Predictive Analytics in the Auto Industry
While the automotive industry has continued to face dynamic challenges like shifting marketing conditions, increased competition, cost pressure and volatility, this past year has been especially complex.
From diminished loyalty and inventory shortages to historic consumer demand and increased competition, 2021 has offered dealers a mixed bag of challenges and opportunities. Looking ahead, the dealers best equipped to succeed are the ones who leverage data analytics to predict effectively and efficiently what’s likely going to happen next.
Technology is rapidly transforming the automotive industry, and predictive analytics (while now a common industry buzzword) are a core differentiator for dealers who use it well. In the auto industry, predictive analytics are being used to analyze consumer purchase trends and make predictions about future events using techniques like data mining, data modeling, machine learning and artificial intelligence (AI).
In this blog post, we dive deeper into predictive analytics in the auto industry and what that means for dealers, including:
- The definition of predictive analytics and why it matters to dealers
- The increasing importance of predictive analytics in the auto industry
- How predictive marketing is shaping the future of auto
What are Predictive Analytics and What Can They Do For a Dealership
In layman’s terms, predictive analytics is the use of historical data to forecast future outcomes. This is done through a variety of statistical techniques like data mining, machine learning and predictive modeling.
At the dealership level, predictive analytics help identify and understand dealer prospects before they ever reach out, giving dealers the chance to proactively market to the customer in a highly personalized manner.
Dealership marketing tools powered by predictive analytics leverage first-party data from a dealer’s equity and data mining processes, DMS and CRM, as well as third-party data from public and proprietary sources to predict what consumers are most likely to do next.
With this proactive marketing approach, dealers can sell more efficiently because they have the data and knowledge about those customers to allow their sales teams to develop personalized talking points. Dealers can be informed about their customers before the first point of interaction, helping improve the overall dealership customer experience and ultimately building customer loyalty.
Not only will data-driven customer insights allow dealers to understand their existing customer base, but with the right dealership predictive analytics tools, similar behavior prediction algorithms can be applied to conquest customers, as well – which is a game changer from the “spray and pray” methodology used in present day conquest marketing tactics.
This data is actionable because predictive modeling involves combining what we know about an individual and what we know about the behavior of people who are in similar circumstances. The more we know about the general wants, needs and behavior of the aggregate group, the better we’re able to predict what the individual is likely to do next in their buyer journey and what messaging they’re likely to respond to.
How Dealerships Can Use Predictive Data
Predictive modeling takes the guesswork out of car sales prospecting and marketing by identifying the information that matters about potential customers and analyzing it to determine what’s most likely to change consumer behavior at that particular point in the sales cycle. Those customer insights can then be put into useful context that empowers a dealer’s marketing efforts and sales team to confidently reach out to targeted potential buyers.
For car dealerships, predictive analytics will help the sales team close deals and promote proactive maintenance in the service department. Data analytics can help in optimizing deals against the competition and even provide insights into ways that will help speed up the sales process. Sophisticated data analytics algorithms will find the most profitable opportunities based on critical customer details, analyze those details and then provide deals that prospects are most likely to accept, at the least cost to the dealer. Sales teams can even engineer deals based on the unique needs of an individual customer.
From identifying and engaging the owners of highly in-demand pre-owned models to improving the efficiency of marketing campaigns, predictive analytics empower dealers to make the decisions necessary to maximize their portfolios and take control of their future success by:
Attracting New Customers
Among other strengths, the auto industry has done a great job attracting new customers with traditional marketing strategies such as television, radio and print media. However, these advertising mediums are quickly losing their effectiveness as audience sizes steadily decline.
Predictive analytics are perfectly suited to help the auto industry overcome these marketing challenges. By tapping into the power of big data, predictive analytics applications can accurately identify the people most likely to purchase a vehicle in the near future. Complex algorithms consider factors such as time since last purchase, number of repairs on the current vehicle, current mileage and information pulled from social media to identify likely buyers.
Acquiring Profitable Pre-Owned Vehicles
As the global chip shortage pushes market stabilization further into 2022, dealers are looking for alternative ways to acquire in-demand pre-owned vehicles. Dealer tools like Market EyeQ that are powered by predictive analytics allow dealers to leverage the most powerful dealership inventory tool at their disposal when it comes to acquiring used vehicles via trade or buy-backs: their data.
By identifying important buying factors beyond just vehicle equity, dealer marketing tools powered by predictive analytics can be used to identify prospective trade and buy-back opportunities before customers return to market.
Build Customer Loyalty
Amid diminished customer loyalty, inventory shortages and aggressive conquest efforts by competitors, some dealers are leveraging predictive analytics to take a proactive approach to engaging and retaining their audience.
Using predictive analytics to identify which of their loyalty customers are preparing to re-enter the sales cycle, dealers can proactively retain customers before they’ve had a chance to defect by engaging customers with messaging designed to retain their business, such as extended lease offers.
By taking a similar approach using Market EyeQ’s intelligent behavior prediction modeling, our dealer partners increase retention sales up to 15%.
The Future of Predictive Analytics for Car Dealers
As technology evolves and transforms the future of the automotive industry, tools powered by predictive analytics are becoming key to the success of countless dealerships across the country.
There’s a key reason why a predictive modeling sales platform is such a powerful tool for auto dealers: Rather than metaphorically tearing out the showroom floor and starting from scratch, predictive modeling is the next evolutionary stage of sales and marketing best practices that dealers have been developing for more than a century.
Predictive analytics remove inefficiencies and automate costly and wasteful processes. Rather than replacing salespeople, they’re empowered to not just share more information, but better information, along with suggestions on how to use data most effectively to sell more cars every month.
While some dealers are inherently skeptical about any new technology that promises to change their business, predictive modeling is different – and even more important are the datasets that go into the modeling.
Sales has always been based on an instinctive form of predictive modeling that salespeople engage in through personal experience: Knowing what you do about the prospect, how do you think they’ll respond to this tactic or that offer? What’s the most likely thing you can do to get them to decide?
To navigate challenges in today’s continuously evolving automotive industry, proactive dealers are looking to data to plot their next steps with the help of predictive analytics. From identifying and engaging drivers of in-demand pre-owned models to build a profitable inventory to mapping prospective buyers to the vehicles they have on-hand, predictive analytics empower dealers to maximize their portfolio – and their future success.
