Our world is crowded with marketing messages about what to buy and why.  As consumers we shop multiple places to make sure we’re receiving the best deal and that the offers we are being presented are consistent, valid and apply to our specific needs. 

The world of automobile shopping has taken this ubiquitous shopping experience to a new level with multi-channel advertising, paid search, auto research/listing sites, tiers 1 – 3 websites and many on line pricing tools.  There are so many tools at our disposal that getting pricing has never been easier.  Since consumers cross shopping sites, it is more important than ever for the auto retail industry to have consistent pricing across all tiers.

Technology now allows OEM’s, dealers and advertising agencies to apply incentives to a price configuration for customized transactions that meet a consumer’s budget.  The accuracy, consistency, speed and comprehensiveness of this information is the difference in converting shoppers to buyers for auto retailers that advertise on multiple digital properties.

The openness of information for consumers fosters candor and trust that are like a carrot as opposed to a stick method of engagement.  Studies support this approach which has seen rapid adoption by dealers, shopping sites, finance companies and OEM’s.  This is a more specific application of the offers available on public domains and presented through omnichannel communication (traditional, digital & social) with specific inventory or advertised specials from OEM’s.

Our clients are seeing a collaborative effort by the industry (OEM’s, dealers, ad agencies, software providers, lenders, etc.) to present consistent information for targeting shoppers and their position in the purchasing process.  Use cases have surfaced about how this information is being applied as a competitive pricing/feature analysis of brand/makes, influencing the transaction (price and financing), qualifying requirements (credit score, eligibility, used vehicle trade value . . .) and the strategy of using incentives as part of a payment lowering for winning market share battles.  These examples have tactical value and will continue to help us with analytics for improved spending and ROI from inventive investments.

Analytics will continue to drive where and how incentives will be applied for achieving both volume and margin requirements.  Transitioning incentives from “showroom traffic drivers” to strategic discounts for payment conscious shoppers looking for the right vehicle at an affordable cost is an example of moving incentive use further down the funnel to a transactional level.  This dynamic will continue to drive the collaboration between all players in the industry for providing guidance on the sales effectiveness of incentives based on their targeted intent.

These areas are key to dealer and OEM profitability which is under attack because of margin compression at many levels.  Initiating a new car sales strategy by maximizing inventory, advertising/marketing and inventory turn (see Brian Finkelmeyer’s post https://www.linkedin.com/feed/update/urn:li:activity:6443198218871332864/) shows the many ways factory incentives support all facets of new vehicle pricing, advertising, marketing, digital retailing transacting and data base mining (equity).  Incentives are not a one trick pony used for driving showroom traffic, rather a key component in 100% of all new vehicle promotion and sales.

New vehicle incentives have been an industry staple since Joe Garagiola pitched “Buy A Car, Get A Check,” and have developed into a tool for OEM’s and dealers to leverage their marketing and advertising spend based on consumer needs.  The creativeness and use cases for incentives have grown and are an important part of the retail transaction.

Incentives are structured to support three types of deal scenarios:  cash purchase (write a check/direct loan via finance institute), incentivized finance (captive or OEM approved fico) and lease (typically through a captive) all of which are referred to as “guaranteed incentives.”  In addition to these types of transactions, all OEM’s utilize “conditional incentives,” those rebates and offers which are contingent on consumers qualifying based on eligibility and the compatibility of the offers.  It’s important to note that every deal is unique based on the vehicle and consumer (i.e. – military, college grad, credit score, etc.).  The combination of these discounts can be significant if the consumer is educated on availability either directly or by the dealer.

New vehicle incentives are a complex structure of offerings that are often reported as a percentage of the vehicle MSRP which nets to an Actual Transaction Price (ATP).  This is one way of tracking incentives, another way is how much of the total offerings were used and in what context were the incentives applied?  For example, out of a total incentive amount of $8,000 ($4,000 guaranteed and $4,000 conditional), how much of that amount was used toward the transaction price compared with allocating to trade over-allowance (compensate for negative equity), decreased incentives for 0% financing, or increasing incentive money for OEM captive standard finance rates?

From a retail perspective, working OEM incentive (VIN specific, regional/localized & loyalty/conquest offers, stair step and dealer cash) combinations allow for the flexibility needed to structure a deal that fits the consumer’s needs.  Digital Retailing (DR) has advanced the use of incentives through on line consumer workflow processes.  Whether online or in store, software and DR tools have transitioned the process of qualifying the buyer and structuring the transaction from complicated to simple, easy to understand deal term options.  This allows dealers to present multiple price and payment options to the consumer for meeting their budget while competing with other OEM’s and dealers.

Tracking incentives includes many different perspectives other than looking at a total percentage of MSRP or ATP figures.  This can be misleading and create an impression that the industry is unhealthy or in danger.  As long as production stays in line with demand, new vehicle incentives serve an important purpose for OEM’s to drive traffic through advertising, lower inventory levels, and win market share battles; all of which are measurements of success for our industry.

The real industry pulse is whether OEM’s and dealers are making money.  The flood of off lease used vehicles, tightening consumer budgets and ride sharing services pose much bigger challenges to the industry.  Subscription packaging is, and will become more of an option for buyers.   Incentives will continue to play a valuable part in shopper engagement through targeted advertising, marketing messages and financial affordability.