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Lindsey Auguste and Dennis Galbraith

Lindsey Auguste and Dennis Galbraith Investigative Reporters

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Cost Per Action Models Change How Marketers Look At Their Vendor Mix

 

To walk away from any leads opportunity is to leave those leads for your competition. Dealers who don't advertise on AutoTrader.com, Edmunds, or Cars.com don't receive the blessing of having their inventory exposed to those audiences. Dealers who miss the chance to participate in subscription based membership programs like Costco Auto Program, Navy Federal Credit Union, and Sam's Club miss out on those leads offering high close rates.  And those who pass up pay per lead programs like Dealix, AutoUSA, Autobytel, and NewLeadsPlus will stand idle as those leads go to competitors.

It may not make sense to participate in every online marketing program, but participating in one of these programs does not preclude a dealer from participating in the others.  After all, millions of shoppers visit both Cars.com and AutoTrader.com at some point in their shopping process, but most dealers recognize if they are on just one, then their sales will decline significantly.  The growing penetration of cost per action (CPA) vendors like TrueCar and their more than 100 affiliate programs changes all that.

CPA programs charge the dealer a fixed price regardless of what vehicle the shopper buys or how many other sources refer that shopper to the store.  If Sally Jones is referred to your store and buys a vehicle within the given time period, then the dealership is going to pay the CPA charge to the company generating the referral.  This is the reason these cost per action companies require access to the dealer's DMS.  They have no other way of knowing whether they should charge the store or not.

The fact that CPA companies don't charge unless a sale is made has tremendous appeal to some dealers.  The claim is made that a cost per sale of $299 for a new car or $399 for a used car is about half the cost dealers often spend on advertising to sell a vehicle.  However, there will always be some sales attributed to the CPA vendor that would have occurred with or without that company's referral.  Shoppers typically visit a variety of websites before purchasing the vehicle.  Sally Jones might see the dealer's vehicle on AutoTrader.com, submit a lead that goes to the dealer through Dealix, find the dealer's website through a Google ad, and end up buying the vehicle from the dealership through the Costco Auto Program.  But if Sally presses the "Locate Dealers" button at any stage in this shopping process and that dealership shows up as one of the three on her screen, then the CPA vendor will charge the dealer.  The charge will be no different than it would have been if the shopper only went to the CPA vendor.

This any-click attribution policy is what pits the CPA vendor against every other service competing for the dealer's wallet.  If the dealer spends $299 per new vehicle on a fantastic branding campaign that brings more people to the dealer’s site and store, it will also cause more of the leads from the CPA vendor to close as well.  Shoppers feel as they know the store from the branding campaign and may give it preference over other vendor names given to the customer by the CPA vendor.  However, the advertising cost per sale for these vehicles is not $299 per vehicle, it is now $598 ($299 for the branding and $299 for the CPA vendor).

The challenge for dealers is determining the mix of advertising that is most cost effective. In military communities, where the USAA and other CPA programs can be very popular, a dealership might see half their sales attributed to these programs.  However, if all other advertising went away and somehow the location of the store were disguised, the loss in sales would be larger than the half not currently attributed to CPA programs.  This is more than theory.  There is a large body of research demonstrating that last-click attribution (attributing the sale to the last site the shopper was on) is a poor method of allocating marketing contribution from vendors.  Logically, any-click allocation is even worse.  CPA programs benefit from other advertising and the location of the store, but they don't share credit.  With that said, CPA vendors using the final sale as the action charged for have little choice but to charge for every sale they are associated with. 

Ironically, when dealers are paying $299 per vehicle for half their sales ($44,850 for a store selling 300 vehicles per month) it doesn't leave much room in the advertising budget for anything else.  We began our investigation curious about why so many other vendors speak venomously about CPA vendors and why one prominent CPA vendor began telling dealers they no longer need all those subscription and cost-per-lead products.  The answer now seems clear.  CPA has gained sufficient penetration to bring about these conflicts.

It should be noted that Google AdWords and other cost per click products are also CPA products. The difference is that the cost is associated with an action that moves the shopper to the desired webpage.  The action is 100% attributable to the advertisement the shopper clicked.  When the action being charged for is the final sale, it is difficult to argue that the action was purely attributable to that exposure or referral.  That doesn't make sales based CPA wrong  ̶  the vendor is free charge for services in any manner they wish  ̶  but it does make for a great deal of controversy.

We’ll have more information discussing when using a CPA vendor makes all the sense in the world, and when it may not fit at all.  Future articles will cover how dealers can best execute on a strategy dominated by CPA marketing and how to compete with dealerships that rely heavily on CPA vendors.  In the meantime, while staying on topic and sticking to the rules of DrivingSales posting, please share with the community your thoughts.  Do CPA models work for you?  Have you loved them and left them?  Refuse to participate?  Loyally and profitably benefit? 

