CommentaryOct 7th, 2016

Big Data Keeps Your Dealership a Step Ahead of the Customer


The topic of big data is one most non-technical people will go well out of their way to avoid. At best, it promises to be hard to comprehend; at worst, for minds not keyed into the mysteries of analytics and algorithms, it threatens to induce full-brain paralysis.

This is probably true for most automotive dealers. They want to enjoy the marketing insights, sales benefits, and customer-retention gains big data and analytics can bring to their dealership, but don’t want to have to know the ins and outs of—or try to explain—how their system actually works.

Fortunately, with the latest offerings from tech-savvy automotive vendors, it’s become much more intuitive to integrate big data into dealership systems and, most importantly, start using them without needing a PhD.

You can let your vendor partner worry about details like stochastic gradient descent and logistic regression algorithms, and get on with using the system to make operating decisions that will help sell more vehicles and gain customers for life.

So if your dealership hasn’t yet taken advantage of the power of big data or isn’t harnessing it to your satisfaction, what’s your next step? To find out, we consulted three experts on the topic, industry leaders who understand both the “whys” and “hows” of big data: Kendall Billman, senior vice president at AutoAlertSteve Cottrell, CEO and president of Authenticom; and Ken Kolodziej, CEO of String Automotive.

Their insightful responses to our questions demystify the reasons for and application of big data, and explain why now, more than ever, dealerships need to be taking advantage of its analytical power to stay one step ahead of their customers. Maintaining a competitive edge in an ever-tightening marketplace demands it.

Dealer Marketing Magazine: Describe in layperson’s terms why a new-vehicle dealer should care about big data.

Kendall Billman: With the high cost of digital marketing and levels of competition, big data, as it has been defined, gives every dealership—no matter its size—numerous competitive advantages. The knowledge obtained regarding customers and target audiences allows them to be competitive against larger dealer groups that are already utilizing data to succeed in a competitive marketplace.

There are numerous dealerships attempting to sell to unknown entities, essentially pumping out marketing materials without really knowing their consumers. Not only does this get incredibly expensive, but there’s no guarantee marketing dollars are benefiting dealerships by reaching shoppers who are in market and ready to buy.

With big data, dealerships can target their communications and have the right conversations with consumers at exactly the right time—essentially leveraging their insights to guide them toward the best in-market opportunities.

Steve Cottrell: Consumers each have their own individual preferences and will make a purchase decision when it’s important to them. Data analytics give dealers pertinent information about consumer purchase patterns, and what has triggered their buying decision for a vehicle and for service operations in the past.

With data analytics, car dealers can make the right offer to the right customer at the right time.

Ken Kolodziej: For as long as I’ve been in automotive, most operational decisions have been made either with little or no data. Especially when it comes to areas like advertising and marketing, both digital and traditional, dealers typically make decisions based on their gut, or what someone told them, or what they read, etc.

The problem with this approach is two-fold. [First], when you guess or use your gut, you’re basically gambling with your success. The data points you’re using for your inputs are either nonexistent or very limited.

There are a million examples, but think of it as if you were buying a house without running any comps. It might “feel good,” but how do you know if the price is right? What about the neighborhood? You need as much information as possible at your disposal to make the best decision.

[Second], what happens when your competition starts to get more sophisticated and uses data in the way they attack the market? Dealer groups have been consolidating for years, and a lot of smart money is being poured into the industry—[i.e.], Berkshire Hathaway, the public’s, etc.

You don’t want to be the last dealer on the block who’s doing things the way they’ve always been done and keeping your fingers crossed that everything goes well.

DMM: What are the biggest misconceptions about—or objections to—the use of big data and analytics in auto dealerships?

KB: There are a few misconceptions, but by understanding big data and how it can help dealerships, most of those can be set aside. For example, some dealerships are simply hesitant to step into the big data arena because it’s an unknown to them.

While it’s a different way of approaching sales, it’s certainly a benefit, and once sales teams begin to recognize the number of consumer insights and behaviors they are able to access, they’ll find they are able to more easily and efficiently target in-market opportunities and sell more vehicles.

Some dealerships also hesitate because they say big data is not realistic or actionable for their particular location. Data comes in many forms, and the concept of utilizing it to become aware of consumer needs and preferences isn’t necessarily new.

In fact, in addition to collecting data via analytics-driven programs, there are numerous free services most of us are familiar with—but many may not think of using them for data collection. Think of sites like Facebook, Twitter, online feedback forums, and any other popular social platforms.

Any time consumers interact or share information on these sites—and any time they interact with you—they share valuable information you can utilize. They open up about their likes, dislikes, and shopping preferences, all of which you can compile into a database of consumer insights.

The key is ensuring your entire team is on the same page and storing your information so it can be easily accessed when it’s time to make sales.

SC: Like anything, the fear of the unknown can be a barrier to adoption, even for a savvy and sophisticated dealer. Customers and dealers both have concerns about data security.

