BUSI 372 Week 2 Written Assignment 1 Example

Does Dealership Advertising Pay? Measuring Digital Marketing Before Spending More

Introduction

Most dealerships spend a large share of their marketing budget on digital advertising, from paid search to social media and third-party listing sites, and most judge that spending by reports the platforms themselves provide. This paper argues that those reports cannot tell a dealer whether its advertising actually sells cars, and that a dealership should test its advertising with simple experiments before increasing its budget.

Why Advertising Is Hard to Measure

The core problem is that advertising effects are small compared with the ordinary swings in sales. Lewis and Rao (2015) analyzed a large set of online advertising experiments and showed that even when campaigns reached millions of people, the effect on sales was so small relative to normal variation in purchases that it was very difficult to measure precisely. A campaign could be profitable or wasteful, and the data from a typical campaign could not reliably tell which.

For a dealership, the noise is even greater. Sales swing with manufacturer incentives, inventory, the weather and the season. When a dealer's sales rise in the same month it raises digital spending, it is tempting to credit the ads, but the rise may have happened anyway. Platform reports make the problem worse by counting any sale that followed a click or a view, whether or not the ad caused it.

The Attribution Trap

Digital platforms usually report results through attribution: they credit a sale to the last ad a buyer clicked, or spread credit across every ad the buyer saw. Both methods share a flaw. They count what happened after an ad, not what happened because of it. A buyer who saw a dealer's social media ad, then searched the dealer's name and clicked a paid listing before buying, will be counted as a success for two campaigns, even if the buyer had decided on the store weeks earlier after a friend's recommendation. Because several platforms each claim credit for the same sale, their reports can add up to more sales than the store actually made. A manager who notices that total reported conversions exceed actual deliveries has found the attribution trap.

When Ads Add Little

Some common advertising may add almost nothing. Blake et al. (2015) worked with eBay on a field experiment that switched off its paid search ads for its own brand name in selected markets. Sales were essentially unchanged, because people already searching for eBay just used the unpaid link beneath the ad. Ads on general keywords had a positive effect mainly for new or infrequent customers. Paying for customers who were already on their way to the store is not marketing; it is a toll.

Dealers face the same situation. A shopper who types a dealership's name into a search engine has already chosen the store. Paying for that click may feel productive, but the money might do more elsewhere.

What Does Work

Research suggests that customers can be a dealer's best promoters. Trusov et al. (2009) studied a social networking site and found that invitations from current members drove far more new sign-ups, for far longer, than traditional marketing events or media coverage. For a dealership, satisfied customers who recommend the store to friends and post honest reviews may produce more new business than many paid channels.

A Testing Program for a Dealership

Consider a composite dealership spending $40,000 a month on digital advertising. A manager could test one channel at a time. For example, the store could pause paid search on its own name in alternating weeks for two months, compare leads and sales between on and off weeks, and keep or cut the spending based on the result. The same approach can test social media campaigns or listing-site premiums. The store should also track how many customers say a friend referred them, and reward referrals. Results should be recorded in a simple log so that, over a year, the store builds its own evidence about which channels move sales in its market. Tests will not be perfect, since a few weeks of data are still noisy, but even rough comparisons are better than reports that assume every sale was caused by the last ad a buyer clicked. The point is not to stop advertising; it is to move money from channels that cannot show an effect to those that can.

A Biblical Perspective

Paul told the Thessalonians to examine all things and keep what proves good (English Standard Version Bible, 2001/2016, 1 Thessalonians 5:21). A marketing budget is a trust: money spent on ads that do nothing is money not spent on employees, customers or the community. Testing is a way of being faithful with what has been entrusted.

Conclusion

Dealerships cannot rely on platform reports to judge their advertising. Research shows that ad effects are hard to measure, that some popular ads add little and that satisfied customers are powerful promoters. A simple, ongoing testing program would help a dealer spend less on advertising that does not work and more on what does.

References

Blake, T., Nosko, C., & Tadelis, S. (2015). Consumer heterogeneity and paid search effectiveness: A large-scale field experiment. Econometrica, 83(1), 155-174. https://doi.org/10.3982/ECTA12423

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Lewis, R. A., & Rao, J. M. (2015). The unfavorable economics of measuring the returns to advertising. The Quarterly Journal of Economics, 130(4), 1941-1973. https://doi.org/10.1093/qje/qjv023

Trusov, M., Bucklin, R. E., & Pauwels, K. (2009). Effects of word-of-mouth versus traditional marketing: Findings from an internet social networking site. Journal of Marketing, 73(5), 90-102. https://doi.org/10.1509/jmkg.73.5.90