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I'm a partner in the advanced analytics group at Bain & Company, the global management consulting firm. My primary focus is on marketing analytics (bio). I've been writing here (views my own) about marketing, technology, e-business, and analytics since 2003 (blog name explained).

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July 31, 2009

Clunkalytics

This afternoon I listened to an NPR segment on the government's "Cash for Clunkers" program.  It sounds like quite the  goat rodeo.  

A senior researcher at JD Power & Associates in Detroit interviewed for the segment noted that although the program provided incentives sufficient to fund sales of 250,000 cars ($1Bn in incentives at ~$4k/car traded in / retired), his firm's estimates are that only 40,000 sales will be incremental (over and above) what would have otherwise have been sold anyway.  Hmm.  If they're right, a billion dollars to lift sales by 40k cars.  That's $25k for each new, fuel-efficient car sold!  (In fairness, that's actually a lot less porky than a lot of things we hear about.)

Would the government have done better to simply buy 40,000 cars, perhaps for a little less than $25k apiece?  Then it could have run a contest where Americans could enter their most egregious gas guzzlers (via online video, natch) in the hope of winning a replacement, which would have been more fun, and bought the government lots more -- and more positive -- coverage of the program (perhaps giving a whole new meaning to "cap and trade").  

Of course this ignores the benefit of getting the other ~200k gas guzzlers off the road.  But treated as an independent objective, surely there would have been a better mechanism for encouraging drivers who were going to buy anyway to buy north of 20 MPG?

Cynically, one might say that the real beneficiaries of this program aren't auto workers, but the dealers whose glutted lots get cleared (especially since the program can be used to buy "foreign" as well as "domestic" cars -- ironically the folks interviewed on NPR sounded a common refrain: "Trading in my old GMC / Ford for a new Toyota pickup!").  It's hard to believe that under current conditions the dealers will order replacement inventories from the plants sufficient to replace what they sold.  

It's easy to understand why this program was so popular in Congress, since there are dealers in every state.  But if you wanted to make the most of a billion dollar stimulus for the present and the future of the nation, would putting it into the pockets of auto salesmen nationwide have been the best way to go? (It's a serious question, since dealers are often at the center of their communities and do spread a lot of money around, so maybe the multiplier is significant.)

Notwithstanding, I'm not coming at this from an ideological position.  I get the need for a stimulus to ameliorate the recession.  I'm thinking about this in the context of other retail promotion programs we see, many of which have the same inefficient dynamics -- subsidizing sales that would have happened anyway, motivating sales of the wrong products, and making the channel happy for a little while rather than encouraging more lasting customer loyalty.  And since "you manage what you measure", I'm also thinking about how I might have set up an analytic framework to execute the program more effectively.

There is a web site for this program (FWIW, it's using Google Analytics).  To measure how well the program attracts possible customers, perhaps the government could have channeled prospective users of the program through it, to gather information (e.g., pre-existing purchase intent, perhaps in combination with data from a BT network) in exchange for the "coupon".  To measure engagement and conversion, surely -- I can imagine a number of options -- consumers could have been tracked through to dealers.

Then, providing open access to the data and crowd-sourcing suggestions for improving the program would have been cool, and good practice for aspiring web analytics professionals (free job training in a growth category!).  Sadly, but more likely, we'd be filing FOIA requests.  Oh well.

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