Advertising Can Skew Expectations

By Nicholas A. Bader

Telling you that advertising drives sales is stating the obvious.  But, why then is the comparative advertising of the various line-makes not taken into consideration as the factories evaluate the expected sales of car dealers? This is important as courts and state dealer acts are increasingly mandating that factors outside the dealers’ control are accounted for when evaluating dealer performance.

The factories’ projections of expected sales impact nearly every requirement they have for dealers including: (i) facility size; (ii) number of employees; (iii) net working capital; (iv) sales to hit objectives; and (v) sales performance obligations. However, to our knowledge, there is not a single factory which includes advertising as a variable when computing expected sales.

The “share of voice” for a brand can vary substantially from market-to-market. To a great degree, the advertising decisions of the factory causes these disparities. Putting aside the national advertising that is viewed evenly nationwide, there are other advertisement disparities that can exist including: (i) additional advertising buys in certain markets; (ii) digital or streaming investments; (iii) sponsorships of events;  and (iv) tier-two advertising. For example, if you are a dealer in a metro market without an ad association, your sales expectation may be inflated, especially relative to other metro markets in your state with ad associations. As forecasted above, this would impact many facets of the dealer’s operation and relationship with the factory.

Historically, this sort of information was largely an unknown to dealers.  But, this is increasingly becoming a feature of our work with dealers as more data has become available.