Cazoo switches from brand to performance marketing

Cazoo has decided to “lower” its brand marketing spend to focus on performance channels, as the online car retailer embarks on a “business realignment” programme.

On a mission to “de-risk the path to profitability”, Cazoo intends to cut around 15% of its employees – equivalent to 750 jobs across the company – and slow the pace of new hiring. The plan also includes “modifying” the consumer proposition to drive costs down and improve operating efficiencies, as well as limiting the company’s expenditure capital and delaying several planned investment projects.

Cazoo is seeking “procurement efficiencies” across the supply chain, amid plans to slow near-term growth aspirations in both the UK and EU to focus on “profitable growth”. This means the business is axing its subscription service for new customers from the end of June, given the “highly cash consumptive nature of this business model”.

This perfect storm has placed cash conservation top of mind for the company, ahead of growth.

Alex Chesterman, Cazoo

The goal is to “right-size” the business and deliver more than £200m in savings during the next 18 months.

Despite having sold more than 70,000 cars over the past two and a half years and generated revenue in excess of £665m in 2021, Cazoo says the “rapid shift” in the global economy and the possibility of a recession mean it is “now more uncertain” about expectations for the full year.

Founder and CEO Alex Chesterman identifies inflation and interest rates, combined with rising supply chain issues caused by the pandemic and the war in Ukraine, as having driven up the cost of living and impacted consumer confidence.

“This perfect storm has placed cash conservation top of mind for the company, ahead of growth,” he states.

“We have proven that we can buy and sell cars at scale and deliver a market-leading customer experience, but in the current climate we are focused on improving our unit economics which involves making some tough but necessary decisions around our priorities.”

Media mix

At the beginning of 2020, Cazoo kicked off a multimillion-pound marketing investment spanning TV, radio, outdoor and online.

Since then, the startup has added a series of high-profile sponsorships, including becoming shirt sponsor of Premier League football teams Aston Villa and Everton. The sponsorship strategy expanded to include deals with cricket competition The Hundred, a tie-up with Professional Darts Corporation (PDC) tournaments and a partnership with French football club Marseille signed in March.

The online car retailer was chasing an international expansion, with a view to disrupting the $700bn (£506bn) European used car market. To achieve that aim, the focus thus far has been on investing in the brand for the long term and performance marketing to drive short-term sales.

Speaking to Marketing Week last year, chief customer officer Darren Bentley insisted investing in brand makes everything else “much more efficient”, as it drives trust, awareness, reach and credibility. He argued brand investment makes performance marketing more efficient, SEO easier and drives long-term customer acquisition.

Growth Hacks: Cazoo on the importance of nailing the marketing mix

Bentley claimed Cazoo was reaping the rewards of a brand building strategy spanning TV, press, radio, out-of-home and sponsorship. He noted the business had achieved 70% prompted brand awareness despite being on TV for less than two years. At the time, he explained a combination of organic and brand-driven channels – including PR, word of mouth referrals, SEO, search traffic – accounted for more than 50% of customer acquisition.

“We’re less than two years into trading and I’ve got a marketing and customer acquisition mix that looks like a business that’s been trading for 50 years. We’ve been able to do that because we’ve set out to do that from the start,” said Bentley.

The mistake many startups make, he argued, is becoming “overly dependent on performance marketing and digital-driven customer acquisition early on”, because such channels are cheap and easy to measure. Bentley claimed startups that don’t get onto brand building “quick enough” tend to “cap out in growth”, because performance marketing can only take you so far.

Furthermore, the Cazoo marketing boss argued that if a business model does not accommodate the flawed cost of building a brand it is and will end up slowing growth. At the time he urged brands to build their marketing mix around the budget and size of audience, opting for a blend of short and long-term activity.