autobytel.com - harvard case analysis
TRANSCRIPT
GENERIC SCHEMATIC OF “HOW AUTOBYTEL.COM WORKS?”
CustomerAutobytel.com
Dealer 1
Dealer 2
Dealer 3
‘A Web Interface’ that connects
customers with the cars offered by the
dealerships + customized build-up + value-added services
Final Order is sent to a Dealer
depending on his geographical
territory
PROBLEM STATEMENTS
Given the new products and services Autobytel was now offering, how should the company be positioning itself in the market?
Should the company be spending more on advertising? If so, was a combination of traditional and new media the right way to go?
ABOUT AUTOBYTEL Launched autobytel.com in 1995 Founder- Pete Ellis Market Cap- 31.95 M Positioning statement- Your Lifetime Automotive
Advisor™ Providing information to purchase new and used cars Connected thousands of dealers nationwide with
motivated car buyers In 1998 it launched CyberStore - a site where
consumer could shop for pre-owned vehicles online Its network of automotive sites, including Car.com℠,
DealershipJobs.com and MyGarage.com
CASE FACTS
Autobytel- Dealer relations was the key to success.
Major issue- Dealer’s turnover, Internet Companies,
Shrinking profits and Taking advantage of poor dealer
reputation.
Company had approx. 3000 dealers in Northern America in
major metropolitan areas, with major expenses on
marketing and sales expenses and ongoing training and
support provided.
Autobytel provided exclusivity of geographic area to
assure dealers a large volume of quality purchase requests
to lower their operational costs.
AUTO RETAILING INDUSTRY
Includes sales (new and pre-owned), service, and
parts exceeded $1 trillion per year.
Over 56 million new and used vehicles changed
hands annually, resulting in over $670 billion in sales.
New cars and trucks were sold through approximately
22,000 dealerships in the United States, which
represented about 49,000 franchises.
AUTOMOTIVE DEALERSHIPS
Automotive dealerships derived revenue from three primary sources:
Revenue
sale of new and used vehicles
service and parts (S&P)
finance and insurance (F&I)
GENERAL FACTS ABOUT THE INDUSTRY
Car-buying tended to be both a thoughtful and
emotional process (because it was 2nd largest purchase
after Home).
Industry had a poor reputation among consumers; in
fact, fewer than 50% of customers who purchased a
vehicle ever returned to that dealership to either purchase
another vehicle or to get service.
In addition, while 59% of new car buyers reported feeling
loyal to the vehicle they purchased, only 13% reported
feeling loyal to the dealership where they purchased the
car.
TRADITIONAL CAR BUYING PROCESS Consumers enters a dealership to purchase a new car (having little
information regarding manufacturers’ costs, dealer costs, leasing costs,
financing costs, and other relevant information)
However, because they knew that the MSRP price listed on the vehicle was
negotiable, they were faced with the arduous task of bargaining with a
salesperson to get a favorable price.
This lengthy negotiation process usually began with a floor
salesperson, and goes on to senior salesperson or sales manager,
or someone more senior, such as the general sales manager.
After all this, over 20% of traditional car buyers still paid a
vehicle’s original sticker price.
Even after all this inspection for trade-in, financing and insurance
(F&I) are still left.
Traditional car buying process included three to six salespeople per
transaction.
THE AUTOBYTEL.COM SYSTEM
Customer visiting the Autobytel.com website could shop for
vehicles in a number of ways:
Beginners- through vehicle photos for every make and model
with specification and pricing information.
After narrowing down their choices, they could access a variety
of automotive information about their preferred vehicles
Assist consumers with specific vehicle related decisions,
including financing and insurance.
Building their car from the bottom up
No-obligation, purchase request for their vehicle of choice. They
could also submit an optional finance or lease application.
MYGARAGE
Through MyGarage® vehicle ownership experience,
Autobytel offers-
Valuable shopping and research features to help consumers
buy, sell and maintain their vehicles, including new and
used car research
New and used car price quotes supplied by dealers and
other vehicle sellers,
Used car vehicle listings
Information and links to providers of insurance, auto finance,
and other products and services.
