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Fuel for Thought: Too many toys on the shelf

Republished By Plato
Republished By Plato

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With internal-combustion and battery-electric
vehicles vying for showroom space and advertising dollars, peak
model complexity will transform marketing messaging and media
spend.

Today, US auto shoppers have nearly 450 vehicle
nameplates to consider. Within five years, that number will grow
considerably. With the arrival of electric vehicles across every
mainstream and luxury brand, approximately 650 models will be
competing for showroom space, lot space, digital space, marketing
budget and most importantly, customer attention. This isn’t just a
US phenomenon; a similar equation will happen in the European
market — perhaps more so, as mainland Chinese automakers are
already launching their EV-minded brands there as well.

It’s hard enough for consumers to keep track of
all the various vehicles vying for headspace with a portfolio that
mostly comprises internal-combustion engine (ICE) vehicles. But the
push for electrification is about to escalate that consumer
confusion. How automakers and their advertising agencies respond to
this challenge will determine how effectively — and profitably
— they manage the transition from ICE to battery-electric
vehicle (BEV).

As early as 2026, S&P Global Mobility
expects the total of new EV models available to break 200 in the US
market, as the ICE new model count continues a steady decline. In
late 2027/early 2028, the total model count should be at its apex
— with the number of options across all propulsion system
designs approaching 650. The situation will be just as dramatic in
Europe.

S&P Global Mobility refers to this
situation as Peak Model Complexity — and its impact on
marketing throughout the funnel, across all initiatives, will be
transformative.

Market share parity by
2028

S&P Global Mobility forecasts that the
three propulsion system designs — EV, hybrid, and ICE —
will each account for between 29% and 36% market share by the end
of this decade. After that, EV share is expected to continue to
grow while hybrid plateaus and then joins ICE in a continuous, but
slow, decline.

The increased model count will cause a drop in
sales-per-nameplate figures: In 2018, the average sales volume per
nameplate in the US market was 49,000 units. That is expected to
dip to 36,000 by 2027. This requires some new thinking by OEMs,
which for decades have stated that a nameplate must sell between
40,000 and 60,000 units to be profitable.

But this tectonic shift is happening already
— impacting production cycles, sales forecasting, supplier
relationships and marketing budget allocation.

The impact to profit margins, platform
economics, operating expenses, product lifecycles and go-to-market
timing will cut across all aspects of the auto business — from
new and used car sales, to vehicle acquisition, parts and service.
Retailers and their marketers will need to do more with less, and
sooner than later.

Every marketing campaign and initiative will
face this decision: Which message or offer should we serve to which
customer — EV, hybrid, or ICE?

Obviously, big-hitter vehicles like the Ford
F-150 and Toyota RAV4 will continue to have strong marketing
budgets. But if a company is adding four or more new electric
nameplates, and not deleting any internal combustion vehicles, they
need to decide if there will be an incremental spend, or if some
vehicle’s marketing budget will be adjusted.

Already, many OEMs employ a “fire-and-forget”
marketing strategy, where a new-product launch gets a big spend,
but then ad dollars wither until a sales event comes along.
Automakers are already stretched thin on covering their existing
ICE model lines; what happens to the strategy when a slew of EVs
— and an EV branding campaign — are added to the mix?

The situation may be even more accelerated in
the European market, as the swing from ICE to BEV is already well
underway. However, it seems the number of ICE nameplates are being
removed from the market at the same pace as new BEVs are being
introduced. But that doesn’t eliminate the need to educate and
alert consumers to the arrival of differently named BEVs.

Brand loyalty and nomads

The recent semiconductor supply chain crisis
crimped vehicle inventories, which in turn triggered historic low
brand loyalty levels for return-to-market households. Improving
inventories have provided a rebound to those loyalty levels.
However, the effects from two years of a constrained market remain
evident, and vehicle buying behaviors changed as a result.

In US loyalty data collected in 2022, 53% of
shoppers were “nomads,” meaning
they had no brand affinity to the vehicle they disposed of or just
acquired. This rate approaches historic highs — that’s a bad
thing for OEMs — and is important as these households defect to
another brand. Nearly 6 of every 10 nomad shoppers are going to
switch brands with their next vehicle purchase.

Meanwhile, lease rates plummeted in 2022 to
less than 18% of new vehicle sales, down from 30% in 2018. This
drop translates to about 1.5 million fewer households that are
regularly returning to market. And lease returns are some of the
most brand loyal and valuable customers when considering:

  • 64% brand loyalty for lease households versus
    46% for those that purchase;

  • 63% of lease households return to market in
    less than three years versus 51% for purchase households;

  • Lease returns also provide a consistent flow of
    certified pre-owned stock, which provides a loyalty lift of 8
    percentage points for brands over those that buy.

