Automotive Ad Spend Science Accenture

��

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

Sources: CNW Marketing Research and Accenture analysis

Figure 2.Incentives as a Percentage of MSRP

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$600

$500

$400

$300

$200

$100

$0

Sources: Advertising Age, Automotive News, Accenture analysisNote: Data from 1989-1993 are close estimates.

Figure 1.Ad Spend per Vehicle

Making the Big Spend Pay Off — Applying Science to Marketing 3

The critical question on an automotive marketer’smind today is this: How do I maximize the yield ofevery marketing dollar I spend? To increase mar-ket share by, say, 2 percent, should I change thefeature content of my product? Introduce a newmodel? Should I drive advertising? Or rely insteadon incentives and price reductions.

For good reasons, making these investment decisions has beenan imprecise endeavor at best. Until recently, the incrementalsales impact of each dollar spent on marketing, innovations andincentives has been difficult to isolate and quantify. Marketershave relied on surveys, past sales data, consumer advertisingrecall, anecdotal information from dealers, and generally softmetrics. No scientific methods were available to determinewhich investment dollars drove profit and which did not.

That has changed. Scientific methodology has now roared intoautomotive marketing — bringing radical new effectiveness tomarketing and product development decisions. The sophisti-cated econometric modeling of Accenture Marketing Sciencecan clearly identify the incremental impact on sales of everycomponent of the marketing, incentive and product devel-opment budget. A marketer can now see from an overallperspective what works, what doesn’t, and what is the optimalway to spend the investment dollar.

Other industries have seized the opportunity presented by thisevolution of marketing from a soft science to one grounded inrigorous modeling techniques. Over the past six years, Accenturehas invested in building a strong leadership capability in thisscientific approach to marketing. As a result, our experts havesuccessfully used econometric techniques in more than 150companies in a wide base of industries: financial services,pharmaceutical, retail and consumer goods, banking, electronics,

and high-tech computer systems. With Accenture-developedproprietary techniques and tools, we can now determine theincremental sales effect of every component of the marketingmix. As a result, these companies have identified an averageof 14 percent of the marketing budget that is ineffectivelyspent — releasing those dollars to go directly to the bottomline or be reallocated into investments that grow the business.

Now, Accenture has piloted a program that proves applyingscience to marketing works for automakers as well.

It couldn’t be more timely for the automotive industry.

The big spendMarketing and product development investment is a multi-billion-dollar expenditure for the auto industry. One withfrustratingly unclear, and often disappointing, returns. Despitecost cutting efforts, marketing and promotion costs for auto-makers have ballooned over the last decade. Ad spend hasincreased 73 percent over the past 10 years. (See Figure 1.)In the United States, total 2002 marketing and sales promotionfor the average vehicle now stands at US $3,392. Incentivesalone have risen 14 percent since 1995. (See Figure 2.) Andthough automakers have added substantial value to their prod-ucts in the last decade, most of that value has migrated tothe consumer — and is not realized by the original equipmentmanufacturer in the price of the vehicle.

4 Making the Big Spend Pay Off — Applying Science to Marketing

What ate up the value-add in the vehicle? One-third of itwas absorbed by sales and marketing cost increases. Thereis no mystery about why. More products are out there to bepromoted — new categories and new nameplates. In addition,the number of media outlets to advertise these products hasproliferated exponentially.

In the United States, there are now more than 550 TV stations,18,000 national magazines, 12,500 radio stations and 20 millionwebsites through which to reach the consumer. In that stag-gering abundance of media options, and with the impact ofmass advertising on auto sales difficult to read, it is no surprisethat the pendulum in marketing has swung from brandedadvertising to trade promotions and incentives.

But the relative effectiveness of each type of spending hasremained in question. The precise contribution to sales ofadvertising, product innovation, pricing and incentives — thathas yet to be determined.

The correct answer to the opening question, then, “How do Imaximize the yield of every marketing dollar I spend,” loomslarger than ever.

In this innovative program with the automotive industry,Accenture reached in, applied our proprietary marketing sciencemethodology — and came up with answers.

