Brian Cole (
00:05):
It is really common in B2B2X businesses that they run co-marketing programs to help success down through the dealers. And also very common that the funds in those programs are just not getting used despite incentive structures and design and all the work that's done to make a program effective. When those dollars are not getting utilized in the way that you would like them to, where do you start to investigate how to fix that problem?
Steven Hileman (
00:30):
Yeah, I think the quickest place is to do just a quick analysis on where the money did get used, which dealers are using it, how are they using it? Are they the good dealers? It's a correlation between the dealers using their co-op funds and the dealers that are having good sales success. That starts to tell a clear story about what's right and wrong with the co-op dollars as they sit. Most of the time that those co-op funds don't get used, it's usually because there's an incorrect incentive in place. They're not tied to the same strategy that the dealer has. They're not tied to the same strategy even the OEM or the manufacturer has. All those things create misalignment, funds end up getting unused, and then they just get circulated back into the business and it doesn't drive to the core strategy.
Brian Cole (
01:21):
We've been working with a commercial vehicle brand recently on designing a new program and we have seen that they have stores or dealers who use the funds, but they use it for the same thing all the time. They'll just throw that money at rent or paying for a new salesperson's salary. And what the business is trying to solve is we don't believe that that is the best use of that money to help that store grow. How do we create the right incentive structure or even guidelines and rules in the program to make sure that the dollars get used in the way that they should? That way you're sort of continuing to give that offer to the dealers, but steering them in the right direction.
Steven Hileman (
02:05):
It's almost embarrassing how much of an OEM's co-op budget ends up buying hats and polos, performance polos. It's because the deadline approaches at the end of the quarter, dealer decides they need to spend the funds and they do what they do best. So they run straight to the performance polos and hats and buy some logo apparel that qualifies for the program.
Brian Cole (
02:30):
And that ends up on the heads of the people that work at the dealership. They're not even maybe getting used to
(
02:36):
incentivize sales down with the customer. The other thing that I think is important to consider there too is not just how are the funds getting used, but how do the funds get accrued? Where does the money come from? If you are building a structure where the dealers or your distribution network or franchise locations, whatever that is, are accruing those dollars through their own sales, that creates a different accountability in the process than your brand just saying, we're earmarking X hundred thousand dollars and we're going to give this to you if you act right basically is what often a lot of these programs look like.
Steven Hileman (
03:11):
Yeah. It's usually a little more stick than carrot and I think everyone knows that's wrong. They just don't know the right way to do it.
Brian Cole (
03:18):
Definitely.
Steven Hileman (
03:19):
I think there's a form factor for creating those dollars that at a behavioral level looks a lot like let's just create an incentive to sell, but you have to do that in a way that is replacing toxic discounts and not in addition to just rebates and discounts that help reach a sales goal at the end of the quarter. And then you end up on a hamster wheel instead of a long-term growth strategy.
Brian Cole (
03:49):
That's got me thinking a lot of other things, but I want to hear a little bit more. Tell me how you would define a toxic discount.
Steven Hileman (
03:55):
I say toxic discount. It's a little bit of an exaggeration, but also maybe not. I think a lot of manufacturers will rely on big sales rebate or discount programs behind the scenes with a particular dealer or a region of dealers to help move inventory. Sometimes it's distressed inventory and those discounts are appropriate. Sometimes it's not distressed inventory. It's just a motivation for the dealer to try to move product and hit a sales goal. What we'd prefer to see is something that builds long-term brand value and long-term strategic growth at that dealership with the OEM brand rather than the discounting, which tends to slowly erode the value of the brand. It slowly erodes the resale values. Discounting can be a really great tool when used strategically and carefully, but for some OEMs and even some of our clients, we've been able to look a little deeper and go, well, if you're spending a million, $2 million a quarter on discounts and rebates, what if we just took half of that and reallocated it to a co-op program, create a hybrid, so to speak, use those co-op program rules to create the right structures, the right incentives to get sustainable growth out of a market rather than just this hamster wheel of transactions.
Brian Cole (
05:23):
Yeah. I don't think that we would ever tell someone that you should never do a rebate or a discount or sales blitz or whatever those tactics are. And sometimes that can be good simply for the fact that it is a gesture to a specific dealer or a specific region that we care about you, we want to help you. But
(
05:43):
a lot of the science, at least on the marketing side, says that ultimately you're just getting people who would buy anyway to buy a little sooner and you just risk creating a gap later or the brand issues that you talked about. The other thing I've seen more recently in creating incentive structures is not even releasing all of the funds that you might be able to use or not opening up the funding to a dealer to all the ways they can use it until they've cleared a few hurdles in the beginning like hit this benchmark of this performance or if you want to use funds on these things, that's great, but until you've proven you've done that, we're not going to let you go and throw $100,000 at some belt buckles or whatever that might be.
