Borrell’s Blog

by Kip Cassino

Anyone who has watched “lifeboat” movies knows how they progress. As the days lengthen, the crew stretches rations to a few morsels of food and a single sip of water. The weak are cast into the sea as they swoon. But, eventually, the rations run out and the remaining survivors begin to look to each other as the awful remaining alternative.

To some extent, that grim scenario is playing out in the media industry. Newspapers, for example, have cut staff to levels never contemplated in years past, in order to preserve the “core product.” But beyond the cuts, it’s pretty much business as usual, even though the ad categories responsible for the majority of past revenue – the auto dealers, department stores, real estate, and recruitment – have all continued to slip as the century nears the end of its first decade. But cuts assume that things will ultimately be better … that the lifeboat will be found, and those still onboard rescued. What if that’s not the case? What if the lost revenue is not coming back?

An evaluation of the trends driving the downturn in advertising spending for each of these categories does not hold promise for a return to the past. Without getting too technical, the statistics show the opposite: that there has been a break between past spending patterns and those in place now in every one of these ad categories. Return to the past is unlikely. Nor is it likely that some major new ad category will arise to take the place of the lost revenue. A look through the lists of businesses and their ad spending patterns does not show promise in any market, large or small.

There are no quick fixes for the current situation. There are indicators, however, that – when taken together – at least show the direction newspapers must go to regain their market strength:

1. Be aware of how you got here. Newspapers are in the situation that exists now because they chose to measure revenue and ignore share. So, when revenue dropped, the reduced share caused even greater reductions – unanticipated by past results.

2. Find out where the money is going. In both recruitment and real estate, the lost share did not all go to some online intermediary. In many cases, it moved to the advertisers’ websites themselves. This means the “Upsell,” the classic vehicle newspapers have used to become the largest local online advertisers in the markets they serve, is ending. The online money is now moving to paid search engine placement, e-mail marketing, online promotions, and streaming audio/video.

3. Play to win. That means measuring share, and looking to win it. Just counting money isn’t enough. If your revenue isn’t growing faster than the whole pie, even if it’s growing you’re still losing ground.

4. Get measured. Newspapers have the reputation among advertisers as resistant to measurement. Yet measurement is, increasingly, what advertisers demand. Programs to offer reasonable metrics in this area must be developed.

Newspapers are not going away, though they may change dramatically during the coming decade. However, the longer they continue their “lifeboat syndrome,” the more painful their transition will be.

~ KC

Gordon Borrell was recently interviewed by a trade journal about trends in automotive advertising. We are posting excerpts from that interview over the next several days. Here is the second installment:

Q: Most analysts report that the dealer ad spend is migrating from traditional to online (and other more targeted) marketing at a historic pace. Given the levels of consumer online automotive research/shopping adoption, is it moving fast enough? Has it moved far enough? When do you think it will be where it should be?

What's happening in terms of the lag between audience and advertiser has a lot of historical precedent. Local advertisers aren't lemmings. In fact they're pretty conservative and don't like to gamble with their precious advertising dollars. That's why it took 10 years for broadcast TV to get any appreciable amount of local advertising, even though the TV viewing audience had hit 80 percent by the early 1960s. The same thing happened with cable. What we're seeing now with auto dealers didn't really start until three years ago when the Internet hit that magical "critical mass" point when it was in 50 percent of all households. It was only then that local advertisers started moving dollars over to the net. Even then, it was in small increments, not wholesale shifts. We really can't be confident in projections that go beyond five years — even three — but there's no reason to believe that this migration of dealer advertising to the Internet will stop anytime soon. It typically takes 20 years for a "new medium" to start reflecting growth rates and cycles similar to their "mature media" counterparts. We're only 12 years into the Internet as a commercial medium.

Q: In your overview of the automotive advertising landscape for 2007, what were the very biggest trends you see emerging? What were biggest surprises?

The biggest trend and surprise was the Internet's effect as a disintermediary. We didn't discuss it much in the report because we're preparing another one to look at this phenomenon more deeply. The Internet allows retailers to reach consumers directly. In effect, the Internet is their own broadcast and publishing medium. The fact that auto advertisers are putting more money into promotions — and actually curtailing their ad spending — is proof of this phenomenon. Range Rover will put loads of money into an interactive feature on their Web site that lets you watch a video of a safari adventure or an excursion into a rain forest, and people come directly to the site to view what is essentially a commercial. Dealers can list their entire inventory, pricing and specials on their Web sites. As we tell media companies, the deer have the guns now.

