||Unexpected Consequences: With Co-Op Funds, Dealers See More Searches and Higher Costs
In the year since Chrysler Group started reimbursing dealers for buying pay-per-click advertising on Google, prices for popular phrases such as "Jeep Grand Cherokee" and "Dodge Dart" have jumped in the Cleveland market, dealers say.
In the Boston area, a yearlong surge in paid search spending by Volkswagen dealers has inflated the cost of banner ads and links to dealer Web sites.
Co-op programs have long been used for traditional advertising. Now the carmakers, acknowledging that 90-plus percent of shoppers do vehicle research online, are prodding dealers to shift investment to digital.
Kevin Mayer, vice president of marketing for VW of America, said VW's 619 U.S. dealers have seen a big spike in Web site traffic from more paid search, especially to view the all-important vehicle listings. But consultant Brian Pasch of PCG Digital Marketing says carmakers' push into digital with co-op dollars has had unintended side effects, such as:
Mike Warwick, director of digital marketing at the eight-store Kelly Automotive Group in suburban Boston, said popular VW key words on Google -- the 900-pound gorilla of online search -- that he could have bought for $1 to $1.50 per click three years ago now cost about triple that.
More rival dealers bidding for key words, driving up paid search prices.
Cookie-cutter digital campaigns resulting from few vendors managing paid searches.
Unprecedented competition for tech-savvy dealers who began using digital marketing years ago.
He said it is understandable that VW would provide incentives for dealers to advertise online. But the spending is mainly going to a small number of vendors -- which can result in multiple rivals bidding for the same key words, he said.
"If all the dealers are working off the same platform, bidding is forced up," Warwick said.
Chrysler dealers in the Cleveland area are seeing the same phenomenon.
Dusty Blechman, business development manager for the two-store Adventure Auto Group in Willoughby, Ohio, said his Google cost per click is up substantially since Chrysler launched its paid search co-op program in July 2012.
He now pays an average of $5.28 when a shopper clicks on one of the ads he obtains atop Google search pages by successfully bidding for vehicle phrases or key words. The ads typically appear as links in the shaded top portion of a Google search or on the right side of the page.
Blechman said all five of his Chrysler rivals within 10 miles of his Chrysler store are participating in paid search today, intensifying competition for ads that he could have bought for less money before Chrysler coaxed more dealers into the fray.
Alison Spitzer, vice president of the 15-store Spitzer Automotive Group in the Cleveland area, also reports big price increases for Chrysler-related key words in the past year. The company owns one Chrysler store in the Cleveland area, one in Mansfield, Ohio, and another in Florida.
For the e-commerce director at a Chrysler store in New England, who asked not to be named, that means "costs are getting prohibitively high."
The dealership, one of nine Chrysler stores in its market, is getting half as many views from shoppers on Google as it did a year ago for the same budget, the director said. The store sells about 100 new vehicles and 100 used vehicles per month.
Fallout from factory dollars
A recent white paper by PCG Digital Marketing identified unintended consequences from the carmakers increasing dealer subsidies for Google advertising.
Rising prices for paid search in many cities
Cookie-cutter campaigns result from reliance on few vendors to manage searches
Tech-savvy dealers lose search advantage to rivals aided by manufacturers
The factory push into paid search has been particularly hard on tech-savvy dealers, consultant Pasch said.
They are the so-called progressives who learned to use digital marketing years ago and had little competition from other dealers for online shoppers.
Pasch said early adopters feel frustration when automakers draw more competitors into digital media with co-op dollars.
"In the past progressive dealers had less competition from other dealers for these popular key words," Pasch wrote in a white paper, "The Three Unintended Consequences of OEM Funding for Google Adwords," published in May.
But top Chrysler and VW executives say their programs have been good for business.
Today, 80 percent of Chrysler's nearly 2,400 dealers use paid search to attract customers vs. 25 percent when the co-op program started, said Jeff Strickland, Chrysler's director of U.S. dealer relations and retail strategies.
Chrysler and its dealers nationwide dominate the top of a Google search page when a shopper searches for a Chrysler Group vehicle, Strickland said.
Overall, the price to Chrysler dealers for Chrysler-related key words, which typically include brand, model and possibly model year and other descriptions, is up an average 22 percent from a year ago, Strickland said, citing data he received from Google last month.
More Web traffic
Mayer said VW is happy with its results as well. Shopper traffic to the vehicle inventory pages of VW dealer sites has doubled in the past year, getting consumers deep into the shopping process.
"Dollar for dollar, [search engine marketing] gets some of the best consumer responses," Mayer said.
Mayer declined to detail how much VW's paid search spending has increased. He said VW key word costs on average are slightly below an industrywide increase over the past year of about 23 percent.
Pasch said he has seen increases considerably higher than that.
For instance, the price in one East Coast city for the search phrase "Volkswagen for sale" rose 51 percent to $3.21 in March vs. $2.13 in March 2012, Pasch said.
That's counter to the trend at Google. Average cost per click on all Google sites fell 4 percent in the first quarter of 2013 vs. the year-earlier period and the same 4 percent compared with the fourth quarter of 2012, according to the company's first-quarter public earnings statement.
The competition for popular phrases was bound to happen as co-op funds stimulate digital advertising, Pasch said. And factory limits on which vendors can be used to manage those accounts result in dealers using the same key word buying strategies in many markets, he said.
Chrysler is trying to provide as much choice of vendors to manage dealer-paid search as possible, Strickland said. That's why the carmaker in the first quarter added four vendor choices to the original three eligible for dealership co-op funds, he said.
Chrysler also may add to the certified roster of search engine vendors by August, he said.
Spitzer, the Cleveland dealership executive, said dealers should closely monitor their paid search advertising whether it is managed by vendors or in-house.
Dealers who let vendors spend their budget without close monitoring are more likely to get a cookie-cutter campaign that mirrors rivals using the same vendors, she said.
There's also a greater risk that competitors will violate an informal ban on buying key words that contain rival dealership names, Spitzer said.
In the past few months, she said she has called dealer principals at two competitors whose vendors bought key words containing the Spitzer name without the dealer principals' knowledge. She said that after a short conversation, the practice was discontinued.
Buying the name of a rival dealer in paid search is a recipe for a bidding war when the rival reciprocates.
A war like that only drives up advertising prices, said Spitzer, whose group spends more than half its ad budget on digital media, including paid search and ads on third-party shopping sites, such as AutoTrader.com.
Said Spitzer: "You have to nip that situation in the bud."
(Source: Automotive News, 07/09/13)