With the UK now officially in lockdown, we have seen dealer groups shut up shop across the country, closing off the bricks-and-mortar sales channel that automotive consumers have become so familiar with. There is consensus across the market that consumer demand is set to soften significantly, and brands have set about assessing their marketing spend in an effort to optimise and cut costs.
Brands must, however, ensure that they continue to invest in consumer acquisition during these challenging periods, even where there is no immediate mechanism to sell those consumers a vehicle, at least through the dealer channel.
China – as the only nation to begin its emergence from its COVID-19 epidemic – offers reason for hope. Jim Holder’s recent article suggested that online demand for cars “boomed” during the lockdown period in China, with e-commerce channels growing significantly during the period to fulfil that demand. Tesla has shown that that the direct-to-consumer approach can work in automotive – albeit for an offering that is arguably more consumer technology product than vehicle – and most brands in the UK do have an ecommerce presence, but TLA’s consumer research tells a different story: the majority of consumers remain on the fence about the prospect of making such a significant financial commitment completely through non-contact channels.
We must also remember that not all demand is set to disappear. Consumers approaching the end of PCP deals, for example, may find themselves in-market for a new vehicle by necessity, rather than desire. TLA is seeing this first-hand where, regardless of market conditions, there is a baseline of consumers that continue to request guidance and assistance from our in-house contact centre in buying their next vehicle, with a short purchase timeframe of 1-2 months, the result of their existing deal coming to an end.
What does this mean for brands?
Acquisition and engagement are key. There is plentiful research that shows how brand loyalty significantly falls during times of economic hardship, and TLA’s first-party data concurs, with more than 50% of consumers suggesting that they would seek out another brand should their first-choice brand not be able to fulfil their sale. There is value in developing a healthy, engaged pipeline of consumers that can be nurtured to a sale-ready position, and eventually released to the dealer channel when normal service resumes. Engaging early means that brands can develop a relationship with these consumers before the brand-switching tendencies that the current economic environment encourages manifest.
China’s gradual emergence offers a positive story on this front too. Automotive News Europe suggested earlier this week that 93% of new car dealerships in China have re-opened, two months after the imposition of lockdown conditions in Hubei province, after extraordinary, and ultimately successful, efforts to contain the virus. While early reports suggest that footfall remains low, the point stands: dealerships could be back sooner than it currently seems, at which point brands must be ready to capitalise on pent-up demand. This has been referred to elsewhere as “revenge spending” – the point where isolated consumers, starved of the opportunity to consume, suddenly embrace the opportunity to spend again, and do so at a greater volume and ferocity than pre-isolation.
In times of economic hardship, marketing costs are often the first to be cut, with brands viewing them as expendable and correlated with times of success. But that’s just it: marketing is not just correlated with success – it has a causal relationship.
“Marketing helps drive commerce. Marketers have an opportunity to give consumers a reason to spend deals, products, services even when we are bunkered up and hunkered down” writes Bradley Johnson of AdAge.
For all the reasons above, there must be a psychological shift to view marketing as a “good cost” in times of economic downturn. Spending, even when times are tough, is essential for both serving consumers with necessity-led demand, and for preparing brands to make a strong recovery when the time eventually comes.