The location is South America. The company is a globalautomotive manufacturer. Its recent performance has beenexceptional, making it one of the top three brand turnaroundsuccess stories Accenture has seen in its marketing scienceanalyses.

What the company wanted to know was which marketinginvestments would most directly drive further growth. Its goalin collaborating with Accenture was to isolate each componentof the marketing mix and measure its impact on sales. Simplyput: to understand what was working for this manufacturerand what wasn’t.

Accenture looked at four drivers of sales over five years —product innovation, advertising, and pricing tactics andincentives. Although the analytical matrix included thousandsof variables, the analysis was able to determine which of thoseaccounted for 95 percent of incremental change in sales orrevenue. Macroeconomic factors were part of the equationas well, along with competitor econometrics and regionalmarketing analytics. Collaborating with the client, a predictivecomponent was included, reflecting future business andmarket expectations.

The goal was to deliver accurate information, based on custom-designed analytics, about this client’s relative return foreach dollar in the marketing mix.

What really sells cars?A look at one case...


The product — and product innovationIn each of this carmaker’s pricing segments — premium,midpoint and value — brand positioning turns out to be animportant driver of incremental sales growth. Brands insulatedin one segment with clean price positioning far outperformedany of the brands that tried to stretch across multiple segments.These were the only “winners” based on market share growth.Brands with blurred price positioning declined.

Introducing a new model in the value segment, the largestshare of the local market, contributed greatly to this company’srecent success. But it was important to learn what effect thishad on overall company sales. Did the launch cannibalize thecompany’s other products? To some degree it did, but it stillprovided incremental growth to the overall brand. And the newmodel stole significant share from the competition.

With the exception of new brand introductions, product inno-vations did not grow market share for this automaker. Whilesignificant investment was being made in product “refreshes,”these minor changes to the vehicle on an annual basis werefound to be counterproductive to the company’s long-termmarket share growth and profitability.

The recommendation was to establish brand leaders with fewermodels in each segment — since excessive model variantsoffered no boost in share performance. Also, the carmakerneeded to be selective and strategic with minor productrefreshes. Although they are needed to keep the vehiclecompetitive and current, they did not offer any sustainablemarket share growth. Instead, this automaker could beneficiallydo one of two things. Allocate some of these funds to a higheryielding element in the marketing mix, such as Tier Oneadvertising. Or focus development efforts on more meaningfulproduct changes.

Pricing tactics and incentivesPricing tactics and incentives emerge as the most significantdrivers of incremental growth in this company’s case. But theimpact is strictly short-term.

When this automaker dropped prices by 10 percent, thecompetition matched, and the company showed no growth inmarket share. Models less reliant on incentives had a higherincrease in incremental market share over time. What wasintuitively understood was established here with factualevidence — including the fact that consumers do not differ-entiate between incentives and a price change in terms ofwillingness to buy.

Where does the company go with this information? It is moreprofitable for this automaker to be a price follower — not aprice leader. While it is impossible to withdraw unilaterallyfrom price promotions, and tactical pricing continues to drivea large portion of total car sales, these bold pricing actionsdo not support brand performance over the long term. Theyare easily matched, and their effect is neutralized.

The better course: Build the capability for quick response toaggressive competitor pricing initiatives. And target customersthrough CRM campaigns.

AdvertisingThere is advertising, and there is advertising. Some forms, asthis carmaker found, work better than others.

Looking at advertising across three tiers — Tier One, the originalequipment manufacturing spend on brand promotion, Tier Two,the regional spend by collectives of dealers, and Tier Three,local advertising by dealerships — one clear result emerged.Advertising was effective in driving sales at all three levels.

But Tier One brand advertising delivered the best return on eachincremental dollar spent. It lifted sales in the short and mediumterm — and it also boosted long-term base level sales.

