CASE STUDYEDMUND’S—WWW.EDMUNDS.

COM

John J. Sviokla Professor John J. Sviokla prepared

this case as the basis for class
discussion rather than to illustrate
f either effective or ineffective
handling of an administrative
situation.

Copyright © 1996 by the President

and Fellows of Harvard College. To
order copies or request permission
Peter Steinlauf and Michael Samet were considering their options to reproduce materials, call 1-800-
545-7685 or write Harvard Business
for the extension of their popular auto price guide web site
School Publishing, Boston, MA
www.edmunds.com. Their Internet site, begun in the Fall of 1994, 02163. No part of this publication
had grown from approximately 1,500 hits from 50 to 100 users a may be reproduced, stored in a
day, to more than 700,000 hits from at least 15,000 to 20,000 users retrieval system, used in a
a day. The exact growth rate was hard to keep track of, but in July spreadsheet, or transmitted in any
1996 volume was still increasing at more than 10% per week. The form or by any means— electronic,
Edmund’s site provided free web access for consumers to com- mechanical, photocopying,
prehensive automobile information including reviews, specifica- recording, or otherwise—without
the permission of Harvard Business
tions, equipment, and detailed manufacturer’s suggested retail
School.
price (MSRP) and dealer invoice prices.
By July of 1996, the site not only provided car price informa-
tion, but also referred the users to a car shopping service (Auto-
By-Tel), a national car insurance provider (GEICO), an extended
warranty company (Warranty Gold), and an auto-accessories cat-
alog (J. C. Whitney). With the current “traffic volume,” Steinlauf
and Samet were in a good position to consider other potential
sources of revenue. The two executives pondered exactly which
way to go.
Michael Samet, the president of Edmund’s and the designer of
the current interface, had spent more than twenty years creating
interfaces to display complex information to the decision-makers
of many research and military programs. Samet said, “It is clear to
me that all the work I have done in the area of information
processing and preference-data and all the other systems that I

Published by John Wiley & Sons, Inc. and

Direct Marketing Educational Foundation, Inc.
CCC 1094-9968/99/020004-12
f

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 EDMUND’S—WWW.EDMUNDS.COM

EXHIBIT 1
Edmund’s Internet hits and users per day

have designed for individuals trying to make that I can be in a strong position with my cus-
better decisions have influenced my current ef- tomers and my marketing partners. There are
forts here at our company.” Peter Steinlauf several important issues: (1) how far can we
added, “The critical issue is what’s the best way stretch this brand; (2) how many things can we
to extract value from this site. I’m interested in sell; and (3) how can we make it a rich experi-
building volume and building transactions so

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EXHIBIT 2
Edmund’s gender and age demographics (based on sample of 4,000 users)

ence for the customer while at the same time (120,000), and Used Car Prices & Ratings
not making it confusing. (250,000).
The entire philosophy of the Edmund’s Price
Guides was to give the consumer the most ac-
EDMUND’S—THE MARKETPLACE PRODUCT curate information to help make a better car
First published in 1966, Edmund’s Automobile buying decision. The print publication handled
Buyer’s Guides have achieved, over the years, very little advertising and worked hard to main-
substantial nationwide distribution in news- tain its independent stance and trusted image.
stands and the automotive section of most large In 1988, Peter Steinlauf, a successful West
book stores. By 1995, the company was selling a Coast entrepreneur, purchased Edmund’s from
total of about 500,000 units. The three main its founder. Steinlauf had made his first fortune
titles in the product line are New Car Prices & by starting an innovative billboard business that
Reviews (130,000), New Truck Prices & Reviews built and marketed eight-sheet billboards (e.g.,

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 EDMUND’S—WWW.EDMUNDS.COM

Automobile industry transformation issues

Adapted from Coopers & Lybrand, 1996.

EXHIBIT 3

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●

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Adapted from Coopers & Lybrand, 1996.

VOLUME 13 / NUMBER 2 / SPRING 1999

EXHIBIT 4
The future of automotive retailing: Used vehicle sourcing—Impact of leasing
 EDMUND’S—WWW.EDMUNDS.COM

Adapted from Coopers & Lybrand, 1996.

