The Catalyst

The following article is an excerpt from ESA & Company’s upcoming white paper Driving Automotive Forward. The paper provides a detailed plan for auto dealers and broadcast sales executives to navigate the changing terrain in the automotive landscape. Visit ESA’s website or The Catalyst on or after August 21st for more information.

Auto dealers may say that they “tried TV in the past and it didn’t work.” The logical first response to this objection is, “What type of TV did you use? Was it local cable insertion like (ESPN, CNN, CNBC) or was it local broadcast affiliate television (ABC, CBS, Fox, or NBC)?”

It’s critical for dealers to understand the mathematical implications of their prior decision to employ cable. Closer inspection of local cable advertising will uncover significant cost inefficiencies and limitations in audience coverage.

A dealership owner that expects a sustained surge in response from a small cable television micro-targeted ad insertion is not being realistic. Case in point, in many television markets, the program audience for ad insertion cable networks does not register even 1,000 viewers each over specific time periods. For an auto dealer to expect immediate return from an audience of 1,000 viewers is to ignore the fact that only 1% of these audiences are actually in the market to buy a new car, with an even smaller portion of that 1% in the market for specific nameplates. Reaching car buyers market-wide, less than 10 at a time, is simply not a cost-efficient way to market on television.

Broadcast television, when used properly, is an extremely cost efficient way to target mass audiences with a focus on types of consumers through careful program selection.

Just as with cable, broadcast TV dollars can also be easily wasted when the advertiser is on broadcast TV at the wrong times, or wrong days. So proven buying windows have been established and there are now predictable patterns for all types of auto buyers. When you now know where and when these buyers are watching television, you can eliminate any possible wasted spending in advance.

Using local broadcast television, automotive advertisers reach audience sizes that dwarf cable audiences. This is one reason why local broadcast television is so cost efficient.

A common faulty assumption exists that cable advertising provides local retailers with a cheap alternative to broadcast television, or a means to “buy more frequency on the dollar.” These claims are empirically false, and are usually a result of evaluating the two media on “cost-per-spot”, an unsubstantiated non-metric. Such comparisons are fraught with errors.

Cost-per-spot, be it high or low, has absolutely no bearing on a dealer’s advertising effectiveness, whether measured by market share growth, customer acquisition cost, or any other success metric. Simply stated, dealer cost per acquisition (and PVR) is a function of cost per thousand (and not of cost per spot).

Closer inspection will demonstrate that cable television CPMs (cost per thousand) of actual viewing audience in the $50 – $200 CPM range. In comparison, local broadcast TV CPMs range from $5-20.

It should also be noted that no comparison can be made on the basis of cost-per-point (CPP), as enormous differences exist between the cable and broadcast television universe (relative coverage and audience penetration). In other words, a broadcast television point (percentage of audience) has many more auto shoppers than does a cable television point.

Final analysis reveals that cable advertising is not cheaper, but rather much more expensive than broadcast television. The fact that many dealers still believe cable costs less is a result of unfounded or misleading media pricing assumptions. As stated previously, dealer cost per acquisition is a function of cost per thousand. Broadcast sales executives need to fully embrace and communicate this correlation to the automotive retail industry. Once this fundamental math becomes common knowledge, dealers can dispense with the fallacies of “cost-per-spot” and greatly improve the overall effectiveness of their media investment.

In summary, dealers seeking an immediate payoff from spending in television need to find the means to tell their story to as many potential buyers as quickly as possible on their fixed budget. Here, the demonstrable cost efficiencies of local broadcast television and station websites become a real advantage.

The selection of media is paramount to overall success, as dealership profitability hinges on this decision.

Adam Armbruster is a senior partner with Red Bank, N.J.-based retail and broadcasting consulting firm Eckstein, Summers, Armbruster & Co. He can be reached at adam @ esacompany . com.

Sources: AutoPacific 2009 Report, ESA & Company auto dealership principal interviews, Automotive News, Wards Dealer Business, AutoPacific 2008, Business Week 2009, The Wall Street Journal 2009, Hispanic Marketing 2009, Nielsen 2009, Arbitron 2007-2009, ESA & Company 1985-2009.

Contributing Authors: David Eckstein, Roland J. Eckstein.