and selling
of automobiles? Will the vehicle manufacturers and their franchised-dealer networks be able to overcome years of
inertia and complacency to pioneer and execute new concepts that will strengthen and extend the value of their
brands? Or will nimbler, more imaginative retailers or software companies get there first

The transformation of the business of selling cars and trucks is happening before our eyes at an incredible pace --
promising to change forever an industry that has long been noted for its high costs, poor service and extremely
unpleasant selling process. Auto manufacturers have competed fiercely among themselves to drive out cost and meet
consumer needs for cheaper and better cars and trucks. Now the survivors face new threats from outside the industry
that might thwart their renewed interest in building strong, lasting relationships with their customers.
Entrepreneurs have dissected the cost-value equation and come up with new retail concepts. Their stories have been
persuasive enough to attract hundreds of millions of dollars in public equity investment and persuade dozens of
fiercely independent car dealers to sell out. Internet technology has lowered entry barriers for other entrepreneurs
with new ideas about helping customers find, evaluate and buy new vehicles. These patterns are consistent with
revolutions in other consumer durables markets that effectively transferred market power from manufacturers to
retailers.
In response, vehicle manufacturers finally are getting serious about marketing, and about confronting the weaknesses
embedded in their traditional franchised-dealer distribution channels. The manufacturers want to expand their
participation in the customer life-cycle value chain to improve profitability and grow in markets that have been
largely stagnant. This changes the basis of competition from designing and making good products to providing
services and managing consumer purchase and ownership experiences for which the products themselves are only
partly responsible.
Consumers are the only clear winners in this battle. While we are not sure which vehicle manufacturers will survive,
we are confident that winning will require a better understanding of the life-cycle value equations of both cars and
buyers, and the development of innovative strategies to capture that value.
FORCES OF CHANGE
From the days of Henry Ford's production line, the automobile industry has been based on a "supply-push"
philosophy -- a strong bias toward "filling the factories" to cover high fixed costs.
Dealer networks were created as logical extensions of the "supply-push" model. The networks were designed to hold
inventory, leverage private capital (without threatening the manufacturers' control) and service and support what was
then a less reliable and more maintenance-intensive product. Those networks generally were built around
entrepreneurs focused on a defined geographic area, selling one or at most two brands.

This distribution model has been remarkably resistant to change. Historically,
dealer networks have become ingrained and protected over time by a web of habits,
contracts, regulations and laws. In the United States, state franchise laws limit the
manufacturers' ability to act unilaterally to revoke or consolidate franchises. In
Europe, strong national distribution laws and other rules help protect the
established channel. Even the new dealer networks created by the Saturn division of
the General Motors Corporation and the Lexus division of the Toyota Motor
Corporation with such fanfare during the past decade or so have accepted the
fundamental model. They have achieved their superiority in channel-driven
customer service by avoiding mistakes (such as locating too many dealers too close
together) and institutionalizing best practices in customer care.
Despite its longevity, the traditional dealer channel leaves many people unhappy.
High customer acquisition costs motivate dealers to convert store traffic to sales
using aggressive tactics that extract differential margins based on customers'
willingness to pay. Frequent well-publicized rebates have taught buyers to mistrust
sticker prices and negotiate from cost up, rather than sticker down. As a result,
dealers often find themselves competing not against another brand, but against a
same-make dealer across town. This acute competition has almost bid away dealer
profit on the sale of new passenger cars in the United States (with some profits still
available on sales of trucks, sport utility vehicles and luxury cars).
Shrinking dealer margins do not translate into happy customers: Most customers (approximately four out of five)
dislike the purchase process, and many still come away feeling cheated and mistreated. This strong antipathy is
largely responsible for the rapid growth of Internet-based services that offer alternative means of gathering
information on cars, soliciting price quotes and, in some cases, conducting transactions.


The decline in profits on new cars has forced dealers to make up the shortfall by looking at what many have
historically considered "filler" businesses: parts and service, used cars, financing and insurance, and fieets. The
problem is that a conventional dealership is not necessarily positioned well to conduct all of these businesses because
of their different economics, bases of competition and consumer purchasing patterns. Some dealers, for example,
have set up dedicated bays to offer no-appointment quick-lube services to compete with independent outfits such as
the Pennzoil Company's Jiffy Lube and the Midas International Corporation's muffier shops. However, the optimal
retail density and overhead structure for the oil-change business are very different from those for new cars. (See
Exhibit I.) Brick-and-mortar and real estate constraints will make it difficult for traditional dealers to develop truly
competitive offerings in each individual dealer business even if they manage to overcome longstanding consumer
mistrust.
SURFING THE NET FOR PROFITS
Obviously the Internet is a major enabler of change in auto distribution. Many of the most important auto industry
innovators today are developing Web-based services, leading some to predict that the most important automotive
company of the next century will be a software-based company. Republic Industries, for instance, expects sales to
reach $1 billion on the World Wide Web by the year 2000. Estimates vary, but some studies have shown that with
some cars, as many as 40 percent of customers gather information from the Internet. A smaller but growing
percentage of customers demonstrate what is called shopping behavior, or soliciting price quotations and availability
information prior to the actual purchase.

The dramatic growth and power of Internet technology have greatly reduced the cost of obtaining information on
features, price and availability. Consequently, customers are better equipped to extract what they want from
dealerships. One of the pioneers of Internet marketing, Autobytel.com Inc., is working to speed response time from its
participating dealers because it has learned that a staggeringly high proportion of its customers -- 64 percent -- buy
within 24 hours of using its service to get price and availability quotes. The Internet offers new and better ways to
perform many sales and marketing functions and makes it possible for manufacturers to have more and richer two-
way communications directly with consumers. It has also provided, for the rst time, the capability for channel
marketing on a national or even international scale, attacking further the value of the traditional, geographically
dened channel.

DEALERS STILL PART OF EQUATION
No one is suggesting, though, that auto dealers will disappear. Ironically, changes in cars and trucks themselves are
making dealers more important. Consumers have more choices of brands and models than ever before. Improved
durability and reliability and faster design cycles have narrowed the differences among competing products in the
same category. Brand loyalty increasingly derives not from the product itself but from the total purchase and
ownership experience. Numerous studies show that customer satisfaction has become a much more critical
competitive differentiator and a greater inuence on repurchase loyalty than the car itself. And it is the dealer that
controls these levers today. (See Exhibit II.) This explains the intense efforts many vehicle manufacturers have made
to set standards for, measure and even base some dealer compensation on customer satisfaction scores.
As a result of the high-cost, low-satisfaction proposition provided by the traditional dealer channel in general, many
players have recently moved to capitalize on opportunities afforded by improving the channel-value equation.
Entrepreneurs with access to public capital have strategic designs to modernize auto distribution. Six dealer groups in
the United States went public in 1996-7. Collectively they soared past the $4 billion mark in revenue in 1997, up by
more than 30 percent from 1996, with most of the growth coming from additional acquisitions of existing dealers.
The most prominent new automotive industry entrepreneur in the United States is H. Wayne Huizenga, chairman of
Republic Industries. Mr. Huizenga has a proven track record as an innovator who has revolutionized the waste
disposal and video rental industries. Republic owns the nation's largest group of franchised automotive dealerships,
operates the AutoNation USA used-vehicle megastore chain and owns and operates several car rental businesses.
Republic is currently on an extraordinary acquisition campaign for new-car business dealerships. Even though
Republic has almost single-handedly doubled the market price for dealerships, it does not appear to be slowing down.


