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The critical question on an automotive marketers mind today is this: How do I maximize the yield of every marketing dollar I spend? To increase market share by, say, 2 percent, should I change the feature content of my product? Introduce a new model? Should I drive advertising? Or rely instead on incentives and price reductions.
For good reasons, making these investment decisions has been an imprecise endeavor at best. Until recently, the incremental sales impact of each dollar spent on marketing, innovations and incentives has been difficult to isolate and quantify. Marketers have relied on surveys, past sales data, consumer advertising recall, anecdotal information from dealers, and generally soft metrics. No scientific methods were available to determine which investment dollars drove profit and which did not. That has changed. Scientific methodology has now roared into automotive marketing bringing radical new effectiveness to marketing and product development decisions. The sophisticated econometric modeling of Accenture Marketing Science can clearly identify the incremental impact on sales of every component of the marketing, incentive and product development budget. A marketer can now see from an overall perspective what works, what doesnt, and what is the optimal way to spend the investment dollar. Other industries have seized the opportunity presented by this evolution of marketing from a soft science to one grounded in rigorous modeling techniques. Over the past six years, Accenture has invested in building a strong leadership capability in this scientific approach to marketing. As a result, our experts have successfully used econometric techniques in more than 150 companies in a wide base of industries: financial services, pharmaceutical, retail and consumer goods, banking, electronics, and high-tech computer systems. With Accenture-developed proprietary techniques and tools, we can now determine the incremental sales effect of every component of the marketing mix. As a result, these companies have identified an average of 14 percent of the marketing budget that is ineffectively spent releasing those dollars to go directly to the bottom line or be reallocated into investments that grow the business. Now, Accenture has piloted a program that proves applying science to marketing works for automakers as well. It couldnt be more timely for the automotive industry.
The location is South America. The company is a global automotive manufacturer. Its recent performance has been exceptional, making it one of the top three brand turnaround success stories Accenture has seen in its marketing science analyses. What the company wanted to know was which marketing investments would most directly drive further growth. Its goal in collaborating with Accenture was to isolate each component of the marketing mix and measure its impact on sales. Simply put: to understand what was working for this manufacturer and what wasnt. Accenture looked at four drivers of sales over five years product innovation, advertising, and pricing tactics and incentives. Although the analytical matrix included thousands of variables, the analysis was able to determine which of those accounted for 95 percent of incremental change in sales or revenue. Macroeconomic factors were part of the equation as well, along with competitor econometrics and regional marketing analytics. Collaborating with the client, a predictive component was included, reflecting future business and market expectations. The goal was to deliver accurate information, based on customdesigned analytics, about this clients relative return for each dollar in the marketing mix.
Where does the company go with this information? It is more profitable for this automaker to be a price follower not a price leader. While it is impossible to withdraw unilaterally from price promotions, and tactical pricing continues to drive a large portion of total car sales, these bold pricing actions do not support brand performance over the long term. They are easily matched, and their effect is neutralized. The better course: Build the capability for quick response to aggressive competitor pricing initiatives. And target customers through CRM campaigns.
Advertising
There is advertising, and there is advertising. Some forms, as this carmaker found, work better than others. Looking at advertising across three tiers Tier One, the original equipment manufacturing spend on brand promotion, Tier Two, the regional spend by collectives of dealers, and Tier Three, local advertising by dealerships one clear result emerged. Advertising was effective in driving sales at all three levels. But Tier One brand advertising delivered the best return on each incremental dollar spent. It lifted sales in the short and medium term and it also boosted long-term base level sales. Given that finding, Tier One advertising at this company was underfunded. The current investment was spent well and contributed to brand growth, but Tier One was only a small portion of the overall marketing mix. Tier Two was just right where it needed to be at its existing level of spend. Tier Three was being overspent. This third-tier advertising, aimed at differentiating dealers and driving showroom traffic, showed widespread differences in effectiveness. It was logical to conclude that the company should increase its Tier One ad spend and decrease Tier Three. But this is not an easy action to carry out. Tier One, as an original equipment manufacturer ad spend, and Tier Three, a dealer investment, are not interchangeable pots of money. What is highly useful here is the knowledge gained. Knowing that Tier One spending works, what other levers where money is not so effectively spent can be reallocated here?
Accenture doesnt leave you with the analysis and wish you luck. We are the people who help you use this information to turn your business into a higher performing enterprise.
What this companys case establishes is that the scientific methodology of Accenture Marketing Science, which works so successfully in other industries, applies just as definitively in the automotive industry. While its application will vary company by company, case by case, Accenture Marketing Science can produce information that is vitally useful to the profitability of any carmaker. How much does each component of the marketing spend contribute to vehicle sales? We can statistically determine that. What is the relative effectiveness of different marketing levers? Here is the data. We can explain now with more than 90 percent certainty the incremental impact on sales of marketing investments in advertising, pricing and product innovation. As a result, an automaker can expect to free up an average 14 percent of the marketing budget and put those dollars to work in elements of the mix that pay off with higher incremental growth. With that knowledge, automotive marketers can make highly informed decisions on how to allocate spending to drive more sales.
After completing this work with our South American automotive client, we were pleased to hear what a senior executive of that company said: This is the best piece of marketing strategy work Ive ever seen here from an outside company.
industry. We can help you translate those numbers into strategies that improve the auto business specifically. Three, Accenture can work with you to turn analytical results into working realities. Does the analysis call for improved incentive management? We can deliver that. Does it call for more direct marketing? We can design and execute those marketing programs. And four, we measure and monitor results on an ongoing basis to make sure the changes are having the intended impact. Working with original equipment manufacturers and suppliers at every level for more than a decade, Accenture knows the automotive industry in depth and detail. Now, applying our advances in marketing science, that partnership between Accenture and the industry reaches a new level of high-performance teamwork. One that can turn marketing investment into a clear winner for automakers and help tip the playing field in their direction. If thats what youve been waiting for, lets get together and talk.
About Accenture
Accenture is the worlds leading management consulting and technology services company. Committed to delivering innovation, Accenture collaborates with its clients to help them realize their visions and create tangible value. With deep industry expertise, broad global resources and proven experience in consulting and outsourcing, Accenture can mobilize the right people, skills, alliances and technologies. With more than 75,000 people in 47 countries, the company generated net revenues of $11.6 billion for the fiscal year ended August 31, 2002. Its home page is www.accenture.com.
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