Steve Evans is CEO of Autohit plc, a leading UK-based automotive e-business company and online retailer working with franchise and non-franchised dealers throughout the country. Here, Steve describes the status of Internet selling in the vehicle marketplace and the strategic challenges facing dealers, online retailers and vehicle manufacturers.
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Two years ago Datamonitor’s automotive analyst, Michael Wood, expounded the belief that “there will be major changes in the buying of new cars in the future. The online revolution will shape the retail market, causing significant evolution of the present network, although it will not eradicate bricks and mortar dealerships.”
What he failed to mention, and what most observers failed to anticipate, was how the paradigm shift to the consumer centric marketplace would actually impact the entire auto-ecosystem.
Today, on a global scale, manufacturers are grappling with the transition pain of moving away from an historic legacy ‘push’ distribution channel to a shorter and more reactive consumer driven ‘pull’ model. And whilst the Internet revolution cannot be held entirely responsible, it has certainly served as the catalyst for change. Ironically, and for manufacturers and dealers alike, it also holds the key to future profitability and consumer stability in a volatile market.
Consumers have already won the battle in the online communication environment. They are now armed with information and choice. Knowledge has become power and for the traditional motor dealer the consumers’ free access to information has reduced their capacity to act as a one-stop shop for all things involving the purchase and maintenance of the car.
“Consumers have already won the battle in the online communication environment.“ |
But this is not simply a UK phenomenon. Consumers in all geographic markets are now increasingly looking to manage the acquisition of new and used cars by employing the Internet to side step the existing manufacturer controlled distribution channels. In all geographical markets this increasing acceptance of technology by retail consumers has permitted an accidental ‘disintermediation’ of the current supply chain.
And the changes of the last two years are accidental because as a recent survey conducted by market intelligence specialists, CarPriceCheck.com illustrated, the traditional dealer still retains an unrivalled role in the car buying process with 76% of all Internet sourced sales being directed through them.
Change, however, is evolutionary and the same survey revealed that 44% of the buying public intimated that they would buy their next car online. And of that number 27% would opt for the direct manufacturer route – a certifiable signal of intent and probably welcome news for the manufacturer.
In the UK, the existence of cybermediaries, Internet Importers and brand champions (now intent on migrating their brand to car retailing), has been of concern to manufacturers and dealers for over twelve months. The ripples of disturbance caused to the traditional distribution channel as a result of the marketing efforts of these ‘hostile intruders’ are clear for all to see.
These virtual organisations, many of which are substantial blue chip organisations, already have the momentum and capacity to re-invent the existing automotive distribution channel ahead of the manufacturer and any changes that may come about with the renewal of Block Exemption in Europe.
Without doubt, the key attraction for the consumer arising from the marketing activities of these organisations is the ability to access better pricing without negotiation, the opportunity to avoid the pressure of dealing with a conventional dealer and the ability to research every aspect of the purchase of a new or used vehicle without being visible to, or influenced by, the manufacturer or dealer.
The inevitable consequence is an irreversible change within the automotive landscape.
Manufacturers have already committed significant energy and resource to the use of technology to drive down the inefficiencies of car production and are committed to improve the communication throughout the upstream part of the supply chain. The initiatives and collaborations arising from the Covisint vertical trading platform and Trade Xchange and Auto Xchange demonstrate the resolve of the automotive industry to work co-operatively to recognise their respective market positions as global players.
But to date, at the other end of the supply chain – the national product distribution link – little progress has been made. The implementation of technology has served merely as an extension of the existing marketing message and failed to react to the shift towards the pull dynamic offered by the use of Internet technology or the threat of enhanced consumer access. Manufacturers are effectively seeing their own brands diluted by an inability to react properly to consumers.
“Manufacturers are effectively seeing their own brands diluted by an inability to react properly to consumers.“ |
In the light of more compelling competitive propositions from intruders, like Autobytel, CarsDirect and Virgin, manufacturers have largely failed to secure consumer commitment and ultimately to grasp the opportunity to control consumer acquisition and influence buying patterns, at far lower cost than has ever been possible.
In two years time, 65 million households across Europe will have access to the web either via PC or digital television. Although the implications of this are great, the irony is that at lower numbers opportunities are being missed even today. Of the vast numbers currently using the Internet to research all things automotive, manufacturer web sites are guaranteed 53% of all the traffic simply because of their brand. But for the manufacturer – and indeed for the consumer – the existing dealer network remains a crucial ingredient. In the current ecosystem, however, the dealer role has become critical, rather than crucial.
The right response to an enquiry received by the manufacturer can win or lose a sale. Unfortunately, the vast majority of traditional dealers have a tendency to respond to the Digital Car Buyer (DCB) according to their agenda and not the consumers. As Paul Burrows of Grant Thornton warns: “They are simply tripping over the natural advantage they have.”
The figures for lost business online are staggering. Back in November 1999, specialist market research house, Datamonitor, placed a $3.6bn loss of business directly attributable to an endemic failure to serve – worryingly that figure relates to $10 CD’s and books.
For the DCB, there is a documented need to respond interactively, often outside of traditional working hours and in a way that supports the manufacturer brand and recognises and responds to the financial and emotional value of the digital enquiry and handles that enquiry as part of a documented, controlled, consistent and visible strategy. That is key to the manufacturer’s promise to the consumer.
How many times have we heard the statistic so often coined from US e-auto giants that response rates of less than 2 hours lead to a 90 plus percent conversion rate; leave it for 24 hours or more and bang…your chances of converting Mr Jones from Stratford Upon Avon falls to 2%. It may be a rather crude rule of thumb, but it is still a rule that continues to be ignored both stateside and in the evolving UK and European online car buying markets.