Unlike the dealership consolidators that are trying to reduce costs through scale economies in administration,
advertising and service, Republic's stated strategy is to manage actively the vehicle life cycle while developing a
proprietary channel brand. Another example of a company involved in external channel evolution is G.E. Capital
Services, an extremely accomplished innovator. It has purchased Autobytel.com and is moving into used-car leasing.
In the face of all these changes, manufacturers have not been idle. Most have stepped up their efforts to improve their
distribution systems. Almost every manufacturer has made some effort to restructure its network, improve the
consumer experience or experiment with new formats. The Ford Motor Company, for instance, has been enlisting
dealer support in several metropolitan markets in the United States and Britain to sell out or pool their interests in
new ventures that will feature multi-line showrooms; centralized body and repair shops, and distributed quick-service
maintenance facilities. Sweden's Volvo AB is taking a more radical approach: It is testing factory-direct sales over the
Internet in Belgium.
Nonetheless, manufacturers seem to be following, not leading, the revolution. Many are still being pushed or kicked
along the path of change. There are real questions whether their late -- and in some cases half-hearted -- responses
will be enough to protect the traditional position of the vehicle manufacturer as the caller of shots in the auto
industry.
VISION FOR THE FUTURE
Now that we see serious cracks in the walls protecting the traditional automotive distribution model, what will the
future bring? Both the underlying drivers of change in automotive retailing and the trends already under way help
answer that question. In addition, it is helpful to compare the automobile industry with other industries that have
experienced distribution-channel evolution and look at the lessons they learned.
Most consumer-durable industries have undergone substantial distribution-channel evolution resulting from changes
in economics, regulations or technologies. Each one has unique circumstances, but we can see three relatively
common, distinct stages in these channel restructurings:
Stage One: This is marked by major improvements in value delivered, mostly reductions in cost. Usually the cost
reductions stem from consolidation and rationalization in the channel as better concepts or bigger players drive out
marginal or small players. The bigger players use their cost advantage to reduce prices and often to improve service,
variety and convenience.
Stage Two: Here channel evolution is focused on meeting the needs of specific customer segments. Channel
functions are unbundled and restructured into more efficient or more appealing formats for defined groups of
customers. Customer value is further enhanced through lower prices, better service or greater variety.
Stage Three: This brings dramatic new paradigms not just for distribution but for the entire value chain. Full-
service leasing ("power by the hour") in the heavy-duty-truck market is an example of this type of game-changing
concept.
We anticipate five major changes in future automobile distribution patterns and practices:
1. Multiple channels and formats will coexist to satisfy different market segments. Channels are distinct
paths between a manufacturer and a customer through similar economic entities (in new car sales, for example,
traditional dealers vs. factory-direct Internet sales or a multi-brand discount outlet). Formats are distinct
combinations of points of sale, service offerings and business processes within a general channel definition (for
example, the Lexus format versus the Chevrolet format). We expect much more variation in channels and formats in a
physical sense and more distinct positionings in terms of the purchase and ownership experience they provide,
further shifting the basis of competition from product to services and brand attributes.

Undoubtedly, the traditional dealer channel will continue to play a major role, although most of the innovation and
volume growth will occur elsewhere. In many other consumer-durables markets, multiple channels with different
value propositions coexist quite happily. (See Exhibit III.)

2. The six separate businesses under the roof of the traditional dealership will be unbundled. The
integrated model -- new-car sales, used-vehicle sales, finance and insurance, service, parts, fieets -- was established
early on when automobile retailing was still a new industry. In today's world it makes little sense. Different
operational structures will be required to serve a variety of customer needs and economics.
3. The cost of distributing and marketing automobiles will be cut significantly. New formats and
channels will discipline the current system to drive out non-value-adding cost. Dealer consolidations may unlock
substantial economies of scale in back-office functions and purchasing leverage. Much larger savings are possible,
however, by driving out inventory; reducing investment in brick-and-mortar and real estate investments, and
optimizing the delivery of services.
4. Marketing and distribution will concentrate on establishing durable customer
relationships. Customer acquisition costs are high and going higher; it is logical for manufacturers and their
channels to work harder to hold on to the customers they have. We see these relationships developing on two axes:
"follow the car" and "follow the customer."
The "follow the car" axis will take manufacturers more actively into the second and third transactions in a vehicle's
lifetime. Used-car certification programs are a "follow the car" concept increasing in popularity today as a means of
supporting initial sale prices.
The "follow the customer" axis means building more direct relationships with a targeted set of customers to define
their needs, develop tailored marketing programs and stake out unique brand positions. Identifying these customers
and keeping them happy will require substantial investments in market-understanding capabilities that go far beyond
the functional, demographic and pyschographic information that most manufacturers study today.
5. Manufacturers will seek and attain much closer contacts with consumers. We have no doubt that
someone will figure out the riddle of consumers' needs, aspirations and experiences as they relate to cars; the tenuous
part of this prediction is that manufacturers, and not other channel players, will get there first. Manufacturers are
surprisingly -- if not shockingly -- cut off from their consumers today. Their dealer partners spend much of their
energy figuring out ways to disguise the product-push allocation system in a way that conceals true market demand
from the manufacturer. Manufacturers spend small fortunes on advertising, sponsorships, customer clinics and
surveys but continue to introduce market duds.
Internet technology enables more effective and efficient direct contact between manufacturers and their ultimate
customers. If, however, manufacturers fail to exploit this and other technologies to establish meaningful relationships
with consumers, more powerful channel intermediaries will gain the upper hand and end up dictating customer needs
to their suppliers -- the manufacturers.
These transformations will not be easy, and many of today's players will fight them aggressively. But the revolution in
automotive retailing has begun, and now that it is under way it will be impossible to stop and nearly as difficult to
contain.
FORMING A STRATEGIC RESPONSE
Given this view of the future, what should a manufacturer or major channel player do? Appropriate responses are to
some extent situation-dependent, of course, but we believe the three stages of channel evolution observed in other
industries provide valuable insight into what is and will be required to prevail in the automotive industry.
In fact, first-stage channel evolution activities are rampant in
automobile retailing in the United States and Europe, and second-
stage changes have begun to emerge for used cars. We expect that
participants who fall behind in this evolutionary process will suffer
severely, particularly as more and more of the value creation and
differentiation in the industry occurs downstream. The future winners
in the automobile industry likely will be the ones that drive third-
stage evolution.

