An impending recession and high gas prices are in store for 2008. Get your business online to stay afloat.
Our industry faces challenges like never before. Here's a rundown of the most important trends to watch for this year that will have the biggest impact on your sales and profits.THE ECONOMY
Recessions are notoriously unpredictable. The smartest economists in the world can't foresee them and usually only agree once it is over that we've even had one. So when your local newspaper headlines call for a recession in 2008, remember, editors aren't any better at predicting them than economists.
Having said that, there's no disputing the economy is currently weak. Economic conditions were the main reason 2007 was one of the softest sales years since 2001, when we had the last recession at the tail end of the "dot-com" bubble bursting.
We are not alone. Other industries similar to ours where a lifestyle merges with a hobby also are soft. Retailers selling custom motorcycles, hunting, and camping equipment had a slow year.
In 2007, sales of automotive parts, accessories, tires, and wheels were up around 2.7 percent, but inflation reached 3.7 percent. Even with a moderate increase in sales from 2006, inflation left the industry in a hole.
There are two things our industry needs from the economy to drive sales—cash and credit. There are a few economic forces to watch in 2008 that affect cash and credit. Our nation's money supply didn't expand much in 2007. Recently lowered interest rates should expand our money supply in 2008 and credit card interest rates should come down a bit, too, which would help our industry.
What this means to your business: Right now, 2008 doesn't look any better than 2007 and could even be a little worse. Beware if you decide to cut your marketing budget. Decades of research on recessions shows companies that cut their marketing budget during a recession end up with less market share than companies that stay the course. It's easy to cut your marketing budget when you're nervous, but if you can avoid it, you'll fare much better in 2009 and beyond.
INCREASING GAS PRICES
This may be the longest-running news headline in our industry: Gas Prices Are Going Up! 2008 will be no different; gas is going to cost more than in 2007. One of the differences this time could be how much. In 2007 gas averaged around $3.15 at its peak across the country. Official government forecasts for the 2008 peak are around $3.50 and some inside the petroleum industry have suggested it could be higher.
Expensive gas won't stop specialty equipment sales but it will continue to transform our industry. Truck sales will continue to struggle, but that trend is now nearly 10 years old. Consumers will still drive but be more selective of where and how far they travel. Performance manufacturers will still manufacture parts but you'll see them talking more about fuel economy and mileage in 2008.
What this means to your business: Gas-saving products have not excited specialty equipment consumers in recent years, but they will become more receptive to products and vehicles that improve mileage, or at least improve performance without trashing fuel economy. Fuel economy is a need and an opportunity—fill it.
INCREASING INDUSTRY SEGMENTATION
Our industry continues to split and fracture into smaller and smaller segments and 2008 will bring more. In 1998 it was relatively easy to split up the industry with a typical pie chart (see chart at right). Today, our industry is harder to illustrate; there are dozens of segments, some directly related to others and some not. It now looks something like the other chart (see chart below).These smaller segments all have their own magazines, lingo, cable TV shows, online communities, clubs, and events. Some of these enthusiasts might not consider themselves part of an automotive aftermarket segment—hunters, campers, and fishermen for example—yet they buy millions of dollars of automotive specialty equipment a year.
If you are in charge of your company's marketing or new product development, the challenge is to ensure you're relevant to your customers and reach them in a cost-effective way. Your big opportunity is the Internet, and coincidentally, it's the driving force creating all of this new segmentation.
The leading Internet marketers reach these segments by tailoring their marketing message to the appropriate audience. This might include giving the consumer the ability to personalize their Web site, targeting consumer segments with relevant e-mail messages, or having several different Web sites. It also includes reaching specific segments through search-engine marketing—either paid keyword advertising or unpaid search-engine optimization.
What this means to your business: Increasing industry segmentation requires your marketing to be relevant to many different consumers. It's the key to an effective marketing plan that captures market share and profitably grows your business.
MARKETING ON THE INTERNET
The Internet is creating new and exciting opportunities for the specialty parts industry almost daily. A study on the top 10 parts and accessory Web sites, according to Nielson Online, shows JCWhitney.com gets nearly 1.5 unique visitors each month. Two of the top 10 sites are owned by publicly traded US Auto Parts Network, Inc., a relative newcomer to the industry with $165 million in sales. One site, Disappearing-Car-Door.com' is only about six months old and demonstrates the power of online video to produce Web traffic. It's also a testament to the power of viral marketing using YouTube.com, where viewers can e-mail friends about interesting videos, and the disappearing car door video has had well over 1 million views.In 2007, Internet ad spending exceeded radio advertising for the first time and global online advertising was around $20 billion. According to Nielson Online, nearly 7 billion searches were conducted on search engines—in the month of December 2007 alone.
What this means to your business: You have to be on the Internet, period. If your business lacks the expertise to get there in 2008, find it quickly. You also must have a very good reason if at least 10 percent of your marketing budget isn't allocated to Internet marketing.
Jon Hedges of Hedges & Company is a long-time veteran of the automotive aftermarket specializing in database marketing, strategy, and research. He can be reached at (330) 474-1650, or via the Web site www.HedgesCompany.com.