Chris Costner
To start, the organization I work for is in one of the biggest military communities in the world. We are partnered with ZAG & TrueCar at the moment however it isn't our biggest lead provider for sales at the end of each month. VW for instance does not allow us to advertise "invoice pricing" as our Co-Op funds are on the line. Occasionally we will make a sale from these providers but we don't get into the aggressive pricing structure others on board get involved in. We aren't gearing up to keep it long term as it doesn't make sense to be in the CPA game when rarely we will win. Not to mention the time spent in processing the lead, following up, setting appointments (if it gets that far) to have a zero result. So to answer the question if CPA models work for us, at times yes they do but it also comes down to other variables like location, exlusive finance rates by OEM, but the BIGGEST is good old fashioned steps to the sale: SELLING. I believe if you can get the prospective purchaser in front of you, it's almost never about price and many times, how they arrived, isn't the concern anymore. I hope my response made some sense. I look forward to watching this thread. Thanks for posting.
Lindsey Auguste and Dennis Galbraith
Chris, thanks for sharing. You are actually one of the first people who is a TrueCar dealer that has responded on a post about TrueCar, so we appreciate your courage. Just to clarify a few points: Can you explain why it doesn't pay to have a CPA model when you rarely win? For dealers involved, it would seem that would be an enticing point, that it doesn't matter how often you win since you're only paying when you do. Unless by winning you mean making a profit, not closing the sale. Also, for the customers who have come to you from TrueCar, did they say why they chose or found you, even without you having the most aggressive pricing? Thanks for the feedback!
Chris Costner
As I was responding I was wondering how it would go over. I understand everyone’s frustrations regarding TrueCar and I don’t disagree. Many times, others are involved in company decisions and you work with what you have on your plate whether it tastes good or not. If 95% of your inventory was white cars and the other 5% were blue cars, I can almost guarantee everyone reading would get really good at selling white cars. So there is my position for the record. Lindsey, great view on it being enticing for dealers to be a part of a CPA model and not be the most aggressive in pricing. Occasionally, like I said earlier, we do pick up a sale here and there while not being competitive in the model itself. It’s almost a free deal so to speak and my perspective on “winning” was making a sale because I know for sure we were not the lowest price. I have faith in my aftermarket and finance department to help make it even better. Another perspective is looking at the lead itself. I believe in working the lead until they either buy from us or buy from somebody else. To me there is no gray area. However long it takes. Those are the only two factors to stop the process. With that type of approach, sometimes a lot of time and effort goes into that one lead with a zero outcome because of better pricing elsewhere. Now many reading that statement are saying that could be the case with any lead. That is true, just not on the same magnitude. We don't always know who the prospect is talking to behind our backs but a CPA model prospect is for sure searching the lowest posted price. That’s what the providers teach them. Dealers are already on the defensive from the starting gate. I think what I am trying to get at is that being a dealer involved with a CPA model and not being the best price or barely competitive, the efforts can be focused on a more quality lead. Now for the clients that have made to my showroom from a TrueCar origination, I believe it can be credited to how the customer was handled on the telephone and internet. It probably wouldn’t turn out in my favor if I call them and say in so many words that I am not the lowest and they will probably find a better price elsewhere. We do offer a few benefits however that our closer competitors don’t regarding the service of the vehicle but I can’t say that is the game changer across the board. I’ve written a few months back on selling the appointment and not the car over the telephone. It doesn’t what the price is as zero value can be built over the phone. Taking that approach and doing it right, I believe you can get a prospective purchaser from “FreeCars.com” to your “WeMakeAProfit” showroom. Again, I have tons of thoughts running through my head on this and I did my best to keep this focused. If there are any questions, please don’t hesitate to ask. Thanks for listening.
Lindsey Auguste
Thanks for elaborating Chris, that helped to clear things up!
Bryan Armstrong
The CPA model in my opiniion is intrinsically flawed. What I mean by that is that it fails to take in to account many of the actions leading up to the lead submission. I look at the traffic to my (free) volkswagenutah.wordpress.com site and catch many high funnel visitors. By establishing myself as a source for open, helpful information, we convert many that the CPA vendor would take credit for. I hold true to the strategy that spending the same budget building your own presence will ultimately give you a more sustainable and profitable business model. In the meantime, Vendors, please clean up your reports. No one is dumb enough that your triple-counting shell game antics claiming 30% conversion are real and that every map view MUST have resulted in a walk-in opportunity.

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