Help dealers to efficiently manage and convert online
business.
CYBERSTORE
Launched in 1997, the Certified Pre-Owned
CyberStore gave consumers the ability to use
Autobytel.com to purchase pre-owned vehicles.
The site was generating over 2 million searches per
month. Approximately 10% of Autobytel.com’s
purchase requests were for used vehicles, and
CyberStore subscription fees were accounting for
slightly more than 10% of total program fees.
CURRENT SCENARIO (AS OF 1999…)
PRODUCT & SERVICES OFFERED
HOME
Customer Service
About Autobytel.com Contact Press Room Advertising Canadian
Guests
New CarPre-
Owned Vehicle
Research Rewards Warranties Insure My Area Finance
STOCK PERFORMANCE CHART (1999-2012)
WHAT NUMBERS SAY?1995 1996 1997 1998 1999-Q1 1999-Q2
Revenues 274 5,025 15,338 23,826 8,032 9,203
Gross Profit
274 5,025 15,338 23,826 8,032 9,203
Sales & MKTng
930 7,790 21,454 30,033 9,957 11,027
Product & Technical Development
99 1,753 5,448 8,528 2,366 3,216
General & Admin
275 1,641 5,851 5,908 1,817 2,052
Total Operating Expenses
1,304 11,184 32,753 44,469 14,140 16,295
Operating Income
(1,030) (6,159) (17,415) (20,643) (6,108) (7,092)
Net Income
(1,030) (6,035) (16,810) (19,398) (6,141) (5,984)
The company is spending way more (almost 1 ½ times) on Sales &
Marketing’ than what it is earning as Gross Profit
E.g. It spent $1.3 Million US on Superbowl Ads when its total revenue was only $5
Million US
With only 200 employees the company’s spending on General &
Administrative area is exorbitant in the last 4 years – increased 21
times from 1995 through 1998
This amounts to $30,000 US per person as salary
This is ridiculous when average selling price of a new car is $22,650 US
Company claims to have cut fat from the system – “Automotive
Dealership” – but is itself way inefficient
There is a Dealership FInancial Problem – Net PreTax profit has increased
from $125,000 US to $306,000 US (1991-97) but Net Profit per car has reduced from
$231,000 US to $51,000 US (1987-97)
The Net Profit for Used Cars has almost gone up twice in the same time:
from $148,000 US to $274,000 US
Used Cars average selling price has increased twice in the same period
where New Cars’ has increased 1.7 times, only.
Benvenuto said they have COGS = 0 – coupled with no
procurement/carrying/shipping costs and no inventory risks.
This claim is not justified: If it were, then there shouldn’t have been
any reason to continue to bleed monetarily.
We believe the company is doing accounting error
It is not showing the money invested on servers – an imperative
and huge cost for running web portals – which is inevitably a
COGS
SALESPERSONS
Sales personnel of Autobytel are quite efficient.
Autobytel.com has a better Closing Ratio (1:5 to 3:10)
than any of its competitors
Dealerships’ salespeople remain inefficient – 9 cars on
avg. a month
Dealer are applying the salesforce training obtained
from Autobytel.com to other areas – Loss of Revenue
to Autobytel.com
LEARNINGS The company needs to milk the innovations it has been leading
It has to create copyright / patent right laws to save its procedures and
training from being copied.
It must not enter into the Wholesale Car market – Doesn’t have enough
cash at hand
It must focus on the Services & Parts Market – And quickly
It must reduce its tie-ups with the insuring companies – its cut is small ($50
~ $125) and customer usage is very less
It must focus on its tie-ups with Manufacturers & Auto Dealerships to create,
develop & sell “Lateral Automotive Accessories” from the site itself.
It should focus on mobilizing more of its 200 trained workforce as DPs.
It can’t afford to spend blatantly on S&M
It has to bank heavily on its already existing
Brand Strength & Awareness
It has to outsource the maintenance &
functioning of Servers.
THANKYOU