carsales.com.au: Effective business strategy for online success

This Case Study examines the growth and development of carsales.com, given the increasing trend of consumers using online businesses to source products and services.

As a result of reading this Case Study, students should be able to:

• Describe the business structure of carsales.com
• Identify factors that are significant to the business model
• Outline key features of that business model
• Assess the current and future success of carsales.com

Introduction

For many Australians, gone are the days of trawling through newspaper classifieds in search of a bargain. Instead, they are carrying out their shopping online – from the weekly supermarket shop to big ticket items such as a cars, bikes and boats.

Filling a market need

carsales.com’s continued success and growth in the market is largely due to theentrepreneurship that commenced with Greg Roebuck, which has continued with the incubation of creative ideas within the business.

Standing out from the competition

Marketing researchers and authors of Blue Ocean Strategy, W Chan Kim and Renee Mauborgne, contend that in order for a business to be successful they must create ‘blue oceans’ of uncontested market space ripe for growth.

Creating a culture of innovation

A culture of innovation means creativity and new ideas become central to the internal environment of the business.

Expanding the business

Just consider this simple question for a moment. If you want to get the best result in an exam – what will determine that?

Developing new products

New product development is a vital expansion strategy.

Planning continual business growth

The following quote by the CEO, Greg Roebuck, gives us some insight into the future of carsales.com.

Conclusion

Consumer behaviour is increasingly moving into the online environment, particularly for automotive related products.

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Introduction

For many Australians, gone are the days of trawling through newspaper classifieds in search of a bargain. Instead, they are carrying out their shopping online – from the weekly supermarket shop to big ticket items such as a cars, bikes and boats.

carsales.com Ltd, Australia’s number one online automotive classifieds business, is at the forefront of this significant change in consumer behaviour.

The business model is focused on helping people sell things, plain and simple, and there are three key factors contributing to the business’s success. Firstly carsales.com is committed to continued innovation, especially in its use of online technology architecture to deliver the best possible quality solutions for all customers. Secondly the business is a youthful, fast-paced business environment reflected in the ongoing development of new digital and advertising channels such as mobile and social media. Thirdly carsales.com is driven by a customer-focused strategy,the belief that if you win the customer,everything else will follow. These three factors will be the focus of the material that follows.

Before looking at various aspects of the carsales.com business model, let us examine the company background and structure. Founded in 1997, and led by CEO Greg Roebuck for the past eight years, there are four major divisions under the carsales network umbrella:

• Private (for individuals who wish to buy or sell auto, bike, marine, homes, general classifieds and industry products)
• Dealer (for businesses that trade in auto, bike, marine, homes, general classifieds and industry products)
• Dealer and Data Services (support and research products for Dealers and Manufacturers)
• Display Adverting (for businesses that wish to advertise their products to the carsales customer base, i.e. Banner Advertising).

There are 26 brands, as indicated in Figure 1 below, where buyers and sellers can trade goods such as cars, bikes, boats (the focus of this case study) caravans, industry equipment and most recently homes.

This structure provides a range of revenue streams for the business. In relation to the automotive section of the business, carsales.com receives a significant proportion of its revenue from display advertisers, and motor vehicle dealers who pay for each enquiry they get from the website. In addition private sellers pay a fee for advertising their products on these sites.

Filling a market need

carsales.com’s continued success and growth in the market is largely due to theentrepreneurship that commenced with Greg Roebuck, which has continued with the incubation of creative ideas within the business. Greg was shocked by the inconsistency of information provided in traditional classified advertisements. As an entrepreneur, he recognised an opportunity and did something about it!He launched a business that immediately raised the quality and quantity of information available to buyers and sellers to achieve a sale. The continued diversification of the business from automotive products into a range of aligned channels, markets and geographies such as the sale of industry equipment further typifies entrepreneurship – looking for new ideas, managing the risks involved, but achieving commercial success. Underpinning this is innovation, which will be covered in detail later in this case study.

Seeing a market need is one thing but the capacity to meet that need relies on sound business planning. Figure 2 provides the application of some of the key elements of a business plan that would have applied to carsales.com when the business was first conceived back in the mid 1990s.

Figure 2:

Standing out from the competition

Marketing researchers and authors of Blue Ocean Strategy, W Chan Kim and Renee Mauborgne, contend that in order for a business to be successful they must create ‘blue oceans’ of uncontested market space ripe for growth. Such strategic moves, termed ‘value innovation’, create powerful leaps in value for both the business and its buyers, rendering rivals obsolete and unleashing new demand. Creating a blue ocean will largely come about through the development ofunique selling points (USPs). This is very much the story of carsales.com. The first unique selling point has emerged from the philosophy of the business-which is, to achieve a sale, not simply focus on creating another classified advertising avenue. This has led to the application of sophisticated, robust and efficient technologies that clearly help people sell things. carsales.com’s heritage is derived from automotive software, ensuring they have a specialised understandingof the business and future opportunities. The specific characteristics of this technology-based USP include:

• A range of robust online platforms
• Intuitive and accurate search functionality
• Quick and effective online ad creation
• Detailed data and information to enhance the buying and selling experience
• Immediate connectivity between buyers and sellers.

