Dealership Marketing

A Fresh Look at Segmentation and the Consequences to Dealer Marketing

Although most dealers don’t perform formal market segmentation analysis, the vast majority understand and use some form of segmentation.

While there is value in a more formal practice, changes in consumer behavior are causing us to take a fresh look at the broader subject and rethink our approach to segmentation. Regardless of the dealership’s desire, or even tolerance for formal marketing practice, this new wave of change merits understanding. It brings opportunity and consequences to dealership website design and other communication challenges.

The formal study of market segmentation has been around since the 1950s. However, there is evidence that the practice of segmentation was being executed in some areas even 200 years ago.

Over the past six decades, marketers have used cluster analysis (when the data is available) or segmentation trees to divide markets along the following criteria:

  • Homogeneous – Members of customer segments have similar characteristics related to product/service needs
  • Heterogeneous – Each segment is different from the other segments
  • Measurable – It is possible to measure the size of each segment
  • Substantial – Individual segments are large enough in terms of sales and profitability to justify the effort associated with meeting their individual needs
  • Accessible – Each segment can be reasonably reached with promotions and distribution
  • Actionable – It is possible to assemble a distinctive marketing mix for each segment
  • Responsive – Each market segment responds better to its unique marketing mix than it would have responded to a general offering

Car dealers rarely conduct formal market segmentation analysis but recognize there are a variety of segments among car shoppers. Here are a few potential segments that transcend vehicle type:

  • Shoppers who are somewhat credit challenged or worried they may be embarrassed by their credit
  • Severely credit challenged shoppers (e.g. buy here pay here customers)
  • Payment or lease rate shoppers who are more interested in getting something new they can afford than getting the ideal vehicle
  • Aspirational shoppers who want a specific vehicle or they will wait until they can afford it
  • Shoppers who are loyal to the manufacturer brand and/or the store constrain their consideration set of vehicles based on the franchise or the individual store.

Twenty years ago it bothered me when dealers said things like “Don’t you think shoppers just want to see the payment.” On the surface, it sounds like the dealer is aggregating all shoppers into the same category. In reality, this is usually just a difference in communication styles.

Dealers are often negotiators and state their points in absolute terms. Market research experts make a living by using precise language to explain quantitative realities. Both know payment shoppers are but a segment of the market. The dealer is really expressing a preference for that segment or a belief that segment is extremely large and lucrative.

Deep down, marketers always knew there was a flaw to segmentation. It did not account for time, place, and attitude shift. Those of us who sold cars know shoppers sometimes change their attitude even while they are in the store.

They came in with a strict budget of $20,000 but left with a $26,000 vehicle.
They came in looking for a new truck for him and left with a new convertible for her instead.
They came in with a payment cap of $400 but left with F&I products that helped them justify a higher monthly payment and financial protection.

Segment shoppers fall into varies based on when you ask the question and where they are when you ask it.

Of course, marketers always understood this, but it didn’t matter much when formulating a communications strategy. Sales people dealt with attitude changes and even worked to stimulate them, but we had a pretty good idea of the customer’s frame of mind when we placed the media.

The publications and programs were designed to attract an audience looking to be in a particular mood. If we were after credit challenged shoppers, we picked a publication or program that fostered the desire for more or at least didn’t put the shopper in a poor mood. We sent them a positive message about being able to obtain even more than they imagined. The solution and information about it were always accessible at the store.

Today, this information NEEDS to be on the dealership VDP website . Fourteen years ago we knew the website was going to be viewed at work or at the one computer in the house. Today, your website may be visited by the same shopper in a wide variety of places and circumstances. This is where efforts to customize the site to the consumer’s past behavior tend to run into problems.

That customer looking at your VDP in the bar with his buddies may be completely different than he was when browsing at home alone or with his spouse.

Stores still need to know what they stand for, and thousands of them do a poor job of establishing a unique positioning statement designed to capitalize on their targeted segment(s). But there will always be a desire to serve a wide range of segments at the same time.

Franchises like Chevrolet, Toyota, and Ford are designed for a wide approach. That means we must make it possible for shoppers to quickly and easily find what they are looking for on the site. We have the technology to customize the site to the individual, but we lack the information to know which version of that individual we are dealing with at the time. Our customizations could be completely wrong for him or her at that time and place.

There will never be a substitute for heavy content websites with great navigation. Allowing shoppers to get what they want when they want it will always be fundamental to dealership websites, and the industry must do a better job of it.

The future challenge will be to understand which site customizations are safest for each segment. It may be that those who are interested in towing capacity almost always care about towing capacity.  Maybe those who insist on a cold-weather package want to be sure every vehicle they consider has the cold-weather package. Making this information more prominent for shoppers once they’ve shown a preference may be of value. Making it possible for anyone to quickly and easily find a wide variety of information on any relevant vehicle will always be essential.

Marketers can no longer guess at the time, place, and attitude the shopper is in when we communicate with them. Even if we know where they are geographically, it may not be safe to speculate on the circumstances and mindset.

Customization of the website is a logical tool in the effort to send the right message to the right consumer. However, we need to understand its limits and execute on its benefits without diminishing the shopper’s ability to find what they want and when they want from a heavily contented site with great navigation.

Website design is but one area where the variability in circumstance will impact our use of segmentation strategy. In October 2005, I called on manufacturers and dealers to begin targeting at the level of one, the single individual. Even then, the technology was developing to allow us to inexpensively meet the needs of smaller and smaller segments, theoretically even a segment of one. At that time, I could not have imagined the implications mobility would have on that kind of approach.

People have always been variable, and now they consume marketing information across virtually all the profiles exhibited by a single individual.

Have you begun to think about segmentation?
Where else do you think consumer segmentation could have a large impact?