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While the auto industry is one of the world’s biggest advertisers, dealerships’ online advertising effectiveness dramatically lags most other industries. When digital marketing experts look at the automotive industry, they ask why dealerships are stuck in the 1990s. What makes our industry look so behind in online advertising?

Dealers are stuck in the newspaper era.

That’s not to say that dealers haven’t moved beyond advertising in newspapers. In fact, the dramatic financial decline of newspapers has been hastened by reductions in dealer newspaper advertising.

The problem is that dealers have allowed newspapers’ broken advertising model to persist.  One major factor in the decline of newspaper advertising is that it is based on the concept of “Pay for Placement” — essentially you pay the same whether your advertising works or not.  In Pay for Placement, the newspaper always wins, even when the dealer advertising loses, because they don’t get the traffic they expected.

Pay for Placement was only able to persist for so long because in the offline world there was no way to measure which ads were working and which weren’t.  This problem led advertising pioneer John Wanamaker to coin the famous phrase, “I know half my advertising is working, I just don’t know which half.”

With the rise of the Internet, other industries moved past the Wanamaker problem (see my last post) by evolving to the Internet’s “Pay for Performance” advertising model.  This “win-win” approach, made popular by Google, ensures that advertisers only pay when a prospect actually clicks on their ad to take them to the advertiser’s site.  If people read past your ad and don’t click on it, you don’t pay the website anything.

Despite Pay for Performance rapidly becoming the dominant advertising model online, the major dealership advertising sites remain Pay for Placement. Why? It’s important to remember that AutoTrader.com and Cars.com were born out of newspaper companies. 

They have been able to preserve the Pay for Placement model online and it’s easy to see why they wouldn’t want to change it.  Pay for Placement is a much more lucrative revenue model for a website — you get paid whether the dealers advertising works or not.  Given the inconsistent quality of dealership online inventory ads, it makes sense that the websites would fight hard to preserve Pay for Placement.

At the same time, we are two decades past the 1990s and it’s time for dealers to join the Pay for Performance Revolution. The Internet was meant to be a medium where performance counts most and there is no reason why anyone should be paying for advertising that doesn’t work.

How can you convert your business to Pay for Performance while still advertising on AutoTrader.com and Cars.com? 

We’ll share the secret to becoming a Pay for Performance dealer in my next post.

Pat Ryan Jr. is the founder of FirstLook and MAX Systems. This blog entry and others can be found at www.getrelevantordie.com.