Accordingly, we recommend the following strategic responses consistent with the three stages of channel evolution
and the future automotive distribution vision described above:
1. Aggressively and systematically pursue functional improvement beyond the factory gate. The most
prominent opportunity is cost.
2. Develop a vision of a desired end-game distribution channel strategy and begin making progress toward that
vision, taking care to achieve consistency between the long-term vision and short-term functional
improvement agendas.
3. Build the means to create and capture much more of the "downstream" value associated with the automobile
-- and, in so doing, strive to innovate "game-changing" approaches to the business.
FUNCTIONAL IMPROVEMENTS
In the conventional dealer networks, tremendous improvement opportunities exist along two basic functional paths:
reducing costs and raising customer satisfaction. Most manufacturers and many large channel players are jumping at
these opportunities, given their magnitude. However, these players tend to select a limited number of programs, and
they typically concentrate on single functional improvements independently or on a single functional path.
A better approach is to address systematically the whole realm of possibilities with an integrated view of benefits
within and across specific functions. This is not easy. Even programs with moderate scope and ambition typically
require reforming entrenched business philosophies; coordinating several organizational groups with disparate
incentives; managing complex and imposing legalities, and facing up to dealers resistant to change. But
manufacturers must recognize that new players unencumbered by these constraints are raising the bar and traditional
players must reach higher or fall behind.
Based on our experiences and analyses, we estimate that about 7 percent of the total cost to serve consumers, or
nearly one-quarter of automotive marketing and distribution costs, can be reduced based on a typical traditional
dealer operation. (See Exhibit IV.) The cost reductions derive from three sources:

1. The consolidation and rationalization of channel activities to achieve economies of scale and eliminate
inefficient operations. Large numbers of small competing dealerships impose significant cost penalties.
2. The unbundling of dealer businesses, for instance used-car selling, to optimize the operating model for a
specific business.
3. The application of best practices across outlets. Given the wide variation and the resulting large differences
in efficiency and effectiveness in operations among dealers, the application of best practices is a powerful
cost-reduction lever.
Here are some examples of potential functional improvements:
Reduce inventory costs. Dealers can cooperate among themselves and with the manufacturers to pool inventory in
regional centers. Also, analytical methodologies, information- systems tools and best practices can be used to evaluate
the dealer-level sales history to determine the best amount and mix of vehicles, including option packages, to hold in
inventory. Finally, to improve future demand visibility and forecasting accuracy, dealers can use improved
information systems and marketing techniques to track customer and sales-promotion information, lease-renewal
marketing campaigns and historical data on sales-promotion effectiveness.
Leverage purchasing power. Dealers can also capitalize on economies of scale. The economies result from lower
costs in areas such as financing, advertising, management personnel, payroll handling, insurance, supplies,
administrative functions and parts purchases. The reported cost savings from these economies alone can be as high as
20 percent of a dealer's total costs. B.B. Hollingsworth Jr., chairman of Group 1 Automotive Inc., one of the leading
consolidators in the country, says that his company has "discovered more economies-of-scale savings than [it]
initially expected."
Manage used-car values. Most manufacturers today have some sort of certified used-car program, although the
programs vary in effectiveness. These programs are critical to managing the risk of large losses from infiated lease
residuals that have become commonplace, and to minimizing the huge cost of incentives.
There is a direct link between the value of the used car and new car prices for the same model. In one case for two
comparable high-end sedans, we found a difference of 8 percent in the used-car price between the make with a
certified used-car program and the one without, despite the fact that they were priced the same when new. This used-
car relative discount was then refiected directly in the new-car pricing differential between the two models in
subsequent years.
Unbundle used-car sales. A large-scale operation designed specifically for used cars can achieve efficiencies
relative to the conventional dealer's used-car format. These include economies of scale in areas such as advertising,
management, personnel, facilities and systems. In addition, there is the obvious savings of a lower-cost location. Joint
ownership and operation by dealers and manufacturers can make an unbundled used-car operation plausible for
existing franchised dealers.
Use best practices to sell cars. The traditional selling approach for new cars is replete with cost (and
effectiveness) opportunities. The car-buying process entails six successive phases: continuous, subconscious
information intake; active, focused information collection; test driving; vehicle selection; purchase/negotiation, and
post-purchase support. Manufacturers and dealers typically use expensive shotgun approaches to these phases;
alternative, more cost-effective information exchange mechanisms are available for each.
These include information technology tools and approaches such as:
Direct marketing databases
Kiosks for interactive customer information exchange, vehicle selection, pricing, delivery-date promise,
order checking and "soft offers" (warranties, financing, insurance, service packages, etc.)
Internet sites for some of these same functions

Benefits include reduced mass-media advertising expenditures, more effective targeted marketing and reduced sales
force resources for almost every phase of the process. (See Exhibit V.)
Use best practices in service and parts. Techniques for parts inventory management, service personnel staffing
practices, service bay scheduling and repair and maintenance procedures typically vary greatly from one dealership to
the next. Systematically identifying the differences and meticulously implementing revised practices results in an
average parts and service cost reduction of 15 percent to 20 percent with only nominal investment.

