Autobytel
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Introduction
Autobytel was the first company to leverage the internet in the car-buying market. Their revolutionary product matched consumers with car dealers and offered consumer resources for buying, selling and owning a car. With no cost of goods sold, no procurement, no carrying or shipping costs and no inventory risks, this business model allowed Autobytel to capture 100% gross margin. The companys first mover advantage allowed them to set the bar for online car sales. Although Autobytel performed fairly well in the online car sales market, capturing 25% of all online car sales in 1999, the company suffered from high operating expenses (i.e. $3.7 million on internet marketing and advertising in Q2 of 1999) which exceeded their revenue. Looking towards future growth, Autobytel management wanted to expand their online service for car sales to all car-related services – essentially owning the customer experience for cars.
Company
Autobytels first mover position in the online car sales market had become the market standard in 1999. Since most state laws required consumers to purchase a new car through an authorize dealer, Autobytel established a way to match the consumers needs and reservation prices to high quality dealers who could deliver on those specifications. Their original product strategy emphasized price, convenience and no-haggle car purchases – all efforts focused on the end customer of the car purchase. Their innovative product reduced the number of sales contacts and hours associated with a car purchase, resulting in bottom line pricing for the customer and a guaranteed sale for the dealer with lower associated operating costs (i.e. payroll and marketing). The company maintained a fairly unique dealership strategy compared to its competitors by awarding geographic monopoly to accredited dealers who maintained high quality in customer service. In addition, the company offered several product lines including financing and insurance and Loyalty programs. However the core product of the line, New Car, proved to be the bread and butter, representing 89% of Autobytels revenue. Their unique value proposition, marketing strategy covering both internet and traditional methods, and first mover advantage helped the company establish a high level of brand awareness among customers. They successfully drove traffic to their website and was named the 7th most recognized e-commerce brand and was included in the Marketing 100 list in 1998.
Customer
Car Dealers: Due to the subscription fee model, the accredited car dealers (13.6% of the dealer market) represented Autobytels direct customers.
Total # of dealers
Market
22,000
Autobytel
2,993
Autobytel % of market
13.6%
Car dealers encountered several challenges in their business of converting shoppers to buyers, such as low profits from high operating expenses and competition from other dealers and new superstores entering the market. Subscription to Autobytels service offered these car dealers a geographic monopoly in a fragmented and competitive distribution network. The service also improved conversion rates to sale, volume of customers, and quality of service with Autobytels focused training on salespeople.
End Customer: Although no revenue was directly collected from end consumers, Autobytel focused marketing efforts on this group to create the pull demand of the service and ensure dealer subscription.
Total cars sold annually
Total New cars sold annually
Total Used cars sold annually
Market
56,000,000
(100%)
14,600,000
(26%)
41,400,000
(74%)
Autobytel
600,000
(100%)
540,000
(90%)
60,000
(10%)
Autobytel % of market
1.07%
Autobytels service offered customers a greater set of car buying options with customized search and compare capabilities across dealerships. As the 2nd largest purchase for most consumers (next to a home), car-buying was a thoughtful and emotional process. Autobytels service is grounded on creating a positive consumer experience by reducing traditional stress related to owning, purchasing and selling cars. The service reduced sales contacts with customers, reduced time spent in car purchase (1 hour online vs. several hours with dealer) and addressed consumer price concerns by exposing the dealers floor price.
Competition
Competition on online car sales consisted of three segments: other online services, car dealers, and superstores. Online car buying services represented 94% of online sales while manufacturing and local dealer websites represented 6%. Competitors varied in dealership base, dealership strategy (geographic monopoly), pricing models, and purchase requests/sales per car dealer. For example, AutoWeb offered customers the largest dealership base (4,900) of all online car-buying services, but only represented 32% of Autobytels annual sales.
Online Car-buying Service
# of Dealers
% of Dealer Market
# of Purchase Requests/yr
Conversion Rate – to SALE
# of Actual Car Sales
Purchase Req/Dealer
Car Sales per Dealer
Autobytel
13.60%
2,400,000
600,000
AutoVantage
7.27%
420,000
63,000
CarPoint
10.91%
1,320,000
198,000
AutoWeb
22.27%
2,695,000
404,250
*Assumed