Dealers also are likely to question the return on investment for technology or service that they haven’t implemented before. With the proper selection of vendor partners, however, data analytics can be a big boost to any auto retailer’s bottom line, and should become a significant part of any auto dealer’s marketing platform.

KK: At String, we hear a couple of objections when talking to dealers about data and analytics.

[The first common objection is] “I already have lots of data.” The great thing about the world today, and about the auto industry, is that there’s tons of data around, and it’s always changing.

The downside to having all of this data is that no one person—or even group of people—can possibly analyze everything by themselves. It’s just too much for a human to go through.

We know that, even with 20 different reports in hand, it’s really difficult for someone to combine all of the data and get meaningful insight out of it. It’s hard to do for one dealership; when you’re trying to do it for a big group of dealerships, across different regions, it’s almost impossible.

Data by itself is useless. You need a way to quickly interpret it . . . otherwise, you might have the “what,” but not the “why.” Without the “why,” you can never fix a problem or capitalize on an opportunity.

[Another objection we hear is] “I don’t have time for this.” This line is almost the opposite from the [first] one. I interpret it as, “I’d like to use data, but I don’t know where to start.”

I get it: Running a dealership is constant firefighting, but if you don’t take the time to shift your mentality and get the right people and tools on board to drive the data train, you’ll never get to the next level.

Change is always hard, but as the leader of your organization, if you don’t spearhead the initiative, who else will?

DMM: What component of dealership business—or department in a dealership—stands to benefit the most from the use of data and analytics, and why?

KB: Every department benefits. Every dealership department is a profit center with its own customers who have unique needs. In many instances, data is not shared between departments; however, the knowledge obtained from the data serves to improve the profits of each department.

With the ability to offer a broad spectrum of consumer data insights, including previous purchases, mileage search parameters, repairs, warranties, and much more, dealership professionals in multiple departments are able to predict customer behavior and consistently provide the best service.

By collecting and sharing data between departments, dealerships can become more information-driven, ensuring they run efficiently [and recognize] individual customer needs—whether that be in service, sales, or any other area. This enhances the consumer experience and increases the probability of return visits, as well as positive word-of-mouth referrals.

SC: Currently, the use of data and analytics most frequently benefits the service department, as it’s easier to develop a pattern of miles driven, and then develop well-timed marketing offers for routine maintenance.

However, as dealers and their vendor partners begin to understand how to more accurately analyze their existing data, they will have a positive impact on customer retention and vehicle sales, as well.

KK: Honestly, there is no corner of a dealership where data and analytics couldn’t play a vital role. You even have companies like Hireology starting to apply data to HR in dealerships.

It’s great: I’ve been waiting for 10 years to see the industry embrace data and the power behind it, and I’m really glad it’s happening.

That said, I think the most immediate opportunity is in advertising and marketing. Not only is there a lot of un-optimized spend out there, but there is a huge amount of data available to analyze out in the market and in dealers’ own systems (DMS, CRM, etc.).

Advertising is unique in that spend can be shifted quickly, even real-time for most digital, so it makes sense to use on-the-fly data as a way to target your market.

What all of this means is that with the right analytics tools and data sets, dealers can quickly look at advertising and get a handle on what they need to focus on, how they need to act, and where they can make the necessary campaign changes immediately.

They can start saving money and seeing increased results in short order, whereas with other departments, adjustments can require big capital outlays, HR changes, or process changes that won’t bear fruit for months.

DMM: How much technical understanding of big data or analytics do dealership employees need to effectively utilize the technology in day-to-day operations?

KB: None. Many dealerships are thrown off by their initial impressions of big data, mistakenly thinking they need dedicated data scientists onboard to navigate the process. This is simply not the case. In fact, while big data can be voluminous, a great setup is scalable to the specific needs of your dealership.

So yes, there is a lot of data available, which can seem daunting, but when it’s organized in an easily understandable format—and when you collect only the data you need—it’s much easier to handle.

In fact, dealerships often analyze information they already have about customers who have shopped with them, contacted them, or shared information with them, so it’s simply a matter of utilizing the data that’s already at their fingertips to its greatest advantage.

When dealerships give their teams the ability to access and analyze this information, they are giving them the key to targeting their efforts and dramatically impacting their sales.

SC: Dealerships should focus on what they know best—their day-to-day operations—and work with outside partners to mine their data.

When vetting vendors, they should look at the application to see if the approach makes sense to them. The application should have all the dots connected and have a clear objective with a path for success that is spelled out and makes sense.

Since the technology aspect tends to be the most intimidating to the dealer, I would recommend leaving the technology part to the vendors. Obviously, dealers should check references first and measure ROI often.

KK: This all depends on your toolset. If you’re taking vendor reports, DMS printouts, Google Analytics reporting, and raw data, [then] trying to analyze everything in spreadsheets, you’ll need a lot of horsepower to make sense of everything. Anyone who’s ever tried this knows what I’m talking about. It’s tough.