Increase customer satisfaction. Customer satisfaction and loyalty are rich veins of potential functional
improvement. Manufacturers' efforts are usually unsuccessful when they try to bribe the channel to improve customer
service. Good performers in the channel end up getting paid for what they are already doing and the poor performers
undertake short-lived, superficial steps to "manage the measurements." Customer service in auto retailing is mostly
about executing the basics well -- fixing cars right the first time, keeping commitments, offering conveniences like
pick-up and delivery where feasible. Service advisors and computer-driven follow-up calls will not regain ground lost
to sloppy execution.
DISTRIBUTION CHANNEL STRATEGY
Cost and customer-service improvements are necessary but not sufficient to transform auto retailing channels.
Realizing the full potential of these programs is not possible without a reasonable view of the different customer
segments that should be targeted; the appropriate mix and level of marketing and distribution functions needed for
each segment, and the best portfolio of distribution formats and channels to reach the targets.
Just as specific groups of customers have their own product requirements, different consumer segments have their
own requirements for the purchase and ownership experience. These requirements can be effectively targeted with
channel, format and "soft offer" package variations such as service contracts, financing or sales incentives. Ultimately,
the consumer-segment requirements will drive the service requirements and in turn help determine the best cost and
operating structure for the specific distribution format and customer-value proposition.
Creating purchase and ownership experiences to meet the needs of specific consumers has two other significant
implications. First is the need for parallel formats and channels in a given region, each with its own pricing and
bundle of service offerings. Parallel sales channels can range from the traditional dealer to the Internet or to direct
sales. Similarly, parallel service channels could be created through specialized quick-fix workshops, independent
dealers and do-it-yourself stores/garages. (See Exhibit VI.) Parallel channels and formats raise the possibility of
channel confiict and the need for expanded skills to manage and reduce it.
The second implication of serving multiple, service-based customer segments is the need to avoid cannibalization. For
example, a Mercedes "A" class owner with a limited guarantee and no branded service must be recognized as such and
managed appropriately. This requires a system for identifying and distinguishing the "soft offer" packages sold to
individual consumers. Mercedes is testing such a system in the form of a chip card. The chip card stores a description
of the "soft offers" purchased and requires an explicit payment for additional services.
Creating a more fiexible and targeted mix of channels and formats will be hard to do. But it will also require
manufacturers to collect continuous and rapid feedback for new retailing ideas and approaches, consistent with a
strategic path that is fiexible enough to change as the organization learns over time.
DOWNSTREAM VALUE CREATION
The biggest winners in the automotive channel evolution will be those that drive substantial value improvements by
creating real innovations in the retailing of vehicles. In many other industries, distributors and retailers have driven
and benefited from channel evolution at the expense of manufacturers.
The cost-reduction potential in the traditional network is huge. But even more exciting is that more than 90 percent
of the profits associated with a car or truck occur after the first sale. Innovative ideas that tap this potential may well
dominate the evolution of the automotive channel. Such innovations can be achieved by recognizing the causal drivers
of the value and the linkages among them. This new life-cycle value paradigm represents one way that a leading-edge
car company might approach the problem of creating value through its marketing and distribution activities:
Most vehicle manufacturers offer a variety of "soft offer" services to complement their products --financing,
insurance, extended service contracts and the like -- in a standard package rather than crafting high-value
bundles tailored to specific consumer purchase/ownership segments.
Leasing is one of the best ways to package and market "soft offer" services, but manufacturers have also
begun to rely on short-term lease programs to reduce inventory peaks (first for new cars but also
increasingly for used cars).
Many vehicle manufacturers have adopted certified used-car programs to support retained values as their
lease portfolios and residual-value risk have grown. However, such programs are ineffective without a
concentrated effort to manage the supply of both new and used vehicles.
The need to manage supply leads to order-to-delivery initiatives. These offer two potential benefits: a
reduction in new-car inventory levels throughout the supply chain, and, perhaps more importantly, sharp
reductions in the cost of sales-incentive programs over the inevitable peaks and troughs of the sales cycle.
But these benefits cannot be realized fully without managing used-car inventories as well.
Similarly, order-to-delivery systems require more and higher-quality data about the state of the market
through enhanced dealer systems that are especially critical to supporting selling, merchandising and
promotions processes.
The quantity and quality of information collected at the dealer interface level is key to developing and
maintaining an actionable customer database and accompanying marketing-decision support systems,
replacing the somewhat primitive socio-demographic data that most vehicle manufacturers rely upon today.
In the heavy-truck industry, the advent of full-service leasing ("power by the hour") was a game-changing shift in
value creation and capture. Alternatively, the models developed to sell the Dell Computer Corporation's or Gateway's
personal computers directly to consumers fundamentally altered the competitive arena in favor of the innovators. Our
research indicates that a major portion of the leading companies in shareholder-value creation have innovated new
models of distribution channels.
1
In some industries it has been a manufacturer (for instance, Dell), and in other cases
it has been a retailer (for instance, Home Depot Inc. or Wal-Mart Stores Inc.). Notably, it is either one or the other,
but not both, that has led the way and prospered, and it is typically a single company that captures the benefit. Most
other competitors and partners suffer as a result.
What might such a game-changing revolution be in the automotive context? Marketing and selling extended-mobility
service to consumers as opposed to pushing new cars? Life-cycle management of automobiles through multiple
transactions? Selling cars and support services directly to consumers? We're not sure, but evidence suggests that only
those companies that are experimenting with such innovative concepts have a chance to be the future leaders of the
industry.