EXHIBIT 5
Franchised dealer profits breakdown

6312 feet) in the Los Angeles area. In 1986, der to meet the customers’ needs, more was
when Steinlauf felt that the value of billboard required. He noted,
properties was at its peak, he sold the company.
Turning his attention to putting his capital to All the consumer psychology literature will tell
work, he sought out businesses with solid mar- you that when people are making a buying
decision they need to know three things: (1)
ket positions and robust cash flow. The Ed-
What should I buy; (2) How much should I pay,
mund’s Price Guide fit these criteria. that is, what’s a good price?; and (3) Where can
In 1992, Steinlauf hired Samet, a PhD in I get it.
experimental psychology from Tufts University
who had worked and taught in the field of In order to get closer to answering these
applied behavioral science within government, customer needs, Samet added a number of in-
industry, and academia, as president. Among novations, including editorial content that
Samet’s accomplishments were over 30 articles rated each automobile with analyses of
on human judgment and decision making, and strengths and weaknesses, insurance costs,
he had served on the editorial board of the safety and reliability, described the car and its
Journal of Human Factors. Samet was also the characteristics, and listed the wholesale and re-
principal architect of the Interactive Learning tail selling price for the car and for each of the
Center at the Museum of Tolerance in Los An- options. This provided considerable informa-
geles— one of the largest interactive multime- tion—the current market value of a trade-in
dia systems in the world. vehicle as well as the dealer’s invoice pric-
Given his background, it was not surprising ing—to end-consumers before they went in to
that Samet began a series of innovations and buy a new or used car.
additions to the publication. When Steinlauf Samet also created an extensive index to
had purchased the publication, the book had make content easier to find no matter where
only price, equipment, and specification infor- consumers ”entered the book“ they could
mation—nothing more. Samet felt that, in or- quickly jump to the relevant information. In

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Adapted from Coopers & Lybrand, 1996.

EXHIBIT 6
Change in number and size of dealer outlets

short, he tried to provide consumers with all the overall publication was on the order of
additional things they need to have while mak- $1,000,000.
ing a decision about what car to purchase. In addition to increased editorial content
The economics of the book business were and improved indexing, Samet invested in the
attractive. It cost about $200,000 to update the creation of a CD-ROM version of the Edmund’s
buying guide yearly. The distributor took about book. The goal of the CD was to create a com-
$300,000, and the annual gross profit from the plete, interactive, multi-media car buying guide.

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CarMax estimates are based on Bernstein Research.

A typical CarMax store eclipses average dealership in both sales and profits.
CarMax net profit before taxes: overall sales ratio is significantly higher than typical dealership.
Adapted from Cooper and Lybrand 1996.

EXHIBIT 7
Superstore sourcing mix and comparison of dealer location and CarMax

After a consumer put in his or her decision together. Also, a CD-ROM with automobile
criteria such as price, type of car (e.g., sports, prices had a shorter shelf-life than a CD-ROM
434, mini van), options, and features, the sys- game. The computer stores were more inter-
tem gave a list of cars that most closely fit these ested in bigger volume items. It was a challenge
decision criteria. This was complete with pic- to make this project profitable.
tures, reviews, features and specifications, During this same time period, Samet began
prices, comparisons, etc. to experiment with distribution of the Ed-
The CD was a strong technical accomplish- mund’s content on the Internet. Starting in
ment, but it was challenging to get distribution. 1994, he put all the textual content of the books
As Peter Steinlauf put it, ”There are tens of on the Internet for anyone to review and down-
thousands of CD titles out there.“ The tradi- load on a Gopher server. In the Spring of 1995,
tional book distributors did not always want to Edmund’s launched its World Wide Web ver-
stock the traditional book and the CD-ROM sion of the site.

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CarMax data source: Bernstein Research, Oct. 1995.

Adapted from Coopers & Lybrand, 1996.

EXHIBIT 8
The new business model for used vehicle superstores

Like the Internet itself, the activity on the lication because I thought it was a good stable
web site grew fast and furiously. From site’s business. Michael really understood the Inter-
inception, it had grown rapidly. The number of net and put the publication up on the site.
identifiably unique users, was over 16,000 that Soon, it was a critical part of our business.
visited the site every day (see Exhibit 1), and
these people requested over 650,000 pages of
information (e.g. about 40 pages each on aver- WWW.EDMUNDS.COM—THE
age) see Exhibit 2. Samet felt that he was getting MARKETSPACE PRODUCT/SERVICE
about 20,000 users a day, because one Internet Although the content of the web site was very
address (IP) counted as one user. Therefore, all similar to the content of the book, the econom-
the users coming in through America Online ics were totally different. Whereas the book
might only be counted as 3 or 4 users. Both the business was driven by people buying the infor-
absolute number of users and the data they mation, the web business was driven by the in-
requested were growing rapidly. Samet com- formation being given away and Edmund’s re-
mented on consumer behavior. ceiving a finder’s fee for each customer it sent
Our people don’t come in every day. They
to seek out a product or service provided by
come in when they are in the market for a car. either a referral service or a retailer. The stra-
When they come, they spend a lot of time— tegic partner providing automobile referrals
sometimes hours. was Auto-By-Tel, a Los Angeles based service
started by Pete Ellis, who had previously owned
Peter Steinlauf described what a surprise the several automobile dealerships. On the Ed-
Internet success was to him: mund’s site, a serious buyer could fill out the
I wish I could say that I saw this whole Internet Auto-By-Tel form stating car make and model,
thing coming, but I did not. I bought the pub- options, description of trade-in, lease or buy,

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Soure: Edmund’s Publications, Prepared by Brian Kern 6/6/96

