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Zeta - Auto Marketing Optimization Analysis North American Dealerships

Auto brand marketing optimization models

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Page 1: Auto brand marketing optimization models

Zeta-Auto Marketing

Optimization Analysis

North American Dealerships

Page 2: Auto brand marketing optimization models

Agenda

• Destination & Purpose

• Executive Insights Summary

• Situation: Marketing Investment Trends

• Model Architecture

• Decomposing Marketing Effects

• Marketing Variance Analysis: Drivers of Gains & Declines

• Marketing Sensitivity Analysis, Diminishing Returns and Key Investment Thresholds

• Marketing Returns & Investment Opportunities

• Marketing Spending Optimization

• Model Validation

Page 3: Auto brand marketing optimization models

Destination & Purpose

• Our destination is to build valid and

predictive econometric models of Zeta-

Auto’s core business lines for the explicit

purpose of measuring marketing ROI and

effectiveness and provide direct guidance

to Zeta-Auto to significantly improve it’s

marketing investment productivity and

returns.

Page 4: Auto brand marketing optimization models

Executive Summary &

Insights• For the past 3 years, Zeta-Auto’s business has been adversely affected by

recessionary pressures and was a key factor driving a decline in marketing investment in 2012 and 2013

• Certainly, our econometric model found a direct and negative effect on Zeta-Auto due to the economic slowdown. However, our findings reveal that cutting marketing investment actually played a greater role in driving the company’s sales decline and exacerbated the pain. The underlying belief that marketing is primarily an expense, without considering its benefits, is a key factor that led to this unnecessary weakness in business performance.

• Together, key operational, media and consumer incentives drove incremental revenue for Zeta-Auto equal to 37% of total revenues. Furthermore, from our analysis, $125 million in advertising investment was found to return $1.9 billon in sales revenue for a $15.2 return per dollar investment. Contrary to popular myth, marketing is found to be an investment with a significant return.

• For the past year, the overall business strategy for Zeta-Auto was to invest more and rely more on financial/price incentives to customers rather than investing more in equity building advertising. While more dollars flowed into finance incentives, our modeling showed that Zeta-Auto actually got less out of this program than the prior year. Thus, relying on price incentives to cushion from the effects of a recessionary business climate is not always found to be effective.

Page 5: Auto brand marketing optimization models

Executive Summary &

Insights• Despite the weak business performance for Zeta-Auto, the data reveal numerous

opportunities to increase efficiencies and execution. Some of these opportunities are

found by examining where investment thresholds and diminishing returns set in.

– For example, Zeta-Auto does not need to offer consumer loans at less then 4

percent

– Dealer inventories do not need to exceed 40,000 on a daily basis

– TV advertising does not need to exceed $30 million due to diminishing returns

• When looking at marketing effects and returns for individual Zeta-Auto models, our

model reveals that the greatest opportunities are found in the SUV and E Series

models. When optimizing media spend, we likewise suggest moving more

investment into these models and, even at constant total spending, we project this

reallocation can generate +4% gain in sales.

• This same optimization scenario likewise points to greater investment in

Digital/Online & Outdoor media, constant spend in print advertising and cutbacks

across other media channels, with a reduction also indicated for investment in

financial incentives.

Page 6: Auto brand marketing optimization models

Total Zeta-Auto Marketing

Investments

123.9

$143.0 $142.0

$125.1

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

2010 2011 2012 2013

Incentives

OOH

Digital-Online

Magazine

Newspaper

TV

A weaker economic climate has led Zeta-Auto to significantly reduce marketing investments in

2013.

Page 7: Auto brand marketing optimization models

77

Zeta-Auto Enterprise Marketing Optimization

Model Architecture

5 Zeta-Auto

Models

Jan 00 – Oct 02

Five predictive models were

developed across each of Zeta-

Auto’s current brands. The data

period covers almost three years of

dealer sales information . The

drivers of each model cover all

media, seasonal and a host of

relevant operational drivers, plus the

external economy.

Short-Term TV

Short-Term Newspaper

Dealer Inventories

Vehicle

Pricing

Seasonality

Short-Term Magazines

Short-Term Outdoor

Advertising Long-Term Effect

Consumer Finance Incentives

Macro-Economy

Zeta-Auto

Enterprise

Model

Competitive Media

Competitive Incentives

North America

Dealerships

Monthly Sales

Online-Digital Media

Page 8: Auto brand marketing optimization models

Total Zeta-Auto Brand Incremental Sales

Decomposition

63.0%

8.2%

0.7%2.0%

3.8%

1.9%

3.1%

2.8%

5.0%

9.6%

37.0%

Base

DealerAvailability/Stocks

Halo TV

TV

Newspapers

Magazines

Digital/Online

Customer incentives, media and operational drivers make up about 37% of Zeta-Auto’s

North American enterprise revenues. A $125 million spend on media & incentives

generates $1.9 billion in revenue, where each dollar spent returns $15.2 in sales revenue.

Page 9: Auto brand marketing optimization models

Incremental Sales Decomposition by Zeta-Auto

Model

The SX Series & SUV have the highest proportion of marketing-driven incremental sales.

(20,000)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Model E Model M Model SX SUV Roadster

Dealer Availability/Stocks

TV

Halo Media

Newspapers

Magazines

Incentives +

Digital-Online

OOH

Long-Term Media

Baseline

Macro Economy

Competitive

Page 10: Auto brand marketing optimization models

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

Ma

r.1

1

Ap

r.11

Ma

y.1

1

Jun

.11

Jul.11

Au

g.1

1

Se

p.1

1

Oct.

11

Nov.1

1

Dec.1

1

Jan

.12

Fe

b.1

2

Ma

r.1

2

Ap

r.12

Ma

y.1

2

Jun

.12

Jul.12

Au

g.1

2

Se

p.1

2

Oct.