However, if you pick the right software that works for your needs, where the data, the reports, and the analytics and insights are built in for you, along with support when you need it, you really don’t need any understanding at all.

In fact, my philosophy is that the best software shouldn’t require any sophistication to use, and certainly not a PhD in statistics. The power of a platform should be in its simplicity, not in the level of complexity.

DMM: In the past year, what have been the most interesting and innovative uses of big data technology in the automotive market?

KB: AutoAlert has been deploying architecture to handle huge amounts of data with elastic capacity, geographic scalability (scalability across data centers), and a marketing engine which can scale to ADK levels.

We continually grow our unique user profiles through CRM, DMS, TruConquest, and third-party data. The data team continues to focus on offering best-of-breed algorithms, such as stochastic gradient descent, logistic regression, and random forests, which aim to maximize the propensity of purchase.

SC: First and foremost, equity mining has been a huge success, and has been delivered to the marketplace with several intuitive and effective applications.

There’s a lot of opportunity in consumer contact and maintaining a dialog with a “customer for life” strategy. To me, it seems like this is the biggest opportunity and yet is the one that still needs the most work with the application providers.

KK: I mentioned Hireology earlier as an interesting entry to the HR space in the industry, and an area that can use a lot of help from data. It’s also been good to see that many vendors in the digital advertising space that have been using the same “set it and forget it” approach to their clients have been starting to get more sophisticated in serving dealers.

I think that massively scalable data-driven personalization and one-to-one marketing—think Amazon/Netflix/Facebook—will be available to dealers in the near future. Imagine pushing a button and getting the right message to the right shopper at the right time, all driven by data and analytics behind the scenes? We’re not that far off.

Having said that, at the Tier 3 level, and relative to some other industries, we still have a long way to go. I think we’re really just scratching the surface of our potential.

In five years, I think the industry will look completely different as a result of the changes data and analytics will drive, similar to the first digital revolution when dealers began adopting websites and digital marketing in the late ’90s through present.

I’m really humbled to be a part of pushing the data charge forward; I think it’s an exciting time for the industry.

DMM: What is the limit to how useful data and analytics can be for dealers, especially as its use increasingly becomes the norm among dealerships and their competitors? In other words, if all dealerships are using it well, does it effectively cancel out any competitive edge an individual dealer would gain?

KB: For dealerships specifically, the use of big data stands to help dramatically improve customer service and the overall in-house customer experience.

By directly targeting individual shopper needs and preferences, and well as improving upon data sharing across departments, dealerships stand to gain by providing more accurate, efficient, and on-target service for each shopper. Essentially, there is no limit to the gains that can be made by dealerships that are effectively utilizing actionable data insights to help them reach in-market shoppers.

Today’s consumers are highly mobile and know what they want by the time they enter a dealership. They have been ahead of the game for quite some time now, and because of this, dealerships that leverage data to improve the customer experience will come out on top.

When dealerships give their sales teams the power of data, they are leveling the playing field and giving them information at their fingertips—just like today’s shoppers have. It gives salespeople the advantage of being able to react quickly to customer needs—even anticipating them ahead of time—in order to make more sales.

When dealerships gather and analyze consumer data, they are facilitating customer experience management for every interaction. An excellent data setup allows every professional to meet—and even exceed—customer expectations by anticipating needs and being able to quickly respond to and provide for those needs.

And that’s a competitive edge that can’t be canceled out.

SC: Dealerships and application vendors continue to find creative ways to leverage the power of data analytics and big data. We have only begun to scratch the surface on big data, and surely there is more to come in this area.

As far as losing effectiveness, to me, that’s like saying “I’m going to go back to using my ax; everyone else is using those darn noisy chainsaws.” It just doesn’t make sense.

KK: There will definitely be diminishing returns as more and more dealers adopt data-driven strategies.

I think it’s analogous to websites: The first dealers to capitalize on the move to websites captured all of the consumers who were shopping online. As every dealer adopted websites, that first-mover advantage began to shrink, and the optimizations got more subtle: SEO, including on-site optimization, microsites, link-building, and so forth.

Websites are now everywhere, it’s gotten harder to compete, and the returns aren’t as big as they once were. But can you imagine doing business today without a website?

I see the exact change happening with data and analytics. We’re in the early adopter phase right now. The most progressive dealers are quietly adopting data-driven strategies and platforms to help them implement and outthink their competitors without having to outspend them.

The benefits to this approach are huge when times are good, but the benefits are absolutely critical in an economic downturn. The dealers with the right tools, strategies, and targeting in place will reap the benefits as their competitors who are doing things the old way see their market share erode and race to catch up.

The question is: What type of dealer are you? Are you leading the pack, or are you following the herd?

Authored by

Kurt Stephan

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