Advertising Drives Auto Sales - So Spend Spend Spend

NEW YORK May 12, 2003; Janet Whitman writing for Dow Jones reported that advertising is a major driver of automotive sales, a new study shows.

Of the total volume of automotive sales, an average of 22.5% was incrementally fueled by advertising -- passing an all-industry average of 13.9%, according to the study by Hudson River Group, which analyzed three auto brands from three different vehicle categories produced by one major auto manufacturer.

For each dollar spent on advertising, the three vehicle brands returned a range of between $3.47 and $19.97 and an average of $9.80.

The study, commissioned by trade group Magazine Publishers of America, found that both TV and magazine advertising returned more in sales than the cost of advertising, though TV zoomed past magazine advertising.

The third vehicle brand analyzed, for instance, reaped a return $7.23 for every dollar spent on television advertising, but returned only $1.71 from magazine advertising. The first brand returned $20.65 for each dollar spent on TV versus $19.66 for magazine advertising, while the second brand returned $4.11 on TV advertising and $3.31 for magazines.

Despite that edge for TV, automobile manufacturers could benefit by steering more of their advertising budgets to magazines.

That's because magazine advertising showed scant waste, Ellen Oppenheim, MPA's chief marketing officer, and Sean Rice, chairman and chief executive of Hudson River Group, explained at a press briefing on the research findings on Monday.

Television advertising, on the other hand, had a high saturation, where additional weight no longer drove significant sales, they said.

The three vehicle brands had an average of 48% of weeks of television advertising that exceeded the saturation point, compared with 1% for magazines.

By reallocating some of the dollars spent on TV ads, the automotive industry could improve overall returns from advertising, the executives said.

Looking specifically at magazine advertising, the study found that advertising in magazines drove an average of 2.2% of total automotive sales volume, compared to an all-industry average for magazines of 1.9%. (A percentage point in the automotive market is worth nearly $4 billion, according to JD Power & Associates, the MPA noted.)

Meanwhile, television and magazines outperformed other advertising alternatives, including outdoor radio, the Internet, newspapers, and Hispanic TV, the study found. Returns for all other media advertising averaged only $3.62 in incremental sales for each dollar spent, while magazines reaped $8.23.

The study, titled "What Drives Automotive Sales," used confidential data covering a three-year period though December 2001 supplied by a major auto manufacturer. MPA and Hudson River Group declined to name the auto manufacturer, citing client confidentiality.

Hudson River Group examined major media and marketing elements that might influence sales, including advertising, financial incentives and rebates, distribution, category trends, seasonality, competitive advertising, public relations, econometric factors, and word-of-mouth.

"The most important finding for any marketing mix analysis is determining the proper allocation of support across the entire marketing arsenal," said Mr. Rice. "We often find that magazines are an important arrow in the marketer's quiver, especially for brands that require specific targeting -- which is one of magazines' strengths."