Given that finding, Tier One advertising at this company wasunderfunded. The current investment was spent well andcontributed to brand growth, but Tier One was only a smallportion of the overall marketing mix. Tier Two was just rightwhere it needed to be at its existing level of spend. Tier Threewas being overspent. This third-tier advertising, aimed atdifferentiating dealers and driving showroom traffic, showedwidespread differences in effectiveness.

It was logical to conclude that the company should increaseits Tier One ad spend and decrease Tier Three. But this is not aneasy action to carry out. Tier One, as an original equipmentmanufacturer ad spend, and Tier Three, a dealer investment,are not interchangeable pots of money. What is highly usefulhere is the knowledge gained. Knowing that Tier One spendingworks, what other levers where money is not so effectivelyspent can be reallocated here?

6 Making the Big Spend Pay Off — Applying Science to Marketing

Accenture Marketing Science: What we now knowWhat this company’s case establishes is that the scientificmethodology of Accenture Marketing Science, which worksso successfully in other industries, applies just as definitivelyin the automotive industry. While its application will varycompany by company, case by case, Accenture MarketingScience can produce information that is vitally useful to theprofitability of any carmaker.

How much does each component of the marketing spendcontribute to vehicle sales? We can statistically determinethat. What is the relative effectiveness of different marketinglevers? Here is the data. We can explain now — with morethan 90 percent certainty — the incremental impact on salesof marketing investments in advertising, pricing and productinnovation. As a result, an automaker can expect to free up anaverage 14 percent of the marketing budget and put thosedollars to work in elements of the mix that pay off with higherincremental growth.

With that knowledge, automotive marketers can make highlyinformed decisions on how to allocate spending to drivemore sales.

Accenture doesn’t leaveyou with the analysisand wish you luck. Weare the people who helpyou use this informationto turn your businessinto a higher performingenterprise.


industry. We can help you translate those numbers intostrategies that improve the auto business specifically. Three,Accenture can work with you to turn analytical results intoworking realities. Does the analysis call for improved incen-tive management? We can deliver that. Does it call for moredirect marketing? We can design and execute those market-ing programs. And four, we measure and monitor results onan ongoing basis to make sure the changes are having theintended impact.

Working with original equipment manufacturers and suppliersat every level for more than a decade, Accenture knows theautomotive industry in depth and detail. Now, applying ouradvances in marketing science, that partnership betweenAccenture and the industry reaches a new level of high-per-formance teamwork. One that can turn marketing investmentinto a clear winner for automakers — and help tip the playingfield in their direction.

If that’s what you’ve been waiting for, let’s get togetherand talk.

After completing this work with our South American auto-motive client, we were pleased to hear what a senior executiveof that company said:

“This is the best piece of marketing strategy work I’veever seen here from an outside company.”

Standing on measurable results Accenture has always stood on measurable results — anddelivers those results again with the demonstrated effec-tiveness of marketing science in the automotive industry.

Accenture Marketing Science presents a clear opportunity toenhance the performance of the auto business. But for anautomaker to leverage that opportunity to its fullest requiresmore than a thick packet of statistics. Accenture people don’tleave you with the analysis and wish you luck. We are thepeople who help you use this information to turn your businessinto a higher performing enterprise.

Our ability to do that with unsurpassed expertise comes froma number of clear advantages. One, our proprietary method-ology, Accenture Marketing Science, integrates all marketingelements. Not just advertising, not just pricing, not just productinnovation — but all of these. Two, we do the vigorous quan-titative analysis, but we also understand the automotive

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About AccentureAccenture is the world’s leading management consultingand technology services company. Committed to deliveringinnovation, Accenture collaborates with its clients to helpthem realize their visions and create tangible value. Withdeep industry expertise, broad global resources and provenexperience in consulting and outsourcing, Accenture canmobilize the right people, skills, alliances and technologies.With more than 75,000 people in 47 countries, the companygenerated net revenues of $11.6 billion for the fiscal yearended August 31, 2002. Its home page is www.accenture.com.

For further information, please contact:

Rodney Wright+1 313 887 [email protected]

John E. Cunningham+1 313 887 [email protected]

Visit us at www.accenture.com/automotive