Autobytel Case Study
Problem statements -Autobytel is spending more than it earns, with an advertising budget that has traditionally overspent its revenues, let alone other expenses, Autobytel needs to slow down the advertising and marketing growth, raise prices or a combination of both? - Autobytel Case Study introduction?? -Autobytel has traditionally used a mix of different advertising strategies to attract customers. What would be the best mix for future growth? -Autobytel is looking to expand into several new markets while looking at its current product mix. What should Autobytel pursue and how should they pursue it? Autobytel needs to change its marketing position in order to differentiate it self from its competitors. Old positioning statements are being copied and better implemented by their competitors. What should Autobytel’s new position statement be? Conclusions Marketing and spending: Autobytel should look at reducing the growth rate of sales and marketing from 40% a year to only 10% a year. Marketing Mix: Autobytel needs to do a better job in determining who their customers are, how best to market to them and measure the effectiveness of future advertising campaigns. Much of this can be done by mining their own database of car buyers.
Product Mix: New Car Business Do a better job of marketing to car buyers in order to drive more traffic to the web site. Continue to maintain a positive relationship with participating dealerships. Increase average Autobytel fees per car by 25% to generate more revenue. Used Car Business As with the new car business, Autobytel needs to drive more customers to the website and continue to maintain a positive relationship with the dealer. Autobytel should drop the customer to customer sales site from the website and instead find ways to drive people selling cars to dealerships
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Financing and Insurance This represents a potential growth area for Autobytel. The company should find ways to increase the number of loans generated through the site. Autobytel should also aid dealerships in pursue generating more business for service and parts. As with used cars, Autobytel should avoid referring customers to service stations outside participating dealers Autobytel’s new positioning statement: Autobytel, bringing car buyers and sellers together to save money. Rationale: Marketing and spending: Table 1 represents financial performance and growth rate projection of Autobytel.
In years 1996-1999, the percent growth of marketing dollars decreases, leveling off at approximately 40% growth in 1998 and 1999. In order to keep up with that level of marketing growth, projected revenue growth would need to exceed approximately 145% for two years before Autobytel breaks even. This would be a difficult growth rate to maintain, especially when revenue growth is trending downward. On the other hand, if Autobytel decided to hold its advertising dollars even for two years, the company would need to have revenues grow for two years at approximately 75% to break even.
However, looking at past revenue growth, though it is decreasing, it probably won’t drop from 140% to 75% in one year. In Table 1, it shows a smoothed revenue growth drop from 140% in 1998 to 120% in 1999 and 100% in 2000 and 80% in 2001. With this 20% decrease each year, Autobytel would be able to maintain a 10% increase in marketing and in 2001 marketing would represent only 21% of its projected revenue. Marketing Mix: Since marketing dollars will become increasingly limited in the future, Benvenuto will need to develop a strategy for allocating dollars to the most effective sources.
Although, being the only internet company to be listed in the”Marketing 100 list” is admirable, this also represents an overspending of marketing dollars in the past. In a sense, Autobytel was trying to market to everyone. The Super Bowl ads are an example of this. Autobytel knew that the ads increased activity on their web site and may have led to extra revenue, but it does not give any indication of who the ads reached, why they used the site or even how much revenue the ads themselves generated.
To optimize limited marketing dollars, the company will need to determine exactly who their customers are, how best to reach those customers and then measure the effectiveness of its marketing strategy. Examples of more focused type of advertising could be: For car buying customers: -more presence through web advertising since many of the customers are web savvy, -advertising in car magazines and car sections of newspapers -focused advertising on populations looking for cars such as high school graduates and people entering the workforce. College and job fairs would be a place to look for this population.
For car dealerships -trade magazines for dealerships -car shows and automotive conferences where dealers determine what they will sell. -Sponsoring races or specific drivers. Product Mix: New Car Business The new car product is the core of Autobytel’s automotive business. In a nutshell, Autobytel helps customers with making choices about the type of car they want to buy without the pressure of a sales force. Once a customer has determined the exact type of car they want to buy, the service then directs these motivated buyers to participating retailers.
In essence, Autobytel has two customers, car buyers and car sellers and needs to work at pleasing both. In order to continue to attract more car buyers, Autobytel needs to focus its marketing and understand the marketing plan’s effect. Not only will this bring more interested parties to the web site, it would also allow Autobytel to slow its marketing spending. For the dealer side, Autobytel needs to make sure that they continue to have the car seller’s best interest at heart. Ultimately, this is where the Autobytel earns its revenue.
In order to aid car dealers in selling cars, they already have created a web site that drives motivated buyers to the dealership, help car sellers by training on selling techniques, and reduce overall expense and therefore increasing profits. This is demonstrated in Table 2 where it shows that rural auto dealerships save 35% on expenses with an Autobytel department and urban dealerships save 63%. Because of these large savings, Autobytel has some flexibility to increase its average dealer fee per car and still save the dealership money. Table 3 shows the average fee per car is approximately $86. 2 per car and how increasing the average fee affects dealership savings. As shown, even if Autobytel should double its average fee per car, a rural auto dealership would still save 19% while an urban dealership would still save 54%. In order to help generate revenue, Autobytel should look at increasing these fees. Instead of doubling the price, bringing the fees up gradually at 25% would be more manageable, especially if the company is able to show increased value to justify the increase. CyberStore-Used car business. Helping customers buy used cars is a natural extension of its business model nd many of the things that would be useful to a new car buyer would be equally useful to a used car buyer. Also, the car dealership would have a vested interest in growing its used car sales. Exhibit 2 (pg18) demonstrates that while new car sales represent 60% of sales but only 13% of dealerships profits, used cars represent only 29% of sales but 27% percent of its profits. This is almost double the profits of that generated by new cars. Recently, Autobytel created a space to allow customers to sell their used cars to each other without using a dealership. This action runs counter to the dealerships best interests.
If Autobytel is supporting its users to sell cars “outside the system” that would reduce a profitable portion of a dealership’s business. In this case, I believe Autobytel should drop the For Sale by Owner portion of its used car service. Instead of creating ways for customers to sell and buy cars away from their source of revenue, they should instead create stronger ties with used car owners in order to drive the cars to participating dealerships. A possible solution would be a % mark up off of blue book values if the car is sold to a participating dealership. Financing and Insurance
Although not a core part of its business, this is a natural product to offer potential car buyers. After one year of operations, the financing and insurance service grew from 2% of Autobytel’s revenue in 1998 to 11% (pg 8) of the company’s revenue. However, less than 5% of the customers requesting car quotes also asked for loans. Autobytel should find ways of growing this business since a small increase in car buyers establishing loans through Autobytel will have a dramatic effect on its bottom line. There is one area that Autobytel should look at expanding into.
Looking back at Exhibit 2 (pg 18), the main source of profits at an auto dealership is service and parts at 60% although it makes up only 12% of its sales. Autobytel has an excellent opportunity to leverage its database of customers and drive them to service centers at participating dealerships. Creating service reminders that come to users through email, timing service promotions to coincide with regular maintenance and helping car buyers get the most value from their car will help create a stronger relationship with Autobytel, the dealership and the customer.
Autobytel should also avoid referring customers outside to other service providers so as not to alienate their dealership customers, again since service represents a major portion of the company’s profits. Autobytel’s new positioning statement: Since the core of Autobytel’s value proposition is creating an easier and more efficient method of buying and selling cars, their new position statement should state this. Also, it is this relationship that Autobytel builds between both sets of customers that sets it apart from all other competition. Autobytel, bringing car buyers and sellers together to save money.