Lou Bregou from Driver’s Village is a progressive New York dealer who saw the writing on the wall. With computers, smartphones and tablets always within reach and changing the way consumers access information, it wouldn’t be long before vehicle buyers demanded more than just inventory and pricing on his websites.  They would want to complete more of the vehicle purchase steps online, a process known as digital retailing.  Lou followed his gut and implemented a digital retailing strategy on his   dealership’s 10 websites, along with a solid back-end sales process.

As Lou predicted, Driver’s Village buyers immediately adopted both the strategy and the added website tools. Consumers didn’t just go online to search for vehicles or look for a simple price. They were calculating payments, getting an exact trade-in value and receiving financing approval, often performing these functions together as part of their shopping process. Many shaved the in-person part of the deal down to only 30 minutes. The tools also benefited  Lou’s operations. He’s seeing closing ratios for digital retailing leads hitting 26 percent. That’s double the closing ratio of the group’s standard website leads, and three times that of third-party leads.

A decade ago, dealers were discussing if displaying inventory and pricing online was prudent. Today, up to 90 percent of shopping starts online. Now, the question has become how much of the buying process can be completed on dealer websites.  Early movers such as Lou are validating the value of digital retailing, and hundreds of other dealers across the country are testing and often turning the corner with a digital retailing strategy. Initial results are encouraging in terms of meaningful ROI and sales conversions. Just check out the following year-to-date stats derived from Dealertrack Digital Retailing Suite:

Over six million monthly dealer-controlled payment requests on dealer and listing sites – A digital retailing payment tool is not a generic calculator. It’s an online ‘First Pencil’ that allows shoppers to conveniently interact with real loan/lease rates and combine them with current incentives, all while understanding financing and affordability options that suit their needs. The dealer controls the financing process and reserve settings, while giving shoppers real numbers.

Thirty-four percent of unique visitors who view payments and open a finance form submit a full finance lead –Buyers get comfortable with the online ‘First Pencil’ so it’s natural for them to apply for financing. When they apply for financing, they automatically become a highly qualified lead.  Now when the buyer visits a dealer’s showroom, they have a good understanding of the vehicle they want to purchase, as well as a grasp of what they can afford and have been approved for.

Driver’s Village has noticed that the online financing tool moves shoppers closer to purchase because it delivers real approval from the comfort and privacy of a buyer’s home. While credit applications generated from a dealer’s website have historically been filled out by sub-prime customers, there is an increasing trend for prime buyers to apply for financing online as well. Lou explains, “We come back with real approval, so it takes away the fear for someone with low credit scores  that they will come into the shop and not get financing. We also have people with good credit scores filling out credit apps and they like that they don’t have to give a sales person their salary and credit score. For them, our online process feels more secure.”

Digital retailing leads have over a 25 percent lead-to-sales conversion ratio. That rate jumps to 43 percent when buyers complete all three steps (payment, trade-in, finance)  – Digital retailing draws buyers further into the sales funnel, dramatically increasing closing ratio. Driver’s Village is averaging a closing ratio of 26 percent. Compare that to eight to 10 percent for OEM leads, six to eight percent for third-party leads and 12-13 percent for standard website leads.

Twenty-eight percent of unique trade-in visitors who opened the trade-in form completed a full appraisal to receive a specific dealer offer – The digital retailing trade-in tool includes a comprehensive condition report that lends transparency to the process. In multiple surveys, buyers have expressed a strong preference for obtaining dealer trade-in offers without having to visit the dealership. This preference is reflected in the fact that the trade-in form conversion rates for a detailed condition report and appraisal on a dealer’s website are reasonably high. Initial metrics point to a six to eight percent trade-in lead-to-sales conversion ratio, which will only increase as dealers enhance their processes to handle these leads slightly differently than standard Internet leads.  While the consumer gets the experience they are looking for, the  dealer receives a highly qualified source for inventory and another channel for new potential customers.

Technology is only one piece of the puzzle. BDC and used vehicle process enhancements, along with salesperson training to handle digital retailing leads, are equally important. For example, Driver’s Village codes digital retailing leads so steps completed online are not duplicated at the showroom, and distributes them to trained salespersons to drive conversion and a superior customer experience. The team continuously measures and fine-tunes their workflows to ensure they are adapting to consumer behavior. 

It’s exciting to see dealers starting to embrace and benefit from the digital retailing philosophy, tools and processes. But for Lou, this is just the start.  He tells me often, “The millennial buyer will push us to think beyond inventory, appraisals and approvals online.”    