ANTICIPATED CHANGES
Change and innovation are the lifeblood of most retail businesses, but the automobile retail industry has been
remarkably resistant to transformation. As a result, the industry suffers from an outdated and expensive channel, and
most consumers feel short-changed and ill-treated in the bargain.
This situation is changing. Automobile retailing is evolving at an unprecedented rate. At one level the future
implications are clear. These include multiple alternative formats and channels; greater unbundling of dealer
businesses; increased value through the channels (improved service and selection at a lower cost); more emphasis on
life-cycle relationships, and probably tighter relationships between manufacturers and consumers. Specifically who
will win and lose is much less clear. The odds are not with the manufacturers, but the game is not lost. To win they
must shake off old habits and practices and then visualize and implement revolutionary ways to sell cars.
1
Charles E. Lucier, Leslie H. Moeller and Raymond Held, "10X Value: The Engine Powering Long-Term Shareholder
Returns," Strategy & Business, 3rd Quarter 1997, pp. 21-28.
Republic: Evolution or Revolution?
Does Republic Industries, the largest holder of new-car dealerships in the United States, parent of the AutoNation
USA used-car megastore chain and owner of multiple rental car companies, represent the future of automotive
retailing? Yes, it is out in front of the pack, but no, it has not, at least not yet, demonstrated the radical changes we
believe will be required to excel in automotive retailing.
Republic is clearly a leader in first-stage channel restructuring, forcing cost reduction through aggressive
rationalization and consolidation. Automotive industry observers for the most part view Republic as a leviathan,
swallowing up auto dealers at will. For the first three quarters of 1998, Republic reported revenue of $12.7 billion, up
72 percent from $7.4 billion during the first three quarters of 1997. Its income from continuing operations for the
same period totaled $384.2 million, up 68 percent from 1997. Automotive operations, which include National Car
Rental, Alamo Rent-A-Car and CarTemps USA, account for about 92 percent of revenue and 78 percent of operating
income; solid waste services contribute the rest.
As is typical for retail innovators, Republic is now striving to greatly improve the car-buying and ownership
experience for consumers. Republic announced in September 1998 that it was not going to sell cars the old-fashioned
way in Denver. Under the Denver plan, Republic will switch to a one-price, no-haggle sales approach similar to the
one pioneered by the Saturn division of the General Motors Corporation. But Republic goes further than Saturn.
Republic's customers, the company announced, are to be offered "membership-style benefits that will give them
access to a wide range of automotive retailing, service and financing options, along with vehicle rental discounts and
other related products and services." As the program develops, Republic says it will "introduce an integrated e-
commerce shopping alternative and a comprehensive customer service center." Republic plans to roll out the program
nationwide to the more than 350 franchises it has acquired since 1995.
"Customers are tired of the high-pressure, low-satisfaction sales model," the company's president, Steven R. Berrard,
said. "They want a simple, less time-consuming sales process. They want paperwork that's easy to understand. They
want service that's done right the first time. They want a dealer who will stand behind the product, no matter where
they travel."
Most vehicle manufacturers in the United States and Europe have done benchmarking studies of Republic Industries
and AutoNation. Some, such as G.M., the Ford Motor Company, Mercedes-Benz and the Nissan Motor Company,
have entered into formal franchise agreements or even business relationships with Republic. A few manufacturers,
such as the Honda Motor Company, Toyota Motor Corporation and Nissan, resisted Republic's overtures at first in
the courts and with state agencies. Yet each has come to terms in one way or another with Republic.
Much of Republic's progress so far resembles the natural evolution of retailing that has occurred in a host of other
consumer-durables categories. In these categories, smart and aggressive retailers have created "category killer"
formats that offer both lower costs and better selection. Examples of the "category killers" include Home Depot Inc.
(home improvement products) and Circuit City Stores Inc. (appliances and consumer electronics). In fact, it was
Circuit City that invented the CarMax Group, the first used-car superstore chain.
Our evaluation of the growth of these category-killer formats reveals that they are characterized by significant
experimentation, not necessarily by great success and profits in their early development. However, once the format is
perfected, these retailers rapidly replicate outlets across geographies. When observers look at the financial teething
pains of Republic and argue that they are stumbling and will stop expanding, they ignore the lessons of the past.
The second stage of retail evolution is driven by the recognition, again usually by smart retailers rather than
manufacturers, that consumers differ in the way they want to buy and own their products. This leads to the creation of
multiple formats and distribution channels, each with tailored bundles of services and associated economics. These
formats can coexist with each other over time, because consumers select the format best suited to their needs. These
can range from exclusive brands and very high service to minimal service, a broad selection and low prices.
For example, Home Depot is attempting to capture additional market segments with new channels and formats, such
as its Expo design stores, home installation services and Internet sales. In the consumer durables categories, the
"category killer" format typically captures 30 percent to 40 percent of the market, leaving most of the rest spread
among two or three other formats.
Republic appears to recognize these second-stage requirements, at least in used cars. In April 1998, Republic acquired
Driver's Mart Worldwide Inc. The Driver's Mart concept is not the same as AutoNation's; it features more
participation by the local operator, improved selling and reconditioning processes and smaller lots with lower
inventory. Republic is also experimenting, through AutoNation, with a format called Value Stop (older cars, lower
prices) and a dedicated center in Houston for used trucks, vans and sport utility vehicles.
The third stage of retail evolution involves changing the fundamental retailing paradigm. The prevailing paradigm in
the automotive industry is that car companies design and build cars; their dealers distribute and service them. An
alternative paradigm is that car manufacturers are in the business of creating economic assets that must be managed
over the life of the assets to create and capture value. Leasing forces manufacturers to confront this new paradigm,
and some creative automakers are beginning to think about how to exploit its value more fully. With its extensive
business base and multiple automotive operations, Republic has the capacity to test and pioneer such new concepts.
Republic also brings other critical elements to the party -- an outsider's perspective and an innovative spirit.
To date, Republic has focused primarily on pursuing the benefits of consolidation typical in the first stage of retail
channel evolution. But some of its actions suggest the potential for truly game-changing retail evolution. When
channel players, as opposed to manufacturers, are the winners in retail evolution, most often the one that leads in the
first stage is the one that leads in other stages and reaps substantial benefits. Republic could be the first in the
automotive industry to create an independent retail brand that actually "owns the customer."
Reprint No. 9910

Globalization of Tata Motors: Strategic Plan for
the Future
Faculty Contributor: Murali Patibandla, Professor
Student Contributors: Arun A, Balasubramanian C, Indranil Guha, Gautham M N
Tata Motors produces vehicles both in the Light Commercial Vehicles (LCV) and the Medium and Heavy Commercial
Vehicles (M and HCV) segments. It faces higher competition in the LCV segment, where its Tata ACE has been a huge
success. Internationalization forms a key component of Tata Motor's strategy and it has successfully entered
countries having a demand similar to India like South Africa, Thailand and Argentina, mainly through acquisitions and
joint ventures. It needs to improve its product reliability, service network and channel reach in order to maintain and
replicate this success in other markets. Some of the recommendations for Tata Motors are exploring mass
customization options in the Small Commercial Vehicle (SCV) segment, improving brand reputation and technology
appropriation to bring out a world class ultra-HCV segment.
Tata Motors is currently India's largest automobile company with revenues of $7.2 billion in 2006-07. It is by
far the leader in commercial vehicles and the second largest player in the passenger vehicles market with
winning products in the compact, midsize car and utility vehicle segments. Employing around 23000 people
and headquartered in Mumbai, Tata Motors became the first company from India's engineering sector to be
listed in the NYSE in September 2004
1
. While currently about 18% of its revenues come from international
business, the company's objective is to expand its international business, both through organic and inorganic
growth routes.
A brief examination of the truck industry in India using Porter's analysis helps us understand the threats that
Tata Motors faces.
Overview of the Truck Industry in India
The truck market in India comprises the light trucks (LCV) and the medium and heavy trucks segments (M
and HCV), of which the M and HCV segment constitutes nearly 78% of the total Indian truck market.
a) Light Commercial Vehicles (LCV)
2

The market for light trucks is composed of pickups, vans and coaches weighting up to 3.5 tonnes. This
segment has exhibited a consistent growth rate of over 20% in the past 5 years. This growth is expected to
continue with the launch of Tata Ace by Tata Motors and similar plans by other players like Mahindra &
Mahindra, Eicher, etc.
b) Medium and Heavy Commercial Vehicles (M and HCV)
3