Q: What very basic things should dealers be doing/investing in right now to grow their Internet business? Invest in? The must-dos? What % of dealer ad budgets should be dedicated to online media? Any advice on which media? Search? Leads? Classifieds? Video? Etc?

For franchise dealers, the mix should probably be 40-25-25-10, with the largest percentage being either broadcast TV or newspapers — whichever they perceive works the best. The "perception" portion is important, because media will perform differently in different markets for a variety of reasons. The lower percentages should be a mix between the Internet, radio, cable, Direct Mail or billboards — again, whatever the advertiser perceives works best. For the typical franchise dealer, the online expenditure is not quite 7 percent of advertising spending right now, and there's no reason it should be much higher than 10 percent, we think. In terms of where to place that 7 to 10 percent, we'd recommend quarterly campaigns that test each of the things you mentioned. Lead-generation is certainly worth investigating and testing, as is search engine advertising. Video advertising is too early to place any significant bets on at the moment. The channels for video need to open up a bit more. I don't think a 15-second pre-roll for Auto Nation, for instance, is going to deliver much business if only a few hundred people view it a week on the local TV Web site. There aren't enough venues, or a large enough audience, for local video right now.

Or: What do you think is a balanced, effective Internet marketing spend for dealers and, briefly, why?

A balanced spend would be one that follows the lines of what other dealers might be doing, but perhaps ran it up a bit more. It's not as much as a gamble as advertisers think. As I said, the audience is already "there." Certainly if you want to grow your business you'll have to take some risks. Spending a few extra marketing dollars on the Internet is one of the better investments a dealership can make. People want to do business with forward-thinking companies, and what better way than to have one of the best-looking Web sites out there, and to promote it heavily? One thing I'd advocate is constantly testing the ROI or effectiveness of those expenditures. The costs can start getting out of hand because it is a seductive, creative medium. You'll want to have a solid set of objectives before you drop $5,000 on paid search advertising in July. Is the goal to increase your site traffic 20 percent from the search engines? Is your goal to send people to a coupon page for a free oil change? How many actually exchanged those coupons?

Q: Some of your new research relates to the current car buying funnel, and the marketing implications/opportunities of targeting consumers across that funnel. In a nutshell, what were your key insights/takeways, particularly for franchised dealers there?
I think I covered this in the answer to the first question. To reiterate, franchise dealers probably want to place their advertising bets at the lower end of that funnel when people have selected a vehicle and are ready to find it. The top end of the funnel is being taken care of by the manufacturers. The dealers need to be ready to advertise price and item around key sales periods like weekends or holidays. They should certainly do some branding around town, of course. But it should be designed as simple branding around the quality of the dealership, and a URL for their Web site.

Q: You report some slowing/or plateauing in the traditional 'lead' business, and discusses the problem of dealer response times. How long does the typical dealer take to respond? Any advice on how quick that should be? How that impacts their lead conversions and sales?

The typical dealer takes 6.5 hours to respond to a lead, according to the study sponsored by Dealix. The spin that was put on the press release said that dealers improved their response time from 9.5 hours a year earlier. Big deal! This is an embarrassing statistic for the industry. If I were a car salesman and it took me 6.5 hours to answer the phone, I don't suspect I'd be a car salesman for long. I've seen research that said the likelihood of the lead turning into a sale decreases 50 percent every hour. So the salesman after 6.5 hours the salesman has a 2 percent chance of making the sale. No wonder lead-generation programs are getting a black eye. You've got to look at leads like phone calls. If it doesn't get answered in four rings you've probably lost the sale. Four rings typically take about 10 seconds. It's really just basic salesmanship and has nothing to do with the Internet per se.

Gordon Borrell was recently interviewed by a trade journal about trends in automotive advertising. Over the next several days we are posting excerpts from that interview. Here is the first installment:

Q: Which ad channels are currently making the biggest gains? Getting hit the hardest? And which ad mediums will be the biggest winners and losers over the next 5 years?

