There’s a Place for Digital Marketing in Co-op Advertising
By Gary Galloway
In last month’s article, I discussed the dealership surveys, interviews with brand managers and analysis of trends in automotive advertising that was part of our research. For this third installment, I will explain dealers’ participation in co-op advertising programs and the obstacles that they face in these programs.
to dealers in two ways: It subsidizes nearly one-third of their ad budgets, and it helps dealers maintain new-car inventories (since manufacturers typically reimburse in store credit). However, although participation in these programs is relatively high, there is a disconnect between the dealers and OEMs on ways to carry out these co-op advertising programs. Dealers are becoming increasingly frustrated with the relationship with OEMs when preferences don’t match up.
Levels of Participation in Co-Op
When we asked brand managers about co-op programs for new car advertising, they confirmed high participation rates. “We audit for spending, and we find that 80 percent are using 100 percent of the funds. The other 20 percent don’t use it all, mostly because they’re in smaller markets and don’t need or want to advertise as much,” one brand manager told us. Another said, “For the most part we have strong utilization of co-op. I’d say that 99 percent of our dealers participate. There are only a very few who don’t.”
There was somewhat lesser participation reported from dealers when we asked about co-op funding for fixed-operations service offerings. Only 72 percent of the participating dealers said they utilized co-op for service offerings. This would seem to be a fairly large missed opportunity, considering the fact that, according to NADA, Fixed Ops is a $310 billion business with dealerships capturing slightly more than one-fourth of the market. Service and Parts make up 54 percent of the average dealership’s net profits, yet typically receives a minuscule (3 percent) share of voice on its website, according to NADA. This oversight is costing dealerships billions of dollars in lost market share each year.
Though participation is high overall, co-op programs are not without frustrations. More than half the dealers surveyed checked off “too many rules/restrictions” when asked to identify obstacles they face. That’s a common complaint for any co-op program, not just automotive. Nearly one-third noted “too much paper work.” Only 10 percent said the programs didn’t hold enough value.
When we offered four words that might describe that relationship – cooperative, rewarding, frustrating and insignificant – dealers overwhelmingly agreed with “cooperative.” But about two-thirds also agreed that it was both “rewarding” and “complex,” and two in five participants considered the relationship “frustrating.” This feedback provides some insight on how dealers are feeling about these large, important co-op programs.
Co-Op Usage of Digital Media
Auto dealers are second only to real estate agents when it comes to the share of ad budgets they devote to digital media. They’re currently averaging two-thirds of their expenditures on digital media, compared with an average of less than one-third for all other advertisers. That digital preference translates to co-op programs as well. When we compared how other small and medium-size businesses (SMBs) were utilizing co-op funds, we found that far more auto dealers were participating in online programs.
Even though digital usage is high, OEMs may start driving it even higher. One national automotive manufacturer told its franchise dealerships that, to participate in its co-op programs, at least half of their ad spending had to be in digital media by midyear 2014. While we foresee OEMs continuing to increase their digital co-op offerings, we also see an opportunity to misfire. Usage trends clearly point to high growth in digital video and mobile platforms, but marketing in the digital video environment may be interpreted as a 15-second pre-roll commercial on YouTube, and mobile advertising could be seen as a banner ad on a mobile site. That’s not what dealers need.
Here’s our recommendation on what OEMs and dealers need:
- OEMs should initiate support for mobile-optimized dealer websites. Our research indicates that nearly one-quarter of dealerships don’t have a mobile-friendly website. This is borderline horrific, considering the massive shift to mobile platforms. Optimization extends not only to design and usability, but the ability to be found in mobile search, too.
- OEMs, dealer associations and dealerships should coordinate digital video marketing. There is obviously a disconnect when two-thirds of dealers use digital video marketing, two-thirds of them say their OEMs aren’t supporting it, and dealer associations are barely using digital video (let alone search and display advertising) at all. The industry’s longstanding love affair with TV commercials is threatened by one simple, “sit-up-and-pay-attention” result: One-third of the dealers surveyed believe that digital video is more powerful than TV advertising, and one-third believe that TV and digital combined are more powerful. The shift to video comes at a time when one million more Internet viewers will be watching digital video annually, says industry researchers from eMarketer.
- Be careful not to cram the old business model – well-polished TV spots – into the new technology. Utilization of digital video is growing phenomenally, but the new environment has different specifications. Advertising interruptions – even in the form of 15-second pre-roll – aren’t acceptable. More dealers believe that the best use of video is on their own websites than on other media sites like YouTube and Facebook. Co-op support for 90-second infomercial and instructional videos about new brands and features seem the best way to capitalize on this shift towards digital video.
- When adjusting co-op programs, don’t cannibalize “old” forms of digital for new ones. Despite the popularity of mobile and video, search and display advertising still yield big results. Not a single dealer in our survey said search and display wasn’t an important form of marketing; 75 percent said it was “very important” and 98 percent said it was effective in driving customers.
With these recommendations in mind, OEMs and dealers can work out a co-op advertising program that is mutually beneficial. At the end of the day, attaining an optimal mix of advertising and promotions at the local level will lead to happy customers and ultimately, increased sales at your dealership.
A copy of the full report is available for download here.