The medium and heavy trucks include commercial vehicles, heavy buses and coaches weighing 3.51-16
tonnes. This segment has stabilized and is expected to grow at 10% over the next 5 years. The major players
in this segment include Tata Motors and Ashok Leyland which account for more than 85% of the market.
Competitive Threats in the Industry
The Porter's analysis for the LCV and the M and HCV segments show strikingly similar results except for the
threat of new entrants. In the LCV market there exist a small number of large companies between whom
there is a high degree of competition. To gain market share companies are focused on innovation and strong
marketing strategies. The companies are usually not diversified beyond automotive manufacture. As a result,
if the automotive sector is in a downturn, it could raise exit barriers. Hence the overall rivalry is strong in this
market.
In the face of such rivalry, let us consider the financial performance of Tata Motors.
Financial Performance of Tata Motors
Over the years the conpany has performed exceptionally well financially inspite of the cyclical nature of the
industry. A critical analysis of the financial statements provides us with the following insights.
1. The issue of Cyclicality is plaguing the automotive sector and the future outlook in India is not great
considering the robust performance of the past 3 years. Tata Motors has countered this by increasing
the share of exports in the sources of revenue.
2. Excess debt has led to a high Debt to Equity ratio and this is not good news as the company plans to go for
further capital expansion. Also the percentage of cash flow used for CAPEX is increasing as shown in Exhibit 1.
Exhibit 1 Percentage of cash inflow used for CAPEX
3. Rising interest rates in the economy is a cause of concern as it dampens both capital investments and softens
the domestic demand.
4. Positives: The cash flow from operations has grown 11 times compared to last year despite a huge CAPEX.
Tata Ace single handedly raised the market share of Tata Motors in LCV segment by 5%. The operating
leverage for Tata Motors is higher due to the high fixed costs of CAPEX. But still the overall financial leverage
of Tata Motors is well under control when compared to Ashok Leyland.
Internationalization
Tata motors has decided to focus on a narrow base of 14-15 countries where market conditions are similar to that of
India
As a part of the company's new internationalization strategy, the company has decided to focus on a narrow
base of 14-15 countries where market conditions are similar to that of India. In these countries, Tata Motors
now has dedicated manufacturing facilities, marketing teams and sales teams. The idea is to have self
sustained operations in this narrow band of countries. The company evaluates locations on the basis of
market opportunities and labour skills.
In the framework pertaining to international expansion strategies, Tata Motors can be identified as an
Extender, and is focusing on expanding into markets similar to those of the home base, using competencies
developed at home (see Exhibit 2).
Exhibit 2 Where is Tata Motors now and How to Globalize?
Korean Operations
Tata Motors entered the advanced Korean Market by acquiring Daewoo, with which it has tremendous
synergies in terms of product strategy and R & D. Tata Motors has planned to use this merger and leverage
the technology for developing a World Truck for India and international markets.
South African Operations
In the export market, Tata Motors moved from a fragmented approach to specific markets, chosen in terms of
consumer behavior, distribution networks, supply chain, etc. and identified South Africa as one of the best
markets. The sales in this region are about 15,000 units
4
. This is a significant improvement over what Tata
Motors was cumulatively exporting (8000 units) before adopting its new internationalization strategy.
Thailand Operations
Tata Motors formed a joint venture with Thonburi Automotive Plant to enter Thailand. Thailand is the
second most competitive market for pickups, and the new pickup trucks developed here will be sold in both
domestic and export markets.
Latin American Operations
Tata Motors has taken its alliance with Fiat to produce a new one-tonne pick-up truck, for Latin American
markets from Fiat's facility in Argentina. This arrangement will also see Tata Motors forming a joint venture
with a subsidiary of Iveco, the commercial vehicle division on Fiat, to set up a distribution network.
Now that Tata Motors has established a sustainable model in some countries, its main challenge is to
replicate this model in other countries as well.
How to replicate this strategy for other markets?
Sustainable competitive advantage lies not in one, but a combination of multiple resources, each of which
individually need not necessarily be the best, but in overall weighted average terms, presents the best
solution. For Tata Motors, the combination of resources providing it competitive superiority on a weighted
average basis includes (see Exhibit 3):
1. Product Reliability
2. Service Network
3. Channel Reach
Exhibit 3 Three-way Resource Based View
In terms of product reliability, Tata Motors offers products of reasonably high standards. However, foreign
players like Volvo and even local competitors like Ashok Leyland arguably offer products that are far more
refined. But this is more than compensated by a dependable service network and extensive channel reach.
Tata's service and distributor network is by far the most extensive of any player in the trucks industry. Hence
in overall weighted average terms, Tata Motors still has a winning proposition.
In the next section, we provide recommendations that can take this winning proposition even further.
Recommendation Matrix
Based on a close scrutiny of the resource based view of Tata Motors and the challenges it faces, we propose a
recommendation matrix arranged along three broad dimensions - Tangible, Intangible and Capabilities (see
Exhibit 4).
Exhibit
4 Three Dimensional Recommendation Matrix
Tangible
The strategies in this domain are primarily directed at sustaining Tata Motors' first mover advantage with
respect to its offering in the Small Commercial Vehicle segment - ACE.
Strategy Sustaining the First Mover's Advantage of ACE
National
Footprint
Tata Motors has an unparalleled network of dealers and service stations across the country for Medium
and Heavy Commercial Vehicles (M and HCV). However most of these service stations are along inter-city
routes. It would need to replicate this network at intra-city level for its hugely successful SCV - the Tata
ACE. For this Tata Motors can liaise with small garages, train them and certify them as 'Tata Authorized
Service Station'.
Product
Portfolio
Tata Motors has positioned ACE as a multipurpose vehicle (MPV). This is where Tata Motors can learn
from the Maruti small car strategy that posits that 'there is no such thing as a small car buyer'. Hence
Tata Motors should endeavour to move form a multi-purpose positioning to a mass customization
positioning for ACE, wherein multiple variants are offered on the ACE platform, each uniquely suited for
a specific application - such as tippers, long base trawlers, milk carriers.
Intangible
In intangible terms, Tata Motors needs to bolster its brand loyalty, by providing a unique customer
experience.
Strategy Intangible Assets
Unique
Customer
Experience
In commercial vehicles industry, the uniqueness of customer experience is largely driven by the
efficacy of the 'Support' framework. If your car breaks down, you can take a taxi to office. But that's
not so for a transport operator. For him, his vehicle is at the heart of his business and hence
responsive after-sales support is critical. Minimizing downtime calls for a service network that is
highly responsive and easily accessible. Besides, Tata Motors should also
1. Consider introducing mobile service units for Tata ACE that can respond to customer calls
anywhere within a given city.
2. Start treating "Services" as a dedicated profit center. Towards this end, the company should
"productize" annual maintenance contracts.
Brand
Reputation
Building a reputation will help sustain sales, without having to engage in discount sales.
Capabilities
There are two broad capabilities that Tata Motors should seek to acquire.
Strategy Capability Acquisition
Technology
Appropriation
Technology Appropriation is the key to Tata Motor's ambitions to offer
products with engines larger than 210 HP. As the share of ultra heavy
commercial vehicles grows, the company will need to face up to
technologically superior players like Volvo. Here, Tata will have to carefully
spearhead its 'World Truck' program by carefully coordinating technology
appropriation from its numerous international technology partners, notably
Daewoo, Fiat and Hispano.
Robust Supply
Chain
Tata Motors has made significant investments in IT systems to network its
countrywide service network. This helps them maintain very high spares parts
availability at their service stations and minimize downtime. In the years to
come, it would need to include their SCV service station within this framework.
This will however be a big challenge, since these service stations would largely
be managed by illiterate and not-so-tech-savvy repairmen.
Contingency Plans
1. Mass customization has its own shortcomings. Firstly, it puts a disproportionate amount of strain on the
company's supply chain. And this is a wasted effort in case the demand patterns aren't properly understood.
Hence we propose that the sales of the customized vehicles be closely tracked and in case sales achieved
within a reasonable timeframe do not merit the additional resource outlay, then the company should revert
to the original multipurpose positioning.
2. In the background of rupee appreciation, exports will become costly. Hence it is prudent to open integrated
production plants in other countries rather than just concentrating on exports.
A few pointers on what Tata Motors ought not to do are captured below:
1. Compete on price because proportion of individual players is low. Instead differentiate through service.
2. Engage in rapid capital expansion given the high debt to equity ratio. Use ring fencing judiciously.
3. Focus on rapid acquisitions and instead focus on consolidation in the foreign market.
4. Lose focus on the 'Value for Money' positioning, especially in the soon to be launched offering in the Ultra
Heavy Commercial Vehicle segment
Conclusion
Tata Motors has never had it so good. Today the company is the undisputed market leader in the commercial
vehicles industry in India and is gradually emerging as one of the key players internationally too. It has been
forging ahead on a number of fronts in an attempt to further entrench its position as a market leader. In the
SCV segment, the company has witnessed unprecedented success with the launch of the pioneering Tata
ACE. In the M and HCV segment, the company has been taking determined steps to further consolidate its
position. The company enjoys a number of key strengths that enable it to present a unique value proposition
to its customers.
However this success is far from being a given. The company must focus on combining its unique strengths,
as it endeavors to replicate its recent successes in new segments and across new geographies. Apart from
product reliability, the most important determinant of future success would the company's ability to bolster
its support framework. If the company gets it right, the spoils could indeed be breathtaking. Not only will
that catapult the company to the forefront of creating a unique customer experience, but also help spawn
altogether new revenue streams. The future presents challenges and opportunities for the company in equal
measure both domestically and internationally. While pitfalls are many, Tata Motors looks well positioned
indeed to capitalize on these opportunities and take on the world.
Authors
Prof. Murali Patibandla is a Professor in the Corporate Strategy & Policy area at IIM Bangalore. He holds
a Ph.D. in Economics from Jawaharlal Nehru University and is a recipient of Fulbright Post-Doctoral
Fellowship awarded by The University of California, Berkeley. He can be reached at muralip@iimb.ernet.in
Arun A (PGP 2007-09) holds a B.E. in Electronics & Communication Engineering from College of
Engineering, Guindy. He can be reached at aruna07@iimb.ernet.in
Balasubramanian C (PGP 2007-09) holds a B.E. (Hons.) in Computer Science Engineering from Birla
Institute of Technology, Pilani. He can be reached at balasubramanianc07@iimb.ernet.in
Indranil Guha (PGP 2007-09) holds a B.E. in Computer Science Engineering from Nanyang Technical
University, Singapore. He can be reached at indranilg07@iimb.ernet.in
Gautham M N (PGP 2007-09) holds a B.E. in Electronics & Communication Engineering from MS
Ramaiah Institute of Technology, Bangalore. He can be reached at gauthammn07@iimb.ernet.in
Keywords
Strategy, Automotives, Tata Motors, Globalization, India, Light Commercial Vehicles, Medium & Heavy
Commercial Vehicles
References
1. Tata Motors - Profile, Link: http://www.tatamotors.com/our_world/profile.php , Last accessed on: 29th
December, 2009
2. DataMonitor Industry Report, "Light Trucks in India", Reference Code: 0102-0348, Last accessed on: 18th
December, 2009
3. DataMonitor Industry Report, "Medium and Heavy Trucks in India", Reference Code: 0102-0352, Last
accessed on: 18th December, 2009
4. Tata Motors Press Release,
Link: http://www.tatamotors.com/our_world/press_releases.php?ID=343&action=Pull 1 February 2008, Last
accessed on: 29th December, 2009

