A LotLinx study of more than 1,000 dealer search-engine-marketing campaigns indicates the average automotive SEM manager makes fewer than 25 optimization adjustments per campaign per month.
But an effective campaign aimed at matching specific buyers to specific vehicles for sale requires a cascade of changes, says Len Short, CEO of LotLinx, an inventory digital marketing firm. That’s where artificial intelligence helps.
His company introduced a new product, SEM /AI/. It performs more than 3,500 micro-optimization adjustments on average and optimizes inventory marketing campaigns to account for changing consumer and market trends. It matches buyer demands to VIN-specific vehicles according to dealers’ inventory sales goals.
“It takes a tremendous amount of time and expertise to monitor and adjust SEM campaigns based on a comprehensive understanding of all the interrelated variables,” says Eric Turner, LotLinx’s vice president-product management “The AI powered solutions we provide understands the variables.”
The study also says cost-per-click averaged $1.72 per click in AI-managed campaigns versus $4.31 in non-AI managed campaigns.
In a Wards Q&A, Short and Turner talk about AI, the sometimes-mysterious world of automotive digital marketing, its promises and some of its unmet expectations.
Wards: What are current trends in your area of automotive retailing?
Short: Dealers have made huge investments in technology but the advertising costs per unit sold continue to go up. Technology hasn’t yet paid its dividend in terms of the efficiency of the business.
Wards: That was the original business proposition?
Short: Of course. And it’s how it has played out in other categories. It takes a while for the technology to deliver value. That is the point we are at.
Wards: Just to clarify, when you say “we” do you mean LotLinx or the industry?
Short: The industry. In the face of dealer margin pressure, you’ve got to make it a profitable business. There’s a lot of waste, frankly.
Wards: Where is the waste primarily?
Short: We focus on the advertising part, which is a big chunk. Dealers spend on average $628 per unit advertising. It keeps going up. With all this technology and data, it should be going down.
We see significant opportunities for savings per unit. A more efficient driving of demand for inventory units is what we built.
The other thing we’ve seen in this industry, and it has been around for a long time, is using price to drive demand. You run a sale hoping to attract new buyers. The fact is, these price drops, $1,000 or more at a time sometimes, don’t drive incremental shopping.
The reason those units weren’t selling originally is they weren’t being shopped. They weren’t seen. You drop the price and it’s a blip. All you end up doing is undercutting yourself.
It’s like if the tree drops in the woods and no one is there to hear it. If you drop price and nobody hears it, what did you just do?
Dealers have the technology to price right. Now they need to balance the promotion, so the cars are being seen and the right amount of demand is going to those units. Certain VINS need more marketing than others. Some don’t need any at all.
We built our platform around that. A dealer can say, “I want to meet this stair-step incentive goal and I have these 18 incentive units I’ve got to move. We can activate a specific campaign for each of them, run by a machine and find the in-market demand for each. It takes the guesswork out of it.
AI uses millions of data points, and if you train it right it gains experience and judgment.
Wards: And it doesn’t forget.
Short: And never gets tired and never stops. It’s relentless. You take that power and put it towards tasks dealers are trying to do manually but are struggling because there are such massive data sets.
Wards: What would be an example of your AI being applied?
Short: Eric Turner came over from Ford and is running SEM /AI/. Dealers are struggling with their ad words and their SEM spend. They aren’t getting more, they’re just paying more. It’s a beautiful situation for a machine to create efficiencies. So I’ll turn it over to him.
Turner: Everyone’s digital footprint is unique and complex as shoppers look for inventory. It’s hard to manipulate your SEM campaigns – your Google search programs – in ways that accommodate the ever-changing market.
One thing we noticed with other people doing SEM is pulling levers to effect change. But without the full understanding of the pieces that come into play you tend to miss things.
Turner: You would miss, for example, that the neighboring dealer down the road has a car that’s competing against yours. Because you missed that, you didn’t adjust your bids accordingly to keep your inventory relevant and pick up traffic that could have been yours. (LotLinx CEO Len Short, left)
Inventory changes all the time. The AI understands all the complexities that are affecting the way a digital campaign operates on a VIN-by-VIN basis. It makes micro-adjustments to the parameters of the campaign, keeping inventory relevant. If that specific ad appears at the exact time a particular person is looking for that inventory unit, that person is more likely to click on the Google ad.
Short: And engage with it, more importantly.
Turner: Right. The click is the entrance into the dealership website. What happens afterwards is the important part. You engage with an ad when it’s about something you are looking for.
Wards: SEM is mysterious sometimes. To be able to figure it out is a challenge.
Short: And as soon as you think you got it right, it changes.
Turner: It can’t be “set it and forget about it” because each vehicle is a unique product that needs a right campaign behind it to make sure it gets to the right customer at the right time. That’s what AI does.
Wards: What is causing dealer-margin compression? Is it the internet? Pricing transparency?
Turner: As soon as dealers feel stressed about an inventory buildup, the easiest thing to do is press that price-markdown button. Rather than take $400 off a piece of inventory, why not put $100 more towards promoting that specific unit. Not every unit, but that one.
Short: I wouldn’t want to try to sell an overpriced car. But with the right price, you don’t go lower, you find the right demand.