Steven Hileman (
06:25):
I mean, sales training is a good example of that. Having a good training program in place to train the dealer sales folks on the product to know it really well, that's part of your brand experience at the dealership. And you want that to be a good experience because it keeps people coming back. It develops repeat buyers, it builds loyalty. If you're not doing that sales training, that's a big problem for the long-term health of your brand in that location. So co-op program's a great way to make that a foundational requirement to build that in, protect the brand experience. It makes it easier for that customer to trade their product in later and to upgrade. There's a lot of lessons to be learned in the different automotive brands and how they've done this. A lot of that was obfuscated to most people, but behind the scenes, the discounting rebate structures for a brand like Toyota look a lot different than a brand like Nissan.
(
07:19):
So it's a strategic game of where you put the money and what gates are in place to unlock it.
Brian Cole (
07:26):
It's interesting too that we see some of these programs where all of it is built around this idea of get reimbursed for a thing that you do dealer. Simultaneously there's pressure that the brand or the OEM really wants the dealers to do better marketing. But I mean, if I had a nickel for every dealer out there who just didn't have a marketing team or didn't have a lot of marketing skill or resources, I think there's an important choice for brands to make as well about what benefits are we going to offer that are a chance to get reimbursed through these funds and what are we going to just do for them to turnkey benefits you might call that. And having the right mix of those as well where you can turn a switch on for the dealer if they ask for it or even just as a gift occasionally is also really valuable, whether that's advertising or a direct mail push in market or even helping them with a grand opening event when they open a new rooftop.
Steven Hileman (
08:25):
I think I always lean back to the idea that dealers for the most part are small. There are certainly the exceptions where you have these big conglomerate dealer groups and they have a great marketing team. Even in those scenarios, there's a lot the OEM can do to support them. Always a customer is engaging with the OEM first in some form or fashion. It's one interaction with a programmatic ad very early in their consideration cycle or a visit to the OEM's website. There are lots of places early in a buyer's journey, whether we're talking about outdoor rec or commercial vehicle or whatever it is, where the OEM has some early signals first. The dealer's never going to get those early signals. They're only going to get the low funnel signals. And I think what a lot of OEMs miss is developing dealer programs that can connect the signals between what a dealer sees locally, what a dealer gets in their local market, and the ability to attribute some of that back to the activity that a potential customer had with the OEM months ago or in some cases years ago.
(
09:31):
The size of the dealer, and in most cases that size being very small, makes it really hard for them to even think about a buyer's journey that's longer than a few weeks. They're
Brian Cole (
09:40):
not thinking about that.
Steven Hileman (
09:42):
They're not, and they don't have the resources or the capability or the staffing to be able to think about that. So dealer programs should always be developed with that in mind. Too many OEMs just create a sharp cutoff edge at where they stop supporting the dealers. It's like, oh, well, they've become a lead. Have a nice day. There's more to do. There's more dealer support to be provided after a lead gets generated and handed off to a dealer.
Brian Cole (
10:08):
Yeah. And it goes back to the beginning of this conversation, which is if you don't have a program or you have an immature program or you have a simple program and you're looking to grow it, you should be thinking about the why of that, which is ultimately your job as an OEM brand manager or marketing leader is to ensure that all of the performance through the buying journey that marketing influences down through the dealer that you have at least visibility into, if not some control. And to your point, that's all data you get back to learn and make it better. So if you're making decisions about how to fund these, you need to be thinking about, am I just going to say I've got this much money set aside for you, I'll reimburse you for literally anything you do? Or do you build some structures in to say, this is the thing that we've found will help you grow the best and then because of that, we're going to reimburse you for 100% of whatever you do in this area or we'll give you $10 if you want to get hats kind of thing and decide what those choices are about where the funding can and cannot be used basically.
Steven Hileman (
11:14):
As a guy with a big head who hates one size fits all hats, I will tell you that the one size fits all approach here is also really bad.