This USP has greatly contributed to carsales.com’s market leading position. The company holds the number one position by the key metrics (measures) in relation to traffic and revenue as shown inFigure 3 below.

Figure 3:

Creating a culture of innovation

A culture of innovation means creativity and new ideas become central to the internal environment of the business. It is a part of day to day decision making through to medium and longer term planning. A culture of innovation is very much reflected in the application of software technology that underpins the carsales.com web-based buying and selling experience, but is evident in many other areas of the business. Some of these are as follows:

• As the use of mobile phones continues to grow beyond just a facility to make calls and send messages, carsales.com has developed mobile websites to optimise viewing on customer mobiles and making it more convenient.The company made use of satisfied customers who had contacted the company by engaging them in the development of a new advertising campaign titled ‘Real people. Real results.’ (see example below).

• In late 2009 carsales.com established an innovative social media strategy for the business. This included establishing a ‘Social School’ – an initiative to recruit and train internal staff to become ‘Community Members’ responsible for updating and managing the company’s Facebook and Twitter portals in the correct tone of voice. A related policy was developed that established rules and regulations about using social media in a business form to help ensure that responses to posts were handled in a professional and dignified tone and that no confidential information was posted in these areas. carsales.com use their social media outlets to update followers with the latest company and auto industry news and respond to any customer service queries.

Expanding the business

Just consider this simple question for a moment. If you want to get the best result in an exam – what will determine that? Obviously the more marks you get on the paper compared to your classmates will determine your success.

The same applies to carsales.com – the more cars it sells the better its results. That is why the business is always looking to increase its number of listings through a range of related expansion strategies. Let us briefly examine four key strategies.

1. carsales.com operates a portfolio of automotive and related website based businesses, some of which have been the result of acquisitions. For example in October 2005 carsales.com acquired Trader Online Assets which included the CarPoint.com.au, BoatPoint.com.au andBikePoint.com.au websites. This gave carsales.com control of another leading specialist automotive website publisher, CarPoint.com.au, extending its market leading position in the online automotive classifieds industry.
2. In 2009 the business was listed on the Australian Securities Exchange (ASX). The most obvious benefit of this development is the access to capital markets to support future growth of the company.
3. A broad range of partnerships have been established, including with portals such as Ninemsn and Yahoo!7 By promoting carsales.com on these sites, these partnerships increase brand recognition and generate more traffic to the site. In addition carsales.com power a number of search engines on manufacturer websites, including HSV, VW, Mitsubushi, Mazda, FPV, Saab, Holden, Chrysler and Dodge.
4. carsales.com continues to develop new products which are attractive to car buyers, sellers and advertisers. These include developing further niche websites to take advantage of industry trends, providing car buyers with access to greater inventory by combining inventory across carsales’ various sites, improving searching and matching technologies, enhanced car listings and dealer specials, and developing enhanced advertising delivery capability (e.g. mobile, video).

Developing new products

New product development is a vital expansion strategy. A typical process is highlighted in Figure 4below.

For carsales.com new products are developed which are attractive to car buyers, sellers and advertisers. These could relate to new niche websites or improved search and match technologies.

Underpinning effective new product development is the need for market research. This can occur in a number of different ways. Firstly carsales.com looks at their peers in other related industries, both in Australia and overseas. These provide a benchmark of technology applications for carsales.com to measure themselves against. Secondly, they keep a close watch on emerging technologies and consider their application to the business. Thirdly, carsales.com might commission independent, third party research to support its own internal research. And finally they tap into the thoughts, ideas and comments expressed within social media.

Planning continual business growth

The following quote by the CEO, Greg Roebuck, gives us some insight into the future of carsales.com.

The long term business strategy is to continue to protect and grow the core business (automotive related products and services), while extending and enhancing carsales.com’s capability within aligned channels, markets and geographies. It expects to experience growth as the demand for online services across a broad range of products increases compared to print media. As an innovative business new products will be developed such as the previously highlighted mobile phone site that enhances advertising delivery capability. In addition the increasing quantity of data and pricing information will allow carsales.com to leverage into numerous growth opportunities. The future looks bright to say the least!

Conclusion

Consumer behaviour is increasingly moving into the online environment, particularly for automotive related products. carsales.com has seen this trend, developed an innovative business model that has led to considerable growth and recognition. This business model includes cutting edge online technologies, new product development and strong future growth potential.