How GM Made Us All Feel Like Family
Steve Hill started with his pals. Then he had a brainstorm: Why not give his discount to all of America?
(Business 2.0) – General Motors director of retail marketing Steve Hill has always done his best to get his friends into GM cars. Last year, for instance, he gave his employee ID number to a Lexus-driving golf buddy, who used it to score a sweet deal on a Cadillac Escalade. "Every time I gave out my employee number, people came back and said, 'Boy, what a great retail experience,'" Hill recalls. It was this insight that led to the most successful promotion in automotive industry history.
Of course, GM has long been desperate to sell cars. But last spring it was really desperate. The company had lost big money in the previous quarter, and its vehicles weren't moving off lots fast enough to make room for next year's models. That was especially worrisome because GM planned to reduce sticker prices on its 2006 lineup in hopes of shedding a reputation for being too expensive. "We needed an aggressive cleanup program," Hill says.
So on May 5, Hill met with three of GM's top sales and marketing execs in Detroit. At the meeting, he conveyed the way friends reacted to his kindness. "What if we made employee pricing our nationwide cleanup program?" he asked. His colleagues were skeptical, afraid that employee discounts might be difficult to explain in advertising. But when Hill presented the plan at a conference, a prominent dealer from Minnesota said it was such a good idea, he was sorry he hadn't thought of it. After CEO Rick Wagoner signed off, GM's ad agency, McCann Erickson, coined a crystal-clear tagline: "You pay what we pay. Not a cent more."
Thanks to "Employee Discount for Everyone," GM sales increased in June by 41 percent and in July by 20 percent over the same periods in 2004, prompting competitors Ford and DaimlerChrysler to offer copycat promotions. (July was the U.S. auto industry's best-selling month ever.) By mid-August, GM had reduced its inventory from 1.2 million cars to 700,000--32 percent below the company's five-year historical average and the lowest level since July 1998, when a strike halted production. Even better, since GM typically offers summer discounts anyway, its overall incentives in July were up only 0.2 percent--or $9 per vehicle--according to a report by Merrill Lynch. "From a morale and inventory viewpoint," says Mike Chung, an analyst at Edmonds.com, "GM's employee pricing campaign has been a rousing success."
Of course, the reason GM was saddled with so much inventory in the first place was that its cars sold so poorly before the promotion. In fact, despite the recent tear, GM's year-to-date market share at the end of July stood at 27.5 percent--just 0.1 percentage point higher than for the same period a year before. Nevertheless, Hill believes that the employee discount campaign will have long-lasting branding benefits. "Customers are looking at us as a vibrant company now," he says. You probably have to be a real GM employee to buy that--the company's August sales were down 16 percent, suggesting a more difficult road ahead--but with more reasonably priced models reportedly on the way, perhaps Hill will one day be able to leave his employee number at home when he hits the links. -- SIRI SCHUBERT