Brian Cole (
11:22):
Not a stretch fit
Steven Hileman (
11:23):
guy. Not a stretch fit guy. So the one size fits all approach for dealers, it just doesn't work because no dealer is the same size or the same model and you might have pockets, you can separate some of your dealers into cohorts and say this size dealer should get these types of programs. It still doesn't work like that, especially in the outdoor rec markets that our clients are in. Regionality changes not just the audience, the consumer audience, but also changes the buying behavior, changes the products they carry. Think about the type of boat that gets carried in a dealership in Missouri versus Cape Coral, Florida. It's extremely different. So the buyers are different. The dealer experience is different. And because of that, the dealer programs have to be different too. So it's important not to just have a one size fits all program that's like, oh, well, dealers get 1% and they can send us an application for reimbursement.
(
12:24):
It frankly doesn't work. What does work is you have some programs that are advertising based that might be a 50% reimbursement and maybe direct mail, which has a higher efficacy rate that you found over time, maybe that's a 75% reimbursement. And then if it's a fully attributed data-backed program and it's touching the buyer journey from the OEM level down to the dealer level, maybe you give them 100% reimbursement for that or you just handle it for them, turnkey. Let them check a box and say, sure, take all of my co-op money for the quarter and go spend it on that because it supports lead generation or it supports some type of digital experience that you've got enough data to prove to the dealer that it's working, it's generating sales.
Brian Cole (
13:15):
Yeah. We've done some research for a couple brands who work with a wide variety of dealerships and it's very interesting to talk to those dealers. And to your point earlier about the large conglomerates versus the small dealers, those large conglomerates will, if the brand goes to all of them and says, we need you to market our stuff better, here's how you should do this, those large conglomerates will often just say, yeah, we don't care what you want us to do. Our business is bigger than yours is. We're fine. Just give us what we need to make your product look good on the lot down to the small dealer that is screaming for help and building a program that can help you at all those levels is critical.
Steven Hileman (
13:53):
Yeah. The number of times dealers have told us things about an OEM that our OEM client - had never heard before. Had never heard before or that the dealer wouldn't tell them directly to their face. I've done enough one-on-one dealer interviews over the years that it's really remarkable. They're usually quite transparent about what's working. My favorite question is, well, which manufacturer's doing it right? And they're very quick to say which competitor of yours is doing it better than you. And that just becomes the fastest way to figure out how they're really motivated. It's not just who gives them the most money, it's how are they motivated? And then you can start to pull on those strings and figure out how your program should be designed.
Brian Cole (
14:41):
If you're a brand leader or a marketing leader or CMO at a B2B2X OEM that has a program that just feels like it's not having the impact it should or the dollars aren't getting used by dealers, what's a couple things that you would do in the next two weeks to try and move the needle in the right direction?
Steven Hileman (
14:59):
I think the big thing is just look at your transactional data from your program for the last year or two. Look at where the money actually got spent, look at which dealers left money on the table, try to create some correlation between sales activity and where that money was getting used or wasn't getting used. See at a base level what's working in the current program and find a good partner whether that's hiring someone with experience inside your business or finding a good agency that has seen this before and can help you design a system. I think our favorite projects have been the ones where an OEM says, "I left half a million dollars on the table or $100,000 on the table last year that didn't get spent." And the quick answer is, "Well, let's go use part of that to design a program that actually works.
(
15:56):
Let's not let it disappear. Let's use those funds to develop next year's program to make sure that every bit of those funds get used in the future to drive sales."
Brian Cole (
16:06):
Yeah, and talk to the dealers. You got to go talk to the dealers. And the question that I think maybe isn't asked enough is just ask what other programs they have. Are there other dealer programs from other OEMs that are more valuable to them? There's nothing, at least from our perspective, that the dealer wouldn't tell you or can't tell you about that. If they're getting incentives from other places that are useful for them, then find out what they are. And if they're not going to tell you that, then you maybe don't have the relationship you need to with your dealer.
Steven Hileman (
16:38):
And the dealer's first answer when you ask them, "What should I be doing that I'm not?" They're going to ask you for more money. They're always. They will always ask you for a bigger discount, bigger rebate, or some type of better program. That's the first reply always, but you have to push a layer deeper and you have to say, "Well, don't you agree that if I continue to discount this product and then you continue to discount this product a year or two from now, the value of this product isn't going to be worth carrying on your lot anymore. Then we're both going to be hurting. So how do we create good margin for you and longevity for this product in your store?" And then they start responding to the things like, "Oh, well, yeah, we could use a little help with marketing. We're not experts.
(
17:23):
We know our local market, but we don't really know how customers get to us outside of leads we get from you and walk-ins we get in the store."
Brian Cole (
17:33):
And if it's not money, they want more leads. And so finding ways to marry both the program that you're building for them and the things that you're doing at the brand level to push leads down to them and have those ecosystems make sense together is also really critical.