Electrification and the shift to
luxury

Over the last five years, US consumers have
increased their purchases of luxury-badged vehicles — which now
account for 20% of sales, up from 13.5% in 2018, according to
S&P Global Mobility registration data analysis.

While luxury vehicles have higher profit
margins and more add-on features, it’s a crowded marketplace. There
are nearly as many luxury brands (22) competing for 20% of the
market, as there are mainstream brands (27) competing for the other
80%. As a result, luxury brands have the lowest loyalty rates. Even
with the “Tesla bump” for its industry-leading loyalty, luxury
still trails the industry average by nearly 7 percentage points.
Conquesting opportunities exist for those brands and dealers that
can leverage purchase triggers like loyalty behavior, lease term
and buying preferences.

BEVs — already benefiting from the largest
increases in marketing support during the constrained market —
will continue to receive a huge chunk of media spend over the
course of this decade for new model launch support.

This imbalance of media spend versus market
share is starting to play out in days’ supply and incentive offers
as several EV models are currently at the top of both categories.
Looking at inventories for all EVs (except for Tesla) through the
first eight months of 2023, we can see advertised dealer inventory
levels for these popular models, on average, are growing twice as
fast as the rest of the industry.

EVs also remain a mostly additive purchase,
with 7 in 10 joining other vehicles in the driveway instead of
replacing one, according to S&P Global Mobility analysis.
Additionally, the vehicle shortages related to the semiconductor
crisis have trained US buyers to wait. S&P Global Mobility’s 2022 Vehicle Buyer
Journey study showed that 56% of new car shoppers are willing
to wait one month to get the vehicle they want. These buying
motivations don’t align strongly with incentive messaging.

The status of EVs as replacement vehicles will
likely shift later this decade, signaling a substantial change in
buying motivations as demand starts to close the gap with marketing
spend. In the meantime, though, retailers need to develop targeted
messaging strategies for their hybrid and ICE inventory.

Managing marketing
complexity

As vehicle supply and model counts rise, so
does competition for consumer attention. Customers expect
personalization and relevant offers, and prefer to handle most of
the consideration and transaction process digitally. With different
customer types, vehicle types and buying motivations, there is
increased importance in targeted, unique and dynamic messaging.

Turning marketplace challenges into opportunity
starts here. Better personalization needs to have accurate,
actionable data. There are four important ways marketers can
develop more effective messaging, reduce waste and improve
marketing ROI:

  1. Employ vehicle verification. Does the consumer
    have their car? Reduce wasted impressions and stop annoying
    customers with irrelevant offers by identifying vehicle
    disposers.

  2. Enrich customer profiles. Go beyond your
    customer’s most recent purchase to develop a comprehensive
    household profile — including what other vehicles are owned,
    financial profiles, lease information, and loyalty to a segment,
    make or model.

  3. Resolve identity gaps from inaccurate data.
    Identification data is often incomplete. Data cleansing and hygiene
    reduce database management costs and improve the chances that your
    message is delivered to the intended customer.

  4. Scale first-party assets by developing
    look-a-likes from your CRM profiles. Create specific audiences as
    qualified prospects and message to recruit these net-new car
    shoppers into your CRM program.

Identifying and targeting the
households that matter

Better targeting and measurement are now
available within broad-reach media like TV. Auto marketers no
longer need to rely solely on demographic buying to reach customers
at scale.

Polk Audiences data shows that about 52 million
US households — about 40% of the population — regularly buy
new cars. Another 22 million own used vehicles. But 50 million
households do not own a vehicle at all — representing a vast
number of potential wasted impressions.

With the forthcoming blitz of new vehicle
launches, there will be more pressure on media budgets and
automakers’ ability to drive sales efficiently. By moving beyond
demographic targets, marketers can mitigate waste and target
households with the highest propensity to buy now.

Looking into Polk Audiences In-Market segments,
OEMs and dealers can compare sales and buy-through rates to
demo-based buying audiences. In this example, we see the highly
desirable upscale, young adult demographic aged 18-44 with a
household income of more than $100,000, compared to in-market
shoppers for a luxury compact utility vehicle (CUV). They have the
same universe size of 12 million households. The addressable,
targeted approach is well positioned to deliver more sales — a
lot more sales.

Today, automotive marketers are making great
strides in leveraging technology and data science to develop
advanced audiences, messaging strategies and improved digital
communication tools. These are going to be critical for success
because, in a few tomorrows, marketers will have to manage more
customer types, vehicle types and buying motivations — all
while trying to break through 30% more competitive noise.

Authors:
Jason Jordhamo – Director, Polk Automotive Solutions, S&P
Global Mobility
Joe Kyriakoza – Vice President and General Manager, Polk Automotive
Solutions, S&P Global Mobility

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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