Cloud Theory’s Inventory Efficiency Index score, which measures whether a make or model is getting its fair market share given its inventory share, is a great one-number indicator of strength, balance, or inequity. If an OEM has a 10% share of the supply nationally or in a given geography, then one could assume that it would—all things being equal—also have a 10% market share (and therefore have an index score of 100).
However, all things are not always equal, and when market share falls below inventory share, there are tangible and quantifiable real-world financial consequences and opportunities for a manufacturer.
Take the case of Cadillac, for example. In the last 90 days, that brand has an inventory share of 9.9% (among 12 luxury brands) on a national basis. Its market share, however, is 8.8%. As a result, its Inventory Efficiency Index score is 89. This is in contrast to the 90 days prior, when both share figures were at 9.3%, and its index score was therefore at the 100 benchmark.
In the most recent 90 days, Cadillac moved 41,815 vehicles. But if its market share had stayed in equilibrium with its inventory share, it would have moved 5,227 more. At roughly $60,000 per vehicle sold, this equates to an inefficiency hit of $314 million across the General Motors ecosystem over that period.
The beauty of the complete and comprehensive (and real-time) nature of the Cloud Theory data is that we know which models and geographies are causing that shortfall. The Inventory Efficiency Index metric is very flexible and versatile and can be applied at the model-within-segment level, as well as at the state (or DMA or custom geography) level, which reveals the main contributors.
In the case of models, five Cadillac vehicles—led by the XT6 in the Luxury Full-Size SUV segment—are driving the brand's current inefficiency opportunities. In contrast, market shares for models such as the LYRIQ and Escalade are meeting or exceeding their inventory positions within their respective competitive sets.
At the state level, Florida and New York contribute the most to the inefficiency shortfall, with California, Illinois, and Virginia rounding out the top five. It is noted that larger states such as Texas, Michigan, North Carolina, and Washington are “green,” indicating that market share is at or exceeding inventory share, and there is, therefore, no shortfall indicated.
As John Wanamaker—an early pioneer in the field of marketing—once famously said,“Half the money I spend on advertising is wasted; the trouble is, I don’t know which half,” a sentiment that persists even today.
With detailed data and insights like these, manufacturers like General Motors can make competitively contextual support decisions about brands like Cadillac. Marketing (and incentive) allocations can be tailored to support models and geographies that need more help and that will drive the most bang for the buck, and ones that don’t need it can fund those allocations.
In other words, wasteful spending that is subsidizing purchases that would have occurred anyway can be significantly reduced, if not entirely eliminated.