Automotive Manufacturers (OEMs) spend tens of billions of dollars annually in incentives such as rebates, cashback, special financing, and lease deals to move excess inventory and to gain market share. It’s been over a decade since the auto industry began to evolve from national incentives where everyone in the U.S. gets the same incentive offer at the time of purchase, to a more targeted regional approach. However, today in a world of growing consumer demand for personalization, this approach is rapidly becoming extinct.
The transition to a regional incentive structure acknowledged that price sensitivity varies by customer-specific factors and a more targeted incentive strategy was required to grow market share. The challenge now becomes how can savvy Automotive OEMs continue to grow market share without growing their incentive budget?
The answer – even more targeted incentives. By moving to a personalized targeted incentive approach and having a better understanding of the exact customer attributes that drive price sensitivity, leaders in the auto industry will be able to more accurately identify which customers are likely to need extra incentive dollars to make a purchase. Simultaneously, they will also be able to predict who will buy a car even at a reduced incentive level. Mass-market appeals will give way to personalized offers to the most responsive customer segments.
The merger of big data and predictive analytics makes this all possible. OEMs can now integrate internal and external customer data, such as in-vehicle usage data, historical sales, macro-economic data and competitive data. Combining all of these dimensions, enables OEMs to use predictive analytics and measure market response to incentivize actions at the micro-market customer segment level. Now instead of only differentiating incentives between car and truck buyers or between customers in Texas and California, leading OEMs can, for example, target incentives to specific customers in Atlanta who rely heavily on navigation functions and are likely to buy a new entry-level luxury car in the next six months.
Big data platforms with sophisticated analytical routines will connect OEM vehicle production capabilities and sales strategies with the needs of consumers with a propensity to buy. Predictive mathematical models will calculate the precise incentive offer needed to incent the individuals to buy the exact make and model they already desire.
This shift towards targeted incentive strategy is poised to explode in 2015 – improving market penetration and maintaining profitability.
Early results from this targeted incentive approach have shown an ability to reduce incentive spend by nearly 10% and grow market share. Now that’s what I call moving the metal!