GfK GeoMarketing completed a feasibility study for a mid-sized car dealership. Turnover potential for existing and potential locations was calculated using various analyses and scenarios. The results provided a strategic roadmap for how the dealership should approach an important business decision.

In order to strategically position their sales centers, the automotive industry prepares five-year plans that make concrete recommendations regarding local dealership locations and practices. Our customer, the manager of a sports car dealership, received a central directive aimed at improving the market share of his location. He was advised by central management to relocate the current dealership location and establish a second in a more promising area. However, the manager’s bank wanted more assurances than those provided by the strategic plan generated by the company headquarters before it would agree to finance the second location. The manager therefore decided to  arrange for an analysis of the economic sustainability of the proposal. He wanted an objective assessment of how much sales will increase with a second location.

This is the scenario with which GfK GeoMarketing was presented. GfK GeoMarketing’s task was to demonstrate through detailed analyses of the relevant criteria the overall viability of the new location proposal. The goal of the study was to establish the maximum possible turnover potential for new cars resulting from an additional car dealership location and the associated greater market coverage.

In order to illustrate the turnover density by region and the corresponding customer origins, the car sales reported by the German Federal Motor Transport Authority and their corresponding postcodes were compared against the turnover data of the car dealership. This led to some initial insights. Next, in order to determine the extent to which the car dealership was tapping into the available potential of the region, the sales numbers were compared with the total number of new cars on the market. This made it possible to visually identify the core sales region and, more importantly, the postcode districts in which elevated numbers of new cars had entered the market despite no increase in purchases from the car dealership under study. 

The next step was to establish the extent to which car dealerships outside of the core sales area were affecting sales within the sales area. Using its in-house sales territory planning software application DISTRICT, GfK GeoMarketing then analyzed the sales reach of neighboring car dealerships, revealing areas of overlap with regard to the boundaries of the sales area under study. Using drive-time analyses of the various postcode areas under review, GfK GeoMarketing determined that the residents of some regions of the sales area could more quickly and inexpensively access competitor car dealerships. Additionally, a GfK survey revealed that loyalty to local vendors plays an important role in consumers’ choices and that the purchase of sports cars over the Internet is a growing phenomenon.

The next step was to establish the potential for sports car purchases in the region in question and the various factors affecting decisions to buy. In addition to locating particularly affluent households, postcode districts with a high number of luxury-class automobiles were identified and illustrated on a map of the sales region. With the help of DISTRICT, it was possible to then reveal the precise postcode areas in which a high number of potential sports car buyers resided.

The often-used marketing tool of the portfolio analysis was then employed to illustrate the postcode areas with the highest untapped turnover potential.  A two-dimensional model was generated in order to compare the turnover density and turnover potential – i.e., the so-called target group index – and reveal the current market situation.

A concrete identification of the potential turnover level could not be determined with the portfolio analysis alone. Consequently, a technique of analyzing turnover potential based on the methods underpinning a specialized regression analysis was developed. This approach identified the postcode areas with both high and low sales potential. The sales area was then split in order to make it possible to associate the correct turnover potential with each of the two sales locations. This division was carried out in a way that ensured that the sales area locations minimized customer travel distance. Market penetration predictions were made for each location based on numerous factors, including customer loyalty to local businesses, the existing level of market penetration and anticipated future turnover increases due to the forthcoming introduction of a new car model. The resulting annual projected turnover volume for each location was lower than that predicted by the central automotive headquarters, which called into question the soundness of the proposal to open a new location and resulted in advising the client to re-examine the merits of the directive from central management

Thanks to the thorough analysis provided by GfK GeoMarketing, the bank, central management and manager of the local car dealership were presented with an objective basis from which to make an informed business decision.

Author:
Stefanie Torge,
s.torge(at)gfk-geomarketing.com,
Real Estate Consulting
Retail and public authority division,
GfK GeoMarketing