Online car sites are driving more marketing dollars to old-line media as competition intensifies.
Category pioneer Autobytel.com grabbed attention when it paid $1.3 million for a Super Bowl spot in 1997, returning to the game in 1998. But Autobytel, flush with cash from its March initial public offering of stock, is raising the stakes as rivals' chase intensifies.
In each of the past three years, Autobytel spent more on sales and marketing--primarily promotion and advertising--than it generated in revenue from fees that auto dealers and vendors pay for referrals from the site. Last year, Autobytel lost $19.4 million on revenue of $23.8 million; it spent $30 million on sales and marketing, including $11 million on Internet sponsorships, partnerships and Web ads.
Now Autobytel is raising its offline investment with a $15 million, six-month TV campaign launched in July via Grey Advertising, New York.
At the same time, rivals are revving up their marketing, with several other dot-com car lots planning TV and radio work.
"You will definitely be seeing them in more traditional media," said Adam Weiner, automotive analyst at Gomez Advisors. "To get the critical mass that will sustain their businesses, the auto-buying services will have to be there."
BUILDING NATIONAL BRANDS
Driving the change: new competition from large car-dealership chains, online services' growing financial resources and a realization that online auto sites need to build national brands.
Kenneth Esterow, VP-AutoVantage, said the service will end its exclusive reliance on online promotion--even though that will continue to make up the majority of its spending.
"We expect in the fourth quarter to begin efforts in the traditional media to build the AutoVantage brand," he said. "We've made the leap of faith that this will be a critical part of our long-term success, to begin a traditional brand-building initiative."
AutoVantage, a unit of Cendant Corp., will dedicate a "seven-figure" budget to the effort, Mr. Esterow said.
AutoVantage, a public car-buying site since '96, provides price quotes on new and used cars as well as insurance. It generates revenue from auto-dealer subscription fees and consumer memberships, which offer discounts on travel and carcare. The company expects to have an ad agency by mid-September.
Another competitor, Autoweb.com, plans its first national cable TV commercials, supplemented by spot buys breaking this fall, via Lowe & Partners/SMS, San Francisco.
In 2000, traditional media will account for about 25% of Autoweb's advertising budget, said Michele Hickford, former VP-marketing. Ms. Hickford made her comments last month shortly before leaving the company. A spokeswoman said the new marketing chief will proceed with the ad plans mapped out by Ms. Hickford. Cary Rosenzweig, now senior VP-marketing at Autoweb, formerly worked at Clorox Co. and Procter & Gamble Co.
Autoweb last year spent $5.8 million on advertising and generated $13 million in revenue. But cash from a March IPO will pay for more advertising.
EDUCATING PUBLIC A PRIORITY
Autoweb provides auto-related services, including auto sales, financing and insurance. It gets its money from fees member auto dealers pay for qualified buyers the site sends them. Its campaign will focus on brand-building and educating the public.
Stephen Franco, senior analyst for electronic commerce, U.S. Bancorp Piper Jaffray, San Francisco, said the latter objective is key. Although researcher J.D. Power & Associates says 40% of car and truck shoppers use the Internet to some extent, many are not tapping the medium's full potential, he said.
"People are definitely doing research on the Web, but I'm not sure the awareness of the utility of using one of these services to negotiate the deal is that high," Mr. Franco said.
One leading competitor, MSN CarPoint, owned by Microsoft Corp., plans no major offline advertising, said Robyn Gorman, product manager. It attracts traffic by a presence on auto-specific sites and through the MSN Network, she said. MSN CarPoint is included in MSN radio and print advertising, handled by McCann-Erickson/A&L, San Francisco. CarPoint is getting traffic: Nielsen/NetRatings ranked the site No. 2 in audience among car sites in June, behind Kelley Blue Book, a pricing site.
CarPoint generates the bulk of its revenue through dealer fees.
Smaller services are stretching their budgets to advertise.
Jon Christensen, CEO of 8-month-old InvoiceDealers.com, Palo Alto, Calif., says online promotion is the best way for his start-up, which posts prices directly on its site, to draw consumers.
"Branding has been a luxury we couldn't afford," he said. InvoiceDealers.com, which handles ads in-house, plans major-market radio spots "in the next few months."
SMALL SITES LOCKED OUT
Large competitors have locked up marketing deals with major Web sites, he said. "With traditional media, nobody has that locked up, so it begins to look a lot more attractive."
The big ad push comes as dot-coms face challenges from well-financed car-dealership chains: CarMax, with 30 used-car superstores and 21 new-car franchises, and AutoNation, with 390 dealerships.
CarMax plans to spend $50 million building its brand next year, with advertising and in-store displays highlighting its Web shopping site, said Joe Kunkel, VP-marketing and strategy. A key selling point: CarMax owns the dealerships. Advertising is handled in-house.
AutoNation, the nation's largest car dealer through acquisitions, plans a major brand campaign in TV, radio and newspapers, including ads dedicated to its Web-shopping site. The company is testing its AutoNationDirect.com site. Hill, Holliday, Connors, Cosmopulos, Boston, is the agency.
AutoNation projects online revenue of $1.5 billion in 2000. Like CarMax, AutoNation will promote the benefit of dealing directly with a site that owns its dealerships.
But Piper Jaffray's Mr. Franco said price will remain an issue.
"At the end of the day, they're only going to refer customers to their own dealerships," he said. "Customers value more independent and objective kinds of services."
Copyright August 1999, Crain Communications Inc.