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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?