Zero-Percent Financing Reduces Consumer Auto Buying Cycle by 29%; Surge in Online Purchase Interest for Domestic Automakers Translates Directly Into Dealer Sales

Business Wire, Feb 20, 2002

Business/Technology Editors

BOSTON--(BUSINESS WIRE)--Feb. 20, 2002

Compete, Inc. has identified that consumers have modified their car-purchasing behavior, particularly the length of the pre-purchase research period, due to the rollout of zero-percent financing. Compete quantifies the impact of these incentives on consumers' purchase behavior and demonstrates that spikes in online interest, specifically for domestic OEM models, correlate directly to large sales increases on dealer lots. Compete provides leading companies with customer and competitive intelligence based on the industry's foremost pool of consumer behavior data.

"The clear implication is that Internet-based research patterns can be used by automotive manufacturers to evaluate the effectiveness of promotions and marketing comparisons and to predict future demand," said Man Jit Singh, CEO of Compete. "While the automotive industry has always used a wealth of post purchase and survey information, they have never had access to the shopping trends of in-market car buyers. The possibilities from this information are tremendous and range from optimizing incentives, fine-tuning advertising messages and demand planning, and taking early corrective action to counter share loss."

Financing Incentives Spur Interest in Domestic Brands

According to Compete, consumers' purchase interest increased significantly in the three-month quarter after zero-percent financing was announced, with car shoppers favoring domestic OEM sites over foreign sites. Domestic automakers experienced a 100% increase in the number of referrals to their sites from other automotive sites during the fourth quarter, indicating a substantial increase in research and shopping intensity for people considering domestic brands. Imports, on the other hand, experienced a 15% decline for this metric, highlighting decreased interest in brands not offering comparable purchase incentives.

Further analysis by Compete indicates that zero-percent financing did not broaden the list of cars consumers considered leading up to a purchase. Despite spikes in the levels of online and offline shopping activity, the average number of models considered by individual intenders remained constant at four models per consumer between July and December 2001. And while shoppers' consideration set did not expand, the length of the buy cycle decreased substantially. Specifically, Compete found that purchase incentives fueled a 29% decline in the online buy cycle, as measured by the time spanning the first to last date of online research activity, an accurate proxy for actual purchases at car dealers.

Coincident with the traffic increases at domestic automakers' sites, increased shopping intensity across brand-neutral automotive information and retail sites fueled the competitive positioning of domestic OEMs versus foreign OEMs. Compete developed a Purchase Interest Index (PII) to correlate online car interest to the total number of people viewing OEM models. The PII analysis shows that GM, Ford, and Chrysler experienced increases in their aggregated Purchase Interest Index of 9.5%, 8.2%, and 6.2%, respectively, in the 30-day period following zero-percent financing. Honda, Toyota, and Volkswagen, who did not offer comparable incentives, saw the PII for their models decrease by 24.8%, 22.4%, and 2.4%, respectively.

Purchase Interest Index Accurately Predicts Offline Purchases

Compete's analyses also correlated changes in the Purchase Interest Index for specific models to changes in actual vehicle sales at the dealer lot. This presents the most representative picture of consumers' total purchase behavior and further illustrates rising interest in domestic vehicles at the expense of foreign automakers. For example, the Ford Focus showed a 13.4 % increase in PII, which translated into an 88% increase in sales from September to October. Similarly, for the Chevy Trailblazer, a 13.1% increase within the mid-size SUV category lead to a 90% increase in sales, and the Chrysler Town & Country showed a 7.2% increase and experienced a 40% increase in sales. On the other hand, the Honda Civic, which had an 8.2% decrease in PII saw a 9% sales decrease and the Nissan Maxima, which had a 10.9% decrease saw an 11% decrease in sales.

Added Sam Pollard, Director of Automotive Services for Compete, "Focusing early on share changes will allow automakers to proactively and quickly refine strategies to increase marketing effectiveness. The close correlation between share of market interest and vehicle sales enables automakers to leverage immediate market information to improve marketing and reduce the post-production costs that diminish margins."

Compete's Data Collection and Analysis Methodology

Compete analyzed the behavior of 500,000 auto consumers from July to December 2001 across information sites, such as Kelly Blue Book and Edmunds, market sites such as AutoByTel and MSN CarPoint, and manufacturer sites such as GM and Ford. Compete employed two distinct analytical approaches to model consumer behavior: 1) domain-focused analysis, which measures traffic patterns at individual sites, and 2) product-focused analysis, which measures consumer interest in specific auto makes and models. Using this unique methodology, Compete identified consumers' research behavior across multiple sites and measured true in-market buyer interest in specific vehicles and segments.