12

Nov.1

2

Dec.1

2

Jan

.13

Fe

b.1

3

Ma

r.1

3

Ap

r.13

Ma

y.1

3

Jun

.13

Jul.13

Au

g.1

3

Se

p.1

3

Oct.

13

Nov.1

3

Dec.1

3

Base Momentum Dealer Availability/Stocks Halo TV

TV Newspapers Digital/Online

Magazines OOH Lon g Term TV

Incentives+ Compt.Media Macro-Economy

Volume

Total Zeta-Auto Decomposition of Dealer Sales by

MonthLower marketing productivity and an increasing negative impact from the macro-

economy are major challenges for Zeta-Auto at present.

Page 11: Auto brand marketing optimization models

Total Zeta-Auto Marketing Variance

-6.1%

-5.4%

-4.9%

-2.1%

-1.7%

-1.1%

0.2%

0.4%

1.4%

2.1%

2.2%

3.4%

-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0%

Long Term TV

Newspapers

Macro-Economy

OOH

Magazines

Incentives+

Compt.Media

TV

Dealer Availability/Stocks

Halo TV

Digital/Online Media

Baseline Momentum

Annual % Variance

Annual % Variance

Overall sales declined -11.6%. Reduction in spending on media has generated more decline

in sales than the weak economy. Also, despite more investment in incentives, Zeta-Auto getting

less for it.

Page 12: Auto brand marketing optimization models

Zeta-Auto Marketing Variance by Model

1.1%

-2.3%

-7.6%

4.8%

-6.4%

-10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

E Series

M Series

SX Series

SUV

Roadster

Base

TV

Halo TV

Digital/Online

Newspapers

Magazines

OOH

Long-Term Media

Incentives+

Competitive

Macroecon

The SUV and E Series stand out as the only brands with year-over-year gains. For both of

These, digital media played a major role

Page 13: Auto brand marketing optimization models

Dealer Availability & Zeta-Auto Sales

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

- 20,000 40,000 60,000 80,000 100,000

An

nu

ali

zed

S

ale

s

Avg. Daily Vehicle Stocks

Dealer inventories generate virtually no benefit beyond the average level of about

40,000 units.

Page 14: Auto brand marketing optimization models

Consumer Finance Rates and Zeta-Auto

Annual Sales

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

An

nu

ali

zed

S

ale

s

Avg. Consumer Finance Rate

A significant threshold in impact is reached at a borrowing rate of about 4 percent.

Page 15: Auto brand marketing optimization models

TV Ad Spend and Zeta-Auto Annual Sales

430,000

440,000

450,000

460,000

470,000

480,000

490,000

500,000

510,000

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0

An

nu

ali

ze

d S

ale

s

Ne

t M

arg

ina

l R

etu

rns

Annual TV Spend $MM

Net Marginal Returns

Sales

Diminishing returns set in for TV advertising at about a $30 million level of investment

Page 16: Auto brand marketing optimization models

Net Returns per Dollar by Model

E Series

M Series

SX Series

SUV

Roadster

0

50

100

150

200

250

300

350

400328

301

212199

358

204

280

E Series

M Series

SX Series

SUV

Roadster

Outdoor & magazine ads for the SUV plus TV, newspaper and outdoor advertising for the

Zeta-Auto roadster generate high returns per investment.

Page 17: Auto brand marketing optimization models

Marketing Opportunity Matrix

E Series

M Series

SX Series

SUV

Roadster

TV

Newspaper

Magazines Media

Digital/Online MEdia

OOH Media

Incentives

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

-10.00% -8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00%

RO

I p

er

Do

llar

Sp

en

t

Total Growth Impact

Marketing Investment Opportunity MatrixHi Priority Investment

Partially Reallocate Spend

Increase Investment

Significantly Reduce Spend

The SUV’s, E Series Model, Digital Media & OOH Media should be highest priority

marketing investments

Page 18: Auto brand marketing optimization models

Marketing Spending Optimization by Media

Marketing Contribution Current Spend $MM Optimal Spend $MM

Incentives 5,986 $25.0 $18.8

OOH 12,502 $25.0 $41.2

Digital/Online 6,000 $11.5 $14.8

Magazine 2,504 $13.5 $4.0

Newspaper 16,897 $18.8 $18.8

TV 12,192 $31.3 $27.5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Incentives

OOH

Digital/Online

Magazine

Newspaper

TV

$125.0 $125.0

The Zeta-Auto SUV’s show the most tactics with the highest efficiencies and contributions

and show the most promising upside opportunities. In addition, there are strong efficiencies on a

number of Zeta-Auto Roadster tactics.

Page 19: Auto brand marketing optimization models

Marketing Spending Optimization by Model

Marketing Contribution Current Spend $MM Optimal Spend $MM

Roadster 9,435 $12.5 $11.0

SUV 33,887 $48.8 $56.3

SX Series 8,582 $10.0 $8.0

M Series 5,776 $18.8 $12.5

E Series 20,944 $35.0 $37.3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Roadster

SUV

SX Series

M Series

E Series

$125.0 $125.0

Marketing spend optimization finds a +4% lift in sales at constant spend, with the emphasis

indicating higher investment in SUV & E Series models.

Page 20: Auto brand marketing optimization models

Model Validation: Actual v. Model Predicted

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000Jan-1

1

Mar-

11

May-1

1

Jul-11

Sep

-11

Nov-1

1

Jan-1

2

Mar-

12

May-1

2

Jul-12

Sep

-12

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-13

Sep

-13

Actual

Model

R2 =97.2%, Holdout R2 = 99.8%, MAPE = +/- 2.3%