How to use data to reposition for retail success

Roughly nine months into the pandemic, we've seen some significant shifts across the automotive industry. Amid stay-at-home orders and business restrictions during the early stages of the health emergency, consumers became more reliant on the digital ecosystem — and the trend is beginning to supplant itself within the vehicle-shopping experience. Add to that depressed vehicle sales — albeit showing signs of rebounding — and limited inventory that led automakers and dealers to reassess budgets and expenses.

It's clear we're operating in a much different environment than we're accustomed to, and the only path forward is to adapt. Experience and instinct play roles in the decision-making process, but we need to be definitive and informed. Now is the time to embrace data as we reposition ourselves for success.

What began as a necessity with retail closures in early spring has turned into a preference for consumers — and it's slowly becoming a mainstay in an otherwise predominantly face-to-face industry. According to CarGurus' U.S. COVID-19 Sentiment Study in June, 61 percent of current prospective buyers would prefer contactless services, such as virtual appointments, at-home test drives and home delivery. In addition, 60 percent of surveyed vehicle shoppers were open to buying online compared with 32 percent prior to the pandemic, and 37 percent preferred buying online compared with 19 percent previously.

As dealers reconstruct their digital retail strategy to accommodate scale, it's important for them to reinforce the same principles around convenience and experience; just because the process moves online doesn't mean it should be any less seamless. That said, remote transactions carry inherent risks. It's easier for potential fraudsters to attack and limits the likelihood of them getting caught. Couple that with the potential of stealing a product as valuable as an automobile and the temptation to move toward the automotive industry is compelling.

So, how do automotive retailers balance the vehicle-shopping experience and minimize potential fraud risks?

Take a page from other digital retailers. Data and technology can help authenticate car shoppers behind the scenes in a manner that is frictionless for them, whether it's during the at-home test drive, negotiation or delivery. A multilayered approach that leverages advanced analytics designed specifically for digital transactions — such as machine learning, device intelligence and biometrics — ensures vehicle shoppers have the same seamless experience and reduces the potential of a fraudulent transaction.

In addition to reimagining the digital retailing experience, we encourage automakers and dealers to reimagine advertising strategies. With auto plant closures severely impacting new-vehicle inventory, some dealers have pulled back on ad spend; others simply view advertising through a lens of diminished returns.

According to a recent IAB study, ad buyers expect 2020 ad spend to decline approximately 20 percent from the previous year. Additionally, according to the National Automobile Dealers Association, ad spend in July was down more than 21 percent compared with the year earlier.

We understand the hesitation to return to spending near pre-pandemic levels, particularly as sales begin to rebound despite fewer ad buys. But let's not forget there is significant pent-up demand. According to The Harris Poll, COVID-19 Wave 24, 20 percent of U.S. adults are planning to purchase a vehicle when things return to normal. It's not a matter of cutting ad spend but rather focusing on being more efficient.

Previously, some in the industry often relied on the "spray and pray" approach, but there's too much wasted ad spend. Making matters worse, it's difficult to identify where the waste is coming from. Instead, let's rely on data to identify those who are in-market and most likely to purchase a vehicle. Review sales performance for core makes and models; determine the markets where these perform best and the types of shoppers who prefer these vehicles. Implement the same approach with the competition; identify conquest opportunities and grow market share.

According to Experian, loyalty rates for makes have steadily increased since 2011, finishing 2019 at more than 63 percent. That still leaves just less than 37 percent of new-vehicle buyers returning to market who will consider switching brands. It's no longer just about building awareness; the use of data and a more targeted approach allow us to reach the most likely buyers at every stage of the path to purchase.

The industry finds itself at a crossroads: The market has weathered the storm, but how do we continue to succeed? We need to be diligent about seeking insight to make informed decisions. Data can guide us on an otherwise dimly lit road.