Convert more online shoppers with quality responses

DEALIX RETAIL STRATEGY BRIEF: JULY 2008

Converting More Online Shoppers to Sales

Leveraging recent ndings from the R. L. Polk & Co. research study:
“Consumer Expectations for Internet Lead Marketing”


Table of Contents

Overview 1

Third Party Websites Preferred for Lead Submission 2

Balancing Response Method and Response Time 4

Quality of Response Matters 4

Attracting First Time Buyers 5

Improving Shopper Loyalty 6

Addressing the Defector 7

Conclusion 9


OVERVIEW

In a challenging market, dealers need every advantage to maximize each opportunity. There is increasing
evidence that all leads should not be handled the same way. More importantly, information is emerging
that enables dealers to identify indicators of shopper purchasing expectations. Dealers who best meet
those expectations are more likely to convert shoppers into customers.

This Dealix Retail Strategy Brief summarizes key findings from a report produced in May 2008 by
R. L. Polk & Co. titled “Consumer Expectations for Internet Lead Marketing.” This summary was designed
to illuminate key concepts that dealers may find highly beneficial in acquiring more Internet-based
shoppers as well as converting those shoppers into customers.

Eighty-five percent of all car buyers are researching their purchases on the Internet. Identifying Internet
prospects and moving them to Internet “hand raisers" is critical to dealer success. However not all
shoppers should be addressed in the same manner. The following explanation of terms will assist in
understanding the key concepts and recommendations discussed in this brief.

The Polk study segmented car shoppers into three distinct segments:
· Loyalist - shoppers loyal to a specific brand and dealer
· Defector - those more likely to change brands or dealers
· First Time Buyer - shoppers purchasing their first vehicle

Each segment represents opportunities for dealers seeking increased sales and conversions. Defectors
are the largest segment visiting both third party and manufacturer sites. These customers are the most
open to new models, brands and retailers and represent a significant conquest opportunity for dealers.
Loyalists are allegiant to a brand and are more inclined to be a repeat customer while first time buyers
represent a high conversion rate opportunity. Identifying attributes of these groups and communicating
in a method that improves the likelihood of conversion is shown to increase retail sales as reported
by Polk.

The Polk study defines three types of automotive websites shoppers use to submit vehicle leads: dealer
websites, OEM sites, and third party lead sites. Each of the three shopper segments utilized each of the
three site categories however each category of site was found to attract different amounts of the
shopper segments.

DEALIX Retail Strategy Brief: July 2008
©2008 The Cobalt Group. All rights reserved. 1


THI RD PA RTY WEBSI TES PREFERRED FOR LEAD SUBMI SSI ON

While shoppers of each segment submitted multiple leads to different types of sites, each site category
was found to attract different mixes of the three segments. Third party sites are utilized the most by all
three segments to submit leads.

Key Finding:

- All three shopper segments use third party sites to submit leads more than dealer and OEM sites.
(Fig.1)

Retail Strategy Recommendation: Third party sites provide more lead volume to dealers
of each of the three shopper categories. Diminishing showroom floor traffic may be offset by
increased use of third party lead providers.



Key Finding:

- All shoppers in the Polk Study, regardless of segment, submitted an average of three lead requests.
Loyalists and first time buyers use third party sites more than OEM and dealer websites to submit
their leads.

The average lead submission rate of three leads supports the widely held belief that Internet shoppers
submit the same lead through multiple sources creating duplication issues, yet this practice should not
be viewed negatively by dealers. Online shoppers reflect many of the same shopping habits as offline
shoppers. Most dealers would not assume that a showroom visitor would not visit any other dealerships
as part of their shopping process. Similarly, online shoppers display the same traits and will submit more
than one lead. As with the offline process, the dealer who responds the best will likely make the sale.

What was not identified in the Polk study was the distribution of the three leads per shopper by
website type. Some may leap to the conclusion that the three leads are distributed evenly between
dealer websites, OEM and third party sites however no information exists that supports this theory.
Shoppers may submit all three leads though dealer websites, OEM sites or on any combination
of the three.

Retail Strategy Recommendation: Shoppers in each segment represent additional retail
opportunities. A balanced dealer lead acquisition strategy should ensure the inbound lead mix
is equally balanced between leads originating from the dealership website, OEM site and third
party lead providers. Eliminating one of the three sources reduces the likelihood of success.

Today shoppers have high expectations and a dealer's responsiveness has a big impact on conversion
success. Shoppers who submit leads online and purchase vehicles have an 80% buy rate though not
necessarily at the dealership where they originally submitted the lead. The dealer who earns the business
is typically the one who is most responsive and best meets the shopper’s response expectations.



BALANCING RESPONSE METHOD AND RESPONSE TIME

Buyers have different expectations for how and how quickly a dealer should communicate with them
and it’s becoming increasingly important for dealers to identify which leads to respond to first. For the
dealer, an indicator of the importance may be in how the shopper asks to be contacted. Email is the
preferred response method of 63% of new car shoppers while the phone is preferred by 26% of new car
shoppers. Of those who wish to be contacted by email, 47% viewed 10-24 hours as an acceptable response
time. Those who preferred a phone call considered one hour or less as an acceptable response time.

Retail Strategy Recommendation: While most online shoppers want an email response,
this is often the choice of the LEAST urgent shopper. If a shopper has requested a phone
contact, this may be an indication of an urgent buyer and should be responded to first.

Q U A L I T Y O F R E S P O N S E M AT T E R S

A large portion of shoppers value the quality of the dealer's response as much as the speed of a
response, and often times they value quality more than speed. Shoppers who value a quick response time
more than quality of response tend to have a lower conversion rate than those who value the quality of
response the most.

