Could Auto Dealers Benefit from Vertical Media Platforms’ Encroachment?

Generating sales leads for auto dealers is the core business to auto vertical media platforms (VMPs). However, in recent years, many auto VMPs have started directly selling vehicles to consumers. Anecdotal evidence suggests that the primary purpose of auto VMPs’ business-to-consumer (B2C) endeavors is not solely B2C profitability, but rather the acquisition of sales data to calculate the leads-to-sales conversion ratio. This ratio is crucial in determining the pricing strategy for sales leads. To understand this, we consider an asymmetric information game in which the auto dealer possesses information about the leads-to-sales conversion ratio, whereas the VMP does not. We find that, when the VMP solely focuses on profiting from the sales lead business, if the market potential is large, the auto dealer prefers the cost-per-lead scheme, whereas the VMP always tends to the cost-per-sale scheme. However, when the VMP encroaches on the consumer market as a reseller, this divergence in contract-type preference can potentially be resolved. We recognize that VMPs need to conduct a comprehensive assessment of factors such as market potential, fixed cost related to market encroachment, and the correlation between market uncertainty and leads-to-sales conversion ratio when encroachment. Moreover, the encroachment of the VMP has the potential to create a win–win outcome. It is essential to highlight that engaging in B2C business enables the VMP to expand its market sample, thereby enhancing the value of leveraging information technology to optimize the leads-to-sales ratio and achieve superior performance.