Net advertising and promotion expenses as a percentage of the total new- and used-vehicle gross is 10.1%, representing 6.8% of the total dealership gross.
That's according to the most recent NCM All-Dealer Benchmark.
I attend several dealer 20 Group meetings each year. Without fail, the subject of advertising is addressed at each meeting. Obviously, the advertising expenditure is a concern because in most dealership operations it represents the second-highest expense after personnel.
It's not just the money the dealers are concerned with, but also the effectiveness of their investment.
We advertise to generate traffic and establish an image in the marketplace. But with the voluminous automotive sections in the newspaper and the constant ads surrounding the local news and other programs on TV and radio, it's hard to stand out in the crowd, separate ourselves from the “clutter” and be seen and heard.
Advertisers have continued to increase their overall ad spending in the last five years, but how they reach the masses has changed, according to a New York Times article.
It tracked a five-year change of total U.S. ad spending. This wasn't specifically related to the automotive industry, but automotive represents a large share of the total annual U.S. ad expenditure.
Both newspaper and broadcast television advertising had double-digit decreases on a percentage basis. While radio was down, its share loss was much less than newspaper and broadcast television. The winners in the five-year share change were direct mail, cable television and the Internet, which showed the largest increase.
For years, I have heard and even said myself, “We know we are wasting one-half of our advertising spending, we just don't know which half.”
I'm not suggesting one media over the other, but I would highly recommend that, if you aren't currently doing this, consider a consistent, professional direct-mail program to your owner base.
Considering these consumers have first-hand experience with your operation and personnel, the likelihood of their returning to your dealership for service and sales is increased. With most of you having a customer relationship management program, this mail (coupled with a follow-up call or contact) enhances your opportunity to attract customers.
Lately I question a dealer when I see his or her store has decreased its advertising expenditure yet increased its sales and service volumes.
Invariably, I'm told something along these lines: “I was frustrated with the amount I was spending and the below-invoice pricing that was required to generate traffic. All this translated to a high budget, low gross and a general ineffectiveness. So I decided to concentrate on my current owner base.”
I noted the NCM benchmark for ad expenses this year to date is 6.8% of total dealership gross. I should also note it's down from 7% for the same period in 2004.
Have some of these dealers stopped advertising? We know that's not the case. I suggest they have examined their media choices and most likely decided to redirect a portion of their focus.
I'm not a marketing expert, but I do know this: with the expense and margin pressures we are experiencing today, we must take a look at what we are doing, how we are doing it and what results we are getting.
Tony Noland is the president and CEO of NCM Associates Inc. He's at [email protected].