In the Polk study, shoppers were put into one of seven "profiles" based on attributes reflecting their
primary communication styles and their expectations when interacting with dealers. These profiles were
then analyzed to identify buying rates.

By looking at the top three buying rate profiles, dealers can find insights that can increase their ability
to close the sale. The three profiles are listed in the table below. (Fig. 2)



Each of the profiles are looking for quality responses that include information on vehicle availability,
specific price and incentives. Dealers who provide customers with quality responses will be rewarded with
higher conversion rates. This reinforces findings from previous studies that indicate a fast response that
lacks answers to the customer's key questions will not win the customer. A prompt, quality response is
more likely to win the sale.

Key Finding:

- Seventy percent of shoppers who purchased from the dealer who responded to their request
were responded to in the method they preferred.

Retail Strategy Recommendation: A fast lead response does not win the sale. A
prompt response that answers all of the shopper’s questions by their preferred method
of communication (phone or email) will result in higher conversion rates.

AT T R A C T I N G FI R S T T I M E B U Y E R S

First time buyers have traditionally been overlooked by dealers. This was confirmed by the Polk study
that found almost 40% of first time buyers never received a response from the dealer. This represents a
large missed opportunity given that 83% buy from dealers who do respond. Today, the average first time
buyer is 28 years old. By 2010, the US expects to have approximately 21.4 million residents between the
ages of 25-29. This represents over a 10% increase between 2000 and 2010. These new entrants to the
market are potential future loyal customers.

Key Finding:

- Among survey respondents, 83% of those buying a vehicle for the first time purchased their
vehicle from a dealership that responded to their online request for information.

The most important factor for first time buyers in selecting a dealership is for a dealer to provide pricing
information. The second most important factor for this segment is for a dealer to provide the vehicle
information that was requested. Most first time buyers feel that two hours or less is an acceptable time
to wait for a response. They often want a prompt response and ask for phone follow-up.

First time buyers are not as likely to submit leads through OEM and dealer sites. They prefer third party
sites by a rate of nearly two to one over dealer sites. Dealers wishing to reach this growing segment of
the market will benefit by using third party sites. (Fig. 3)



Third party sites are unique in their ability to attract first time buyers and these leads are highly
valuable because they are likely to convert if the lead is handled well by the dealer.

“…dealers and OEMs may need to place higher
emphasis on third party leads to attract first
time buyers to their dealer showrooms.” – R. L. Polk & Co.

Retail Strategy Recommendation: Dealers should query each lead to identify if the shopper
is a first time buyer. This can be done subtly by suggesting the manufacturer may have special
incentives for first time buyers that would further reduce their purchase price or finance rate.

I M P R O V I N G S H O P P E R L O YA LT Y

Several recent industry studies report both brand and dealership loyalty is less important to shoppers.
Polk reports that 56% of vehicle owners returning to the market leave their previous brand. While
consumer loyalty remains challenging, new Polk data provides dealers with insight into how to improve
loyalty. There are two key controllable factors that together account for more than a third of influence
on shopper loyalty and vehicle selection:

1. The overall shopping and sales experience - 18% influence factor
2. If the dealer was viewed as honest and trustworthy - 18% influence factor



Loyalists' intent to purchase their past brand from the previous dealer they purchased from was
demonstrably weakened if they felt the dealer was unresponsive or responded without providing all
the requested information. Loyalists use third party websites to submit leads more frequently than
OEM sites and surprisingly even more than dealership websites. (Fig. 4)

Retail Strategy Recommendation: Loyalists tend to be sold on the brand yet they are
highly sensitive to the overall shopping experience and value transparent communication.
When responding, ask if the shopper has owned the brand in the past. Then strive to answer
all their questions completely including price and payment terms.

ADDRESSING THE DEFECTOR

The defector represents the largest opportunity for sales conquest among the three shopper segments.
With low brand loyalty, dealers must assume the shopper who submitted a lead for their brand is likely
to be submitting leads for competing brands as well. Winning the opportunity to do business with these
shoppers is contingent on responding to each lead in a timely and complete manner. Each response
should include:

1. Price information
2. Availability of a specific model
3. Availability of incentives or discounts
4. Detailed vehicle specifications



Although dealers have traditionally been resistant to provide price information in communication with
shoppers, research in the Polk study and other recent industry studies continues to reinforce
the critical importance of including specific price information in the lead response. Polk also found
monthly payment information represents an additional 29% of the influence of new vehicle selection
alone. Dealers who do not address price questions are essentially eliminated from consideration.

The Polk study revealed a direct correlation between satisfaction with the pricing information provided
and improvements in conversion to the brand or defection to another brand.

Key Finding:

- Third party sites were found to be used more frequently by brand defectors and represent the
largest conquest opportunity for dealers. (Fig. 5)

Retail Strategy Recommendation: Dealership ISR’s should be empowered to address the
price questions when responding to inquiries. Using a predetermined pricing matrix based on
current inventory, vehicle aging, competitive pricing and consumer demand has been shown
to increase response time, and ensure price responses meet management approval.



CONCLUSION

In a challenging market, dealers need every advantage to maximize each opportunity. This summary
shows that all leads should not be handled the same way. Dealers who best meet the expectations of each
shopper segment are more likely to convert shoppers into customers.

This brief is intended to provide you with the most relevant findings from the Polk study “Consumer
Expectations for Internet Lead Marketing” and recommendations on how to apply these findings in the
day-to-day operations of your store.

To download a complete copy of “Consumer Expectations for Internet Lead Marketing” go to the
R. L. Polk & Co. website at:

http://blog.polkknowledge.com/2008/05/01/market-study-consumer-expectations-for-internet-lead-marketing.aspx.


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