The Steps to “Auto Aftermarket”

1. The Steps to “Auto Aftermarket” An example of how ad spending estimates in Borrell Associates’ Compass service are derived

2. The calculations and assumptions used to develop the estimates shown in Compass and other Borrell Associates data products have been under development for more than 30 years. We constantly work to improve their utility and quality. What follows is a generalized diagram of this process – the steps necessary to convert a body of disparate data into the estimates you use and depend upon – for a specific advertiser category: 553 (Auto Parts Retailers). Sidebar: How are the Borrell Associates ad categories selected? The central purpose of Borrell Associates’ data products is to measure locally generated, locally spent marketing dollars. The 100 categories chosen total – between them – more than 90 percent of local totals in the U.S. markets we measure. However, Borrell Associates measures all marketing spending. At a customer’s request, we can include any advertiser category.

3. Step 1: IRS and D&B Data Link • The IRS compiles and distributes detailed reports covering the tax filings of U.S. businesses. • Borrell Associates takes these data and segregates them by business category (SIC/NAICS). • The ad spending of the segregated data is compared by employee size/asset level index. • The index is compared to D&B employee size/revenue data at the national level. In this case, the IRS data combine auto dealers and auto aftermarket. However, detailed estimates on the former are available from several secondary sources (NADA, NIADA). It is relatively easy to back the auto aftermarket total from the sum. Bonus! The differences between ad spending by size of business are direct inputs to our ad spending cycle analysis – the basis for Borrell Associates’ SMB work.

4. Step 2: Ad Spending Detail • Using the IRS/D&B data produces a total spending estimate by Employee size cohort. Specific secondary data must be drawn to provide spending by media choice: • Several sources are available. AAIA (Auto Aftermarket Industry Association) estimates have proved valuable, as have several surveys of small business during the past 10-12 years. • Distribution of SIC Group 553 data also depends on demand for auto aftermarket retail at the county level, indexed to U.S. averages. Necessary information is available from a number of sources. A total of at least three separate sources are used for each SIC group. SIC Group 553 currently uses four. • Distributed estimates must also be weighted for “media absorption” – that is, the indexed use of specific media at the county level.

5. Step 2: Ad Spending Detail, continued … The result of these steps is a spending estimate for each of the nation’s 24 million business locations – as defined by Borrell Associates’ principal business data provider, Dun & Bradstreet. These individual estimates will be put aside – for now. They will become useful later in the process. Finally, the totals from this step will be summed by media choice to create a national estimate.

6. Step 3: Consolidation Until now, the separate employee-size-cohort estimates for SIC 553 have been summed to create a single combined estimate, due solely to the storage/computation limitations of the Microsoft platform. In the near future, the increased capacity of Borrell Associates’ new SQL platform will remove the necessity for this step, allowing separate employee-size-cohort estimates for every ad category analyzed. Upgrade Elimination of this step will make local estimates more accurate, and provide added information for our clients and their customers.

7. Step 4: The National Estimates • The SIC Group 553 estimates become part of a national estimate of ad spending. • This estimate, in turn, is compared to a second – separately drawn – estimate of media receipts. This second estimate relies on SEC filings and secondary data from a number of media associations (NAA, RAB, TVB, etc.), as well as D&B listings. • If both compilations are sufficiently accurate, the totals for both should be in rough agreement (within 3 to 5 percent). • If this threshold is not met, more data analysis is performed until they do agree. Basic Assumption At the national level, marketing receipts equal marketing expenditures. Advertising is a zero sum game.

8. Step 5: Distribution • The work through Step 4 has created a national estimate of ad spending. This estimate must be distributed to each U.S. county, using a number of demographic variables. • The estimates are distributed by media choice. • They are also distributed by SIC group, according to business counts by county.

9. Step 6: Replacement If actual information about a media spending category or media outlet is known, the calculated estimates are replaced in this Step by the actual data. Right now, about 15 percent of calculated estimates are replaced. Currently, no SIC Group 553 replacements are made.

10. Step 7: Recalculation If replacements are made in Step 6, the U.S. estimates will no longer foot to the originally calculated national totals (Step 3). So, estimates not replaced must be indexed and recalculated to once again achieve that total.

11. Step 8: Comparison • At this stage, the estimates reflect total marketing spending directed to a market/county … irrespective of its origination. The most important part of the process must divide this total into two parts: • Ad spending directed to the market from outside its boundaries, and • Ad spending originating in and spent in the market measured. Important! Correct identification of the market measured is crucial to accurate Borrell Associates estimates. The inclusion or exclusion of a county usually makes the difference between an accurate market picture and one that does not make sense.

12. Step 8: Comparison, continued … • Going back to the original database, which contains more than 24 million business location listings by location and SIC group, listings for the market to be measured for SIC Group 553 are extracted. • Spending by media choice for these listings is calculated. • The totals are compared to the distributed estimates. • Let’s do the math …

13. The Math According to the detailed database (Step 2), a market has 160 auto supply stores, with 340 employees. These stores spend an estimated $96,200 on ads in “Other Publications.” According to the distributed national estimate (Steps 5-7), $90,100 is spent on ads in “Other Publications” for auto supply stores. 96,200 – 90,100 = 6,100 So $6,100 is ad spending directed to this market from somewhere else – the next county or a national ad campaign. It will become the final estimate’s national total for this SIC Group and media choice. Expand this simple example by 100 media categories, 3,400 counties, and 27 separate data points for each listing. That’s 91.8 million records calculated and updated quarterly. And that’s not all …

14. Forecasts Since Borrell Associates data are “per employee” based, we are able to use the brilliant and detailed forecasts from the Bureau of Labor Statistics as the foundation for our own work. BLS data enable Borrell Associates to look ahead to future employee counts by industry group (SIC/NAICS). When these are “mapped” to D&B market data, reliable, granular forecasts of future employee levels – and therefore, ad spending levels – can be derived.

15. In closing … • We’ve covered a lot of information here, but these concepts should stand out: • The Borrell Associates model uses an enormous amount of secondary information. • It relies on detailed data from the Federal Government. • It is constantly improved and upgraded. • It depends on a simple, robust set of assumptions. • Since its introduction in the mid ‘90’s, thousands of media companies have successfully used these data to measure and meet their markets. • Please let us know about your specific questions.