The biggest channel gainer in the automotive space is obviously the Internet, with cable not too far behind. Over the next five years the trend changes a bit, with the Internet and cable continuing to do well, but with TV also doing just fine. We're projecting online automotive advertising to grow 86 percent over the next five years, cable to grow 46 percent, and broadcast TV 20 percent. The channels getting hit the hardest are all the ones related to print. That includes direct mail, newspapers, yellow pages and local auto magazines. All face declines in the next five years — yellow pages down 31 percent, newspapers down 25 percent, direct mail down 21 percent and magazines down 7 percent.

Q: Why do you think this is so?

It all relates to the "buying funnel" and auto advertisers trying to entrance and lure car buyers as they pass through that funnel. At the beginning of the process car buyers are dreaming about which car they'll buy next. Television commercials — including cable — can sell the image of a new car better than any other medium. They can also — and this is an interesting phenomenon — deliver Web site traffic better than any other medium, including the Internet. A TV promotion can drive Web traffic like crazy, probably because of the incredible amount of multitasking that people do between the PC and their TV. The manufacturers are plowing money into their Web sites and have a strong incentive to get people to visit there as early as possible in their buying process. At the narrow end of that funnel, when people start looking at availability and pricing, print media is losing out. That's because of the dramatic audience shift toward the Internet that has occurred during the "research" phase of the car-buying process. It's also because of media economics. Newspapers, directories, direct mail and local magazines need to pay for printing presses, paper, ink, and delivery to get their products into the hands of consumers. The Internet has no such cost structure, so the print products have wound up competing with online sites that can deliver ad messages at pretty much any rate they choose.

Q: How would you describe the current franchised dealer advertising landscape/situation? What are the most significant trends/issues you uncovered in your study this year? What ad channels are making the biggest gains with franchised dealers now? Suffering biggest losses? And where do you expect that to go in the future?

The biggest trend with franchise dealers is that they've pulled back on advertising and allowed the manufacturers to take over. While this typically happens when car sales slow down, the way they're adjusting their marketing dials is fascinating. Dealer spending for the past two years has been flat, but they are absolutely moving money around different media channels. A lot of money is chasing lead-generation programs and paid search advertising. Both are the holy grail for any advertiser — the dream of being able to pay only when someone walks in the door or rings the phone. I suspect the dealers will continue to invest in their own Web sites and in any media advertising that will drive traffic to those sites. They will also continue to use traditional media channels, but to a lesser and lesser extent over time. They're finding, I think, that they've overspent on these channels in the past. Now that they've cut them back and have seen no significant difference, they have no strong reason to increase their spending levels.

Q: What about the new-vehicle advertising side?

New-vehicle advertising is continuing to get more creative. Manufacturers are looking for target demographics, not so much for mass audiences, and they want to engage those potential customers as much as possible. If Chrysler airs 100 spots for the Town & Country, they're looking for media channels that can deliver moms, exclusively. Better yet, car-buying moms. If Ford creates a campaign for the F-150 and you're a guy between 30 and 50, you're probably going to get hit 10 different ways — on ESPN, in Hunting & Fishing magazine, on the MLB.com, or via email. Ford will give you a dozen reasons to engage by going to its Web site to enter a contest or watch a gleaming new pickup truck amble over some rocks. Some are finding ways to market their models on interactive online game sites like Second Life or by creating their own space on MySpace. It's not your father's Oldsmobile commercial anymore.

Q: What about the used-vehicle advertising side? How are newspapers and Internet marketing faring with used retailers now? How will these channels fare in future?

This is an oft-neglected and somewhat messy sector of the automotive advertising market. It's a relatively small slice of total auto marketing — $4.2 billion out of a total $30.5 billion ad spend — but one that has been utterly dominated by newspapers and auto magazines. But as I said earlier, the narrow end of the funnel is where the big squeeze is happening for media. For used cars, that end of the funnel pretty much the only part of the buying process that print media has served — to answer the question of "who's got a late-model car, in decent shape, that I can afford?" Cable, radio, and outdoor will do a good job of branding and reminding people of the used-car dealers in town, and online media will do the best at capturing those wallet-ready buyers. We see newspapers and auto magazines losing out the most here.