As any automotive dealer knows, perfecting a digital advertising strategy can be a challenge. To add insult to injury, OEM-ran preferred vendor programs intended to aid in these efforts often do more harm than good. Here are the factors your dealership should be aware of before considering handing over your digital marketing to a preferred vendor program.
The 3 Tiers of Marketing
In almost all industries, there are geographical-based “tiers” that dictate the message that any piece of marketing should carry. While the tier system is widely known within automotive, the appropriate marketing message paired with each tier is less known. Because co-op and preferred vendor programs involve interaction between multiple tiers, understanding the messaging implications is a necessary first step to understanding whether they are right or wrong for your dealership.
Tier 1 refers broadly to National, and in the automotive context refers to the vehicle manufacturer. It is the goal of the manufacturer to sell as many vehicles of their brand as possible, and they are mostly unaffected by where they are sold. Because of this, Tier 1 advertising carries a “buy this” message. The manufacturer focuses their efforts on convincing the public about why they should buy their brand and not their competitors.
Tier 2 refers to Regional, and in this context typically best matches up with regional dealer’s associations or business centers. The job of a Tier 2 ad is to speed up the purchase decision of potential customers, and Tier 2 marketing typically carries a “buy now” message because of this. Tier 2 ads most often focus on current special offers and enticing customers to check inventory and find their closest dealer to move that customer along the path to purchase as quickly as possible.
Tier 3 refers to Local, and this is the local dealership. In contrast to the manufacturer, the local dealer only cares where a customer purchases their vehicle. It is the job of the local dealer to convince customers not just to buy their brand, but to buy it from them! Because of this, Tier 3 ads must focus on a “buy here” message. Whatever the value proposition is, it needs to be enticing enough to keep local customers (maintain market share) as well as draw from other areas (grow market share).
Ideally Tier 1, Tier 2, and Tier 3 messaging works in harmony to influence the brand a customer buys, how soon they buy it, and where they buy it. With each tier fulfilling their respective roles, there are clear swim lanes for each entity. However, co-op programs and even more restrictive preferred vendor programs launched and enforced by the manufacturer disrupts this natural harmony.
Co-Op before the Internet, and the Birth of the Preferred Vendor
Before the internet, automotive manufacturers created co-op programs that enabled local dealers to pool funds to saturate a market with combined OEM brand and dealership messaging. Pre-internet, there were limited choices regarding where to advertise, and television and radio both carried heavy creative production costs, so co-op programs incentivized dealers to be vocal in their community with only a slight tradeoff in carrying a combined “buy this” and “buy here” message. There were no restrictions on which TV stations a dealer may partner with and no mandates on advertising in one newspaper or not another.
Sounds ideal, right? With the internet, however, came an even greater fragmentation of marketing options. In addition to the traditional Big 3 of TV, Radio, and Newspaper, dealerships also had Facebook, Google, third-party inventory listing sites, and innumerable others. Recognizing a need to incentivize their dealer bodies to take advantage of these new mediums, the manufacturers began expanding their co-op programs to allow for them. Most dealerships were slow to utilize these new marketing methods, however, so manufacturers started brainstorming both carrots and sticks to move their dealers into digital marketing so that other brands did not gain a competitive advantage and win market share.
With digital marketing changing so quickly and with so many options and providers, manufacturer-driven preferred vendor programs were born. Preferred vendor programs are touted to perform upfront vendor vetting and pairing those approved vendors with a seamless implementation process resulting in “turn-key” co-op reimbursement. As a dealership, this is an enticing arrangement – especially for those dealerships not large enough to employ an in-house marketing position.
Dispelling the Myth
Unfortunately, preferred vendor programs work differently in reality. The application of co-op to digital marketing and the introduction of preferred vendor programs created situations that are not in the best interest of a local dealership – increased cost to the dealership, cookie-cutter campaigns, and Tier 1 messaging in Tier 3 campaigns.
Preferred vendor programs also require various profit or fee-sharing arrangements between the vendor and either the manufacturer or a 3rd party (i.e., middleman) that is contracted by the manufacturer to administer the program. When a vendor is required to split their management fee as a condition of gaining entrance to a preferred program, they must in turn charge a higher management fee to the dealer—or throw out cookie-cutter campaigns to hundreds of different dealerships without the customizations required for optimal results. Whether it is price or quality of service, concessions at the expense of the dealer are inevitable. Making matters worse, the manufacturer ties co-op money to their preferred vendor program, meaning the dealers are not only paying more in fees and getting cookie-cutter campaigns, but they are also subjected to Tier 1 messaging that best serves the manufacturer rather than a local Tier 3 dealership. All in all, this hardly adds up to a winning situation for dealers.
Simply put, your goals as a dealer are fundamentally at odds with the OEM’s goals. The OEM aims to sell more of their brand, period. They only care about the consistency of the brand and new car sales—not where those vehicles are sold. On the flip side, your dealership only cares where those vehicles are sold, and because of that, you strive to differentiate your dealership and actively compete against other dealerships.
The Bottom Line
Preferred vendor programs were introduced by manufacturers to raise their dealer body to a minimally-viable level of marketing proficiency and effort. If your dealership strives to be average, then working with a preferred vendor will get you to that level. However, partnering with a preferred vendor will not provide your dealership with the resources and tools needed to rise above your competition. Instead, you must seek out a reliable vendor that works for you and you alone, crafting a custom strategy with continuous optimization and an incentive to innovate. Take control of your future by taking control of your marketing strategy, and push back on manufacturers when they attempt to subjugate your interests behind their own.
About the Author
Joel Sesco is the National Director of Automotive for Adtaxi. Joel has held multiple positions within dealerships, from selling new and used cars, running Internet and BDC departments, and directing marketing efforts across multi-store dealer groups. Joel attended The Ohio State University, and currently lives with his wife and daughter in small town Ohio.
Author: Contributing Writer
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