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Top Eight Marketing and Sales Strategies
by Gregory P. Smith
No matter what business you work in, a "business as usual" mindset will insure your competitors are
making more money than you are. Here are eight tips to help you stand out from the competition so
you won't find yourself stood up by your customers.
Oliver Wendell Holmes said, "The great thing in life is not
where we stand, but what direction we are moving." No matter what business you work in, a
"business as usual" mindset will insure your competitors are making more money than you are. If
you don't stand out from the competition you may find yourself stood up by your customers. Now
more than ever you have to focus, improve, and possibly even change what you do to attain, retain,
and maintain customers.
Strategy 1. Think big and audit your time. No matter the size of your business, place a mental
image in your mind as if you are the largest and most successful person in your industry. How much
time is consumed by routine office work someone else should be doing? Spend more time with more
important tasks such as marketing strategies, improving customer relations, and implementing new
strategies to expand your services.
Strategy 2. Be different and stand out from the competition. Jordan Furniture sells more
furniture per square foot than any other furniture store in the nation. They transformed their family-
owned business into a multi-million dollar corporation by following a principle called
"shoppertainment." To surprise employees and customers, Barry and Eliot Tatleman dressed up like
the Lone Ranger and Tonto and rode horses in their parking lot. They built an IMax theater inside
one store to entertain children while their parents shopped. When you drive around the back to pick
up your furniture they provide you free hotdogs and wash your car windows.
Strategy 3. Build relationships with your customers. For each month that goes by, customers
lose 10% of their buying power. Create a customer database and contact them on a regular basis.
Mail them a postcard, birthday card, sales flyer, newsletter etc. to keep your name, phone number,
and service on their mind.
Strategy 4. Collect E-Mail Addresses. Get permission from your customers to use their E-mail
address. Periodically send updates and notices to your client list. As long as you have their
permission and avoid overuse, E-mail can be a powerful and inexpensive marketing tool.
Strategy 5. Hire top sales people. Successful businesses realize the quality of their sales staff is
critical to sustaining their growth in the marketplace. A top salesperson can outsell an average one 4
to 1. Sales people must understand their strengths and have a well-defined plan to reach their
potential. Many companies can provide you sales assessments to both identify top candidates and
develop currently employed sales people.
Strategy 6. Put a shopping cart on your website. Online sales are still growing at a dramatic
pace. This is coming from people who want to save time, avoid crowded stores, convenience, and
the ability to shop outside of store hours. Just consider E-Bay for example, which generates millions
of dollars of sales each year. It does not cost anything to set up an account on E-Bay, and you pay a
proportion based on the cost of the item you are trying to sell. If you don't want to use E-bay,
consider using your own shopping cart system on your website.
Strategy 7. Pay-per-click advertising. Many business owners are finding classified advertising is
not an effective use of their marketing dollars. Others are finding pay-per-click advertising is an
easier and cheaper way to reach a larger market. Pay-per-click will insure you receive top visibility
on websites driving more customers to your door. Advertisers bid on keywords and the more popular
the keyword, the more expensive each click is. Prices vary between ten cents to many dollars
depending on the popularity of the word. The most popular pay-per-click advertisers are Google,
Business.com, and Yahoo.
Strategy 8. Use customer service commandments to create good habits. Bates Ace Hardware
store located in Atlanta created "Twenty Customer Service Commandments" modeled after the Ritz-
Carlton hotels outlining specific behaviors employees are to demonstrate when dealing with
customers and fellow employees. For example, "Accompany a customer to the correct aisle instead
of pointing to another area of the store." They print the commandments on a small card and
employees carry it with them at work.