There are two issues now guiding the manufacturers approach to the threats and opportunities of the Internet.
In a few years time, there could be as few as six main brands controlling the automotive supply chain. And when that time arrives, the question of customer retention will overshadow that of the traditional conquest sale.
The industry spends a phenomenal $42bn per year on acquisition marketing, but, as one Volkswagen boss said recently: “It is going to be cheaper to retain a customer’s loyalty than to try and prise them away from a rival brand.” Such philosophy is actively demonstrated with the likes of GM’s Auto World at Disney and VW’s high-tech £300m pick-up point wonderland. The aim here is to ‘catch ’em young’ and build brand allegiance.
“customer retention will overshadow that of the traditional conquest sale.“ |
Then you add the mantra of CRM – Customer Relationship Management – or as Jac Nasser puts it: “Our aspiration is for all Ford employees to develop a ‘consumer headset’ – a real feeling for what people want today and in the future.”
The logic is simple. The customer becomes a consumer of all products and services under that manufacturer’s umbrella. In GM’s case that includes everything from motor insurance to a mortgage.
As Joe Dickinson, vice-president of AT Kearney (London) says: “CRM is all about accessing the customer and selling direct to them, rather than focusing on the car as a one-time sale.”
If you think about the real threat to the current distribution system as being measured, not in the relatively small and rapidly growing number of cars sold through the Internet, but in terms of the gross lifetime value of the consumer, then manufacturers and franchised dealers risk losing lifetime relationships with a value of over £10 billion in 2001 alone. It makes it easier to understand why the RAC are now focusing on developing personal motoring solutions, and are one of the latest organisations to announce a £20 million investment in IT and infrastructure developments, including a ‘Customer Centric Management’ programme. The competition is on for the entire lifetime relationship not just for the sale of a car. And we haven’t started to see the full penetrative and pervasive effect of the Internet across the consumer market place.
Whilst Forrester Research highlights the need for manufacturers to ‘guide’ visitors from early stage awareness to a consumer ready to purchase, something it calls “episodic marketing”, the real thrust will be the integration of proficient eCRM programmes like Autohit’s Automotive Manufacturer Solution (AMS), an interaction based prospect management solution for manufacturers to harness the benefits of technology with their dealers.
Through a series of structured and varied interactive experiences that substantiate decisions and guide consumers toward purchase, manufacturers and the representative dealer community can respond to the consumer pull dynamic, but above all they can create the lasting online relationships that everyone is craving for.
As Baba Shetty, senior analyst at Forrester Research comments: “Online car shoppers willingly offer up the most precious resource in the marketing world – focused consumer attention.”
Importantly, AMS programmes can also generate manufacturer intelligence to support and facilitate decisions on dealer pricing, discount strategies and marketing policy, each to specific individual needs. Above all it allows the manufacturer to define and implement the dealer communication strategy in a way, which avoids loading the dealer with incremental work or a need to acquire additional skills associated with Internet e-commerce.
In a market typified by squeezed margins on new car sales, the exponential growth of the Internet, and the emergence of knowledgeable Digital Car Buyers, the incentives for properly harnessed online marketing and eCRM-based solutions to succeed are absolutely enormous. Defensively, they give manufacturers and dealers the opportunity to protect their market share from emerging intruders, but above all, it allows the basis for a more cost effective and profitable lifetime relationship.
At the moment though one thing is clear; the automotive industry is woefully under-utilising the combined potential of the Internet with Customer Relationship Management technology as a means to capture and retain market share. Both Cap Gemini and AT Kearney appear to share this view and with over two years consumer facing automotive Internet retail experience, I’d probably agree.
“the commercial focus from most manufacturers is currently on fixing the problems of today and not dealing with the potential for tomorrow.“ |
Logically it would be wrong to imagine that manufacturers will not eventually get there. Together with their franchised dealer network, they have the capacity to define and re-tool the emerging distribution channel with the same clarity as they engineered their historic legacy distribution systems. The tools, solutions and expertise to do so are available today.
But I suspect that the commercial focus from most manufacturers is currently on fixing the problems of today and not dealing with the potential for tomorrow. Initiatives aimed at equipping the dealer network with web sites are an important part of the solution. But they aren’t the entire solution and they won’t allow a dealer to handle an enquiry any more successfully than he handles an enquiry today.
The long-term solution lies in three inter-related steps.
The first is harnessing an intelligent technology-based solution that exploits properly the significant volumes of traffic generated by all manufacturer web sites. The second is in empowering, educating and automating the dealer interaction processes in a manner consistent with always generating the optimum consumer response. And the third is continuing to evolve the technology-based solution to retain and protect the consumer relationship and extend the brand experience for the consumer.
All of those things are deliverable and they are all deliverable today. Until such time as they are adopted throughout the manufacturer franchised supply chain, the hostile intruders will continue to increase their market penetration.
Figure 1: Current Market Positions | |
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Figure 2: Existing channel process | |
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Figure 3: AMS defined process | |
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Figure 4: Developing the consumer relationship | |
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Figure 5: AMS – enables the automotive manufacturer to manage the consumer | |
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For further details on Autohit plc please contact Steve Evans at sae@autohit.com
Autohit plc is the UK’s leading automotive ebusiness company providing a range of on-line services and solutions for dealers and manufacturers in the UK. The company is responsible for interactive consumer motoring site www.autohit.com, a dealer centric community and commerce platform, DealerWeb (www.autohit.com/dealerweb), impartial online price navigator Car Price Check (www.carpricecheck.com) and a host of plug-in CRM solutions. The company was founded in 1998 and is chaired by Lord Young of Graftham PC.
To view related research reports, please follow the links below:- Automotive b2b – Strategic threats and opportunities in the automotive supply chain |