Dealers and dealer service providers pay a lot of attention to pricing online inventory correctly and competitively. Makes sense. In today’s Internet based shopping culture, a consumer wants to know that they are getting a good deal. But we also know that a consumer buys based on what they can afford monthly. “Why not get the car that I really want if I can do $289 a month?”

Almost all dealer website companies now provide a manual payment calculator. Unfortunately, the jury is out on whether they measure up to consumer and dealer expectations. Here’s a sampling of what I found in a competitive metro market for a similar CUV from two competitive websites: Dealer 1: Internet price approx. $24,000 – quoted monthly payment $447. Dealer 2: Internet price: approx. $24,000 – quoted payment $292! I looked into DealerTrack’s PaymentDriver service that uses up-to date lender programs and found that the best tier monthly payment for that vehicle was $357 in that zip code. To do this, I used Dealer 1’s terms and cash down assumptions. One might argue that Dealer 1 undersold their vehicle and Dealer 2 came in too aggressive. In either case, the consumer experience and therefore the Dealer’s competitiveness or reputation suffered.

It’s easier said than done - calculating real payments online is mind-boggling (putting it mildly) due to the variables involved – mfg. rebates and incentives, consumer’s credit, trade-in, lenders that the dealer does business with, term, retail vs. lease etc. etc. The good news is that help is on the way through some innovative products and data.

In talking to several respected dealer principles related to quoting payments online, the following best practices tend to emerge:

• Let my consumer search by payment
• Automate my offers and specials
• Provide a real loan vs. lease payment, including available incentives
• Link payments to inventory, trade and financing online
• Make sure that all of this can be controlled by me

In this age of low interest rates and competitive lease payments, we should revisit that payment calculator we have on our websites and decide if we are missing out on an opportunity to make it a great lead tool. There are also some dealers that would prefer not to provide payments online at all. Ultimately, it is the dealer’s choice on how they want to do business. However, if we do choose to quote payments, we should do it well.

Digital Marketing is hot! Dealers are spending more than ever on SEO, SEM, Digital Media purchases, Inventory on-line merchandizing purchases etc. For good reason: many well respected sources tell us that 90%+ of the car shopping process now starts online.

So, this spend/focus has managed to get the consumer to the dealer’s inventory listings and even a specific vehicle. Now what? Most VDPs (Vehicle Detail Pages) are complicated and confusing to a

normal (non-auto savvy) consumer. On one dealer’s page, I counted 14 “call to action” buttons. In the meantime, the consumer just wants to buy a car (can there be one iPad like button please?). Often, the most prevalent call to action in these VDPS is to “email the dealer”. Why not drive this consumer, further down the sales funnel before they come to the dealership? Why not convert these shoppers to buyers online?

The way that the next generations of consumers want to socialize, shop and in general, spend their time has fundamentally changed. Gen Y and Z is consuming online data usage at an alarming rate. For example, there are some estimates that data usage increased for 18-24 year olds from 216MB a month in Q3, 2010 to 534MB in Q3, 2011. Another study in the UK found that teenagers spend 30+ hours a week online. This generation will grow up with “bytes” as their trusted friends and the concept of spending  hours at a dealership to buy a car that they probably know more about (through online research) will be alien. No wonder, Cap Gemini’s latest Car Online 11/12 survey finds that 42% of worldwide consumers are likely to purchase a car online. This number was 37% in 2010 and single digits in the early 2000s. This is where Digital Retailing comes in.

Most dealers spend time and money to ensure that the in-showroom sales workflow experience is consistent and sensible for the consumer that walks into their doors. So why does it often fall apart on their web-sites? This is an opportunity missed to drive the consumer deeper into the sales funnel before they even lay foot into the showroom. Think about printing out a boarding pass online and coming to the gate directly. This improvement in workflow has nothing to do with pricing or disintermediation. This is about consistency, efficiency and control. This is about delivering the relevant buying experience to a different consumer.  

By the way, Digital Retailing is good for business. Data consistently proves that conversion rates on leads are higher when the consumer has performed various activities towards the purchase online. I will provide more data on this in a subsequent blog post. Enabling web-sites with dealer-controlled, integrated sales workflows is the next logical step in today’s digital metamorphosis. Certainly, some retailers have adopted this concept already, but I believe that the time for mass adoption is around the corner.

Dealers cannot do this alone. Leading vendors will also need to build technology that deeply integrates in-store transactional systems and data to web-site capabilities. Sending an email lead in the ADF-CRM format was a good start. That was more than a decade ago. Technology in this area needs to evolve - soon.