Automotive brands are test-driving new
marketing strategies
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Automobile retailers and manufacturers execute innovative marketing efforts
Automobile ads are commonly associated with gleaming cars cruising winding roads in catchy TV
spots. But a digitally savvy generation of customers, the emergence of new customer touch points,
and the need for car manufacturers to distinguish their vehicles in a traffic jam of similar products
has given rise to the adoption of new channels and strategies.
Today, auto manufacturers are incorporating elements such as social media contests and outreach
to distinguish their respective brands. At the same time, many local auto retailers and dealerships
are using traditional advertising strategies with a distinctly 21st century spin. Regardless of the
objective, all automotive marketers face similar obstacles, like justifying investments in social media
and testing uncharted waters.
One auto manufacturer accelerating its use of new marketing approaches is Kia Motors America. Its
Kia Soul shuffle slam marketing campaign, created by David&Goliath, was designed to pitch
potential buyers in a way that enabled Kia to engage consumers in a promotion that allowed them
to be creative and communicate, says George Haynes, social and digital media manager at Kia
Motors America. The campaign invited consumers to submit videos of themselves dancing to
electropop like Kia's music-loving mascots, the soul Hamsters, on the Kia Soul YouTube and
Facebook channels for a chance to win prizes.
The campaign was a really good way for people to get to know the personality of our brand,
Haynes says, noting that the Kia Soul YouTube channel has received more than 18 million views to
date.
Ultimately, campaigns like the Kia Soul shuffle are designed to entice consumers to do the talking in
viral environments such as YouTube. When consumers participate creatively in a campaign, not only
will they develop a positive association with the brandin this case Kiathey'll also be more likely
to notify their peer group about the work they've done and, by extension, talk up the brand.
Jaguar Land Rover aims to
increase customer retention

Jaguar Land Rover is leveraging cutting-edge technologies to retain customers in an after-sales
environment.
Click to read the full case study.

Similarly, MINI USA uses the power of social media to engage and share; however, the automotive
company also sees it as an opportunity to do more with less. Our competitors outspend us by five,
10, 15 times more in their marketing spend, says Tom Salkowsky, marketing manager at MINI USA.
We need to be both clever and feisty in our tonality and in our media buys. digital affords us that
flexibility and quickness.
MINI USA's the best test drive ever. Period. campaign, created by butler, shine, stern and Partners,
encouraged consumers to describe in six words a fantasy test drive of a Mini Coupe. The contest
winner's fantasy was made reality in a film that premiered online on MINI USA's Facebook page and
YouTube channel, as well as in cinemas nationwide. The campaign received 14,000 submissions,
prompted MINI USA's Twitter account to grow from zero to 19,000 followers in one month, and drove
6,000 consumers into 115 MINI USA dealerships2,100 of which ended up purchasing a vehicle, all
for a fraction of the cost of super bowl TV spots or celebrity endorsements.
While automobile manufacturers like Kia and MINI use social channels to blast out branding and
awareness campaigns for a national audience, more intimate and direct efforts occur at local levels,
typically among auto retailers and dealerships. Toronto-based auto retailer Pfaff Automotive
Partners used a high-tech spin for its latest marketing campaign by ad agency Lowe Roche without
relying on social media. Pfaff placed white Porsche 911s in the driveways of 50 Toronto residences
in tony neighborhoods as part of an innovative direct mail marketing campaign. to select the
residences, Pfaff reviewed its customers' purchasing trends and then narrowed down its list to those
living in homes in the $2 million range.
A photographer snapped a photo at each home and, using a portable printer, instantly created a
direct mail piece with the caption, It's closer than you think. The result: a 33% response rate
compared to the 4% response rate that Pfaff Automotive's traditional direct mail marketing
campaigns generate.
That's a huge, huge difference, says Pfaff President and CEO Christopher Pfaff, adding that the
retailer has reduced its dependence on newspaper ads by nearly 30% in recent months. There's a
lot of clutter out there. Consumers are bombarded [by direct mail advertisements]. I know I am.
Yet, despite plans to target an additional 500 households in September with on-the-spot customized
direct mail pieces, Pfaff says that innovative marketing strategies can be risky and hard to quantify.
It's still very much testing ground for us, he says. It's been really challenging to get our heads
around it, to monitor direct results, and get a feel for what's working and what's not working.
Traditional marketing like Pfaff's direct mail campaign may be expensive, but its trackability
continues to make it attractive. Part of the reason automotive manufacturers and retailers are
hesitant to make sweeping investments in non-traditional marketing techniques is due in large part to
an absence of reliable metrics. There's a great value in having people interact with your brand,
says Kia's Haynes. Unfortunately, to say that one part of [a digital campaign] is driving the sale
would be pretty ambitious. Even if we could track it, we wouldn't be able to attribute it to that one
action.
No wonder, then, that most automobile brands aren't ready to abandon traditional media channels
like television and radio. It's way too early to do that, Haynes says. I think what we'll see is more of
a convergence of traditional and digital strategies as tried-and-true channels like television and
radio get smarter and start supporting social media platforms like Facebook.