EXHIBIT 9
Requested index items by new and used vehicle
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and need for loan financing, etc. Edmund’s team was adamant about still accommodating
captured these data and shipped them to Auto- this low bandwidth audience.
By-Tel. Then from the Auto-By-Tel system, the
dealer nearest the customer who had the rele-
vant inventory of cars would call and begin the
sales process. The customer and the dealer were CURRENT ISSUES
responsible for cutting the deal. Auto-By-Tel
made its money by selling ”subscriptions“ to the
dealers for the Auto-By-Tel service. Every time a The Changing Nature of Auto Retailing.
customer filled out a full Auto-By-Tel for on By the mid 1990s a number of key features were
Edmund’s site, Edmund’s got a ”finders fee“ of affecting the automobile retailing industry,
several dollars regardless of whether or not the forcing it to become more consumer-focused
deal was consummated. and causing it to turn to technology to achieve
The consumer was also invited to consider this goal.
calling GEICO, a company that issued auto in- Cost pressures on new product development
surance. Unlike Auto-By-Tel, when the con- were high due to competitors’ speed to market,
sumer clicked on the GEICO logo, he or she but cost reduction possibilities in the manufac-
was given a description of GEICO and then turing realm were limited by inadequate or un-
given an 800 number to call to buy insurance. consolidated internal information. Efforts to re-
GEICO had experimented with putting the in- duce distribution costs were placing pressure on
surance application form on line, but found the dealership cost structure, typically heavily
that it was too long and cumbersome for cus- loaded by personnel costs (see Exhibit 3).
tomers to fill out. It was easier to refer them to A significant number of high quality used
a telephone sales/service person to walk them cars were in use, due to improved vehicle qual-
through the process. From GEICO, Edmund’s ity extending the life of older cars, and the
received several dollars for each follow-up call. increasing popularity of short term leases (2-3
By July, Edmund’s was processing thousands of years) providing a growing supply of off-lease
referrals for GEICO, which Steinlauf estimated vehicles (see Exhibit 4). This increase in the
as representing a meaningful part of GEICO’s off-lease supply of vehicles was creating a new
new business. product category competing with new car sales,
lowering dealership service and parts through-
put, and shifting the balance of gross profit per
EDMUND’S RIGOROUS DESIGN CONCEPTS vehicle type (see Exhibit 5).
Michael Samet had consciously created a site Low margins and high distribution costs had
that was easy to access over telecommunications encouraged concentration and consolidation of
lines that were very low quality and very low dealerships, squeezing out the ”mom & pop’s
band-width so that if people came to Edmund’s and shifting to a wholesale retail format focused
site accessing the World Wide Web over a mo- on customer convenience. The result of this
dem as slow as 9600 baud, they would still have trend was the development of the used car me-
a very good information-gathering experience. gastore, focused on providing broad access to
While many sites on the web were focusing on good quality used cars in a convenient and cost-
creating fancy graphics, Edmund’s focused on effective manner. Exhibit 6 shows the shrinking
content. This flew in the face of many of the number of dealer outlets and their increasing
designs on the Internet with the possible excep- size. Exhibit 7 shows the sourcing of the vehicles
tion of the Yahoo site, which also was designed for the megastores and their basic economics.
for a low bandwidth access. Given the fact that Exhibit 8 shows the typical profit and volume
the majority of the people using the World for different kinds of car dealers.
Wide Web in July 1996 were still accessing it at In addition, technology was significantly ef-
14,400 baud or less, the Edmund’s management fective the following areas:

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● Brand management—through the use of of the major automobile parts and accessory
image technology to inform, educate, and distributors in the United States. The concept
entertain. was to promote the sale of selected J. C. Whitney
● Customer emphasis—through the provi- catalog items to Edmund’s users while they were
sion of fast, convenient, and tailorable ac- viewing information on specific automobile
cess to a vast source of information, and makes and models that could benefit from
the analysis of point of sale data for im- those items. Edmund’s put up an on-line ques-
proved customer understanding. tionnaire for J. C. Whitney to find out which
● Logistics and distribution cost control—
types of items users would be interested in
learning about and ordering. The results, ob-
through the provision of information
tained from more than 15,000 users who filled
about vehicles, rather than the vehicles
out the form during a period of a few months,
themselves, thus facilitating lower invento-
are displayed in Exhibit 9.
ries.

Product Line Decisions

Edmund’s was facing a number of interesting
dilemmas and management questions. First of THE ISSUE
all was the product-line question. During the The critical issue at the end of May 1996 for
month of March 1996 alone, Edmund’s had Samet and for Steinlauf was the creation of the
had over 10,000 people fill out the Auto Buy Tel ancillary services. How far could the brand be
form and the GEICO business was growing rap- extended? How could they be sure to improve
idly. the site to make it the best possible experience
Edmund’s was also experimenting with a for their end-customer? How quickly did they
marketing partnership with J. C. Whitney, one need to move to be at a competitive advantage?

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