How to reconnect OEMs with their customers

Many OEMs find themselves trapped in traditional retail structures. Jan-Philipp Hasenberg, Principal, and Philipp Grosse Kleimann, Partner, in Roland Berger Strategy Consultants' Automotive Competence Center, outline how OEMs can offer their customers a multichannel experience

Buying a car could be so much fun, if it didn’t fill people with dread. In recent years, the shopping environment and customer needs have drifted farther apart in the automotive business than in any other industry. Worse, customers perceive buying a car, for which they spend more than a year’s salary, as an unpleasant duty instead of an exciting experience – a bizarre paradox in a buyer’s market.

Millennials, who are as comfortable interacting with devices as they are with people, unfortunately find the traditional car buying process a nuisance and associate the sales experience with negative attributes such as physical pain. Microsoft/Wakefield research revealed that 70% view dealers more as an obstacle to a fair and transparent transaction than a help, while 67% believe buying a car is one of the most intimidating purchases a person can make. At 56%, more than half even feel that negotiating with a salesman is as pleasant as a trip to the dentist. The consequences for automotive players: third party providers like TrueCar and AutoNation (US) as well as meinauto.de (Germany) and Aramisauto (France) benefit from the low appeal of traditional sales channels to younger car buyers. The four retailers have adapted their business model to these new patterns of behaviour. Customers can purchase a car that is tailored to their exact requirements conveniently from their own home with complete price transparency at any time of the day.

 

What matters to todays car buyers
Source: AutoScout 24 “Autokauf in der Zukunft” (2015); Autotrader “Car Buyer of the future” (2015); Capgemini “Cars Online” (2014)

Whether it is moving from offline to online channels, from stationary to mobile showrooms or from tangible to virtual customer experiences, the winds of change are disrupting the automotive retail industry. Fully integrated multichannel operations (e.g. BMW i, Tesla) and enhanced customer interaction centers (e.g. Fiat Live Store in Brazil) may still be scarce for now, but quite a few players are rolling out new retail formats (e.g. BMW Brand Experience Center in Shanghai, Audi City in London, Mercedes me Store in Hamburg) and setting up their own online sales activities (e.g. Mercedes in Germany and Poland, BMW i in many markets, Dacia in Italy, UK, Netherlands). Modelled on Apple’s soft-sell retail stores, BMW introduced the ‘Product Genius’ – customer service personnel that do not work on provision and consequently are not incentivised to sell but to satisfy customers. This approach is also followed by other OEMs, such as the ‘Product Concierge’ at Mercedes-Benz or Hyundai Rockar’s ‘Angels’.

Fiat live store
Fully integrated multichannel operations (e.g. BMW i, Tesla) and enhanced customer interaction centers (e.g. Fiat Live Store in Brazil) are on the rise

In our experience, there are concrete reasons that explain why the process of retail innovation is more evolutionary rather than revolutionary. Path dependencies increase structural inertia within the retail organisation and prevent true innovations from spreading. A comprehensive multichannel approach would, for example, require a closer collaboration between marketing, sales and aftersales, as well as a redistribution of power between wholesale and retail operations, all of which is difficult to implement. This is why “greenfield” solutions with no legacy systems in place (e.g. BMW i and Tesla) allow for more progressive solutions. As a consequence, many initiatives of established OEMs remain in an experimental phase or are decentralised activities driven by the markets. Their focus often lies on digital sales and digitisation of the point of sale, whereas the actual goal should be to increase the overall efficiency and effectiveness of the entire retail process (e.g. reducing investment requirements in facilities, improving conversion and loyalty rates). In many cases, this leads to fragmented sales activities. Often the cost structure behind the innovations is neglected and a comprehensive vision of how the multichannel landscape will look in the end is lacking.

Some premium OEMs are drawing important lessons by looking at other business sectors for inspiration. Having started early, they are at the forefront of multichannel retail within the industry. Premium OEMs have the advantage of financial leeway to undertake comprehensive experiments. The volume OEMs operate within tight margin structures, and thus have resources that by comparison are far more limited. Priorities differ, too: while brand experience is the focus for premium manufacturers, maintaining an affordable sales network is the most important aspect for the activities of volume manufacturers.

Customer journeys along new retail formats
Source: Roland Berger

After conducting extensive research into retail innovations and best practices found in other industries, we can suggest many useful ideas that would help position manufacturers for the next developmental stage in automotive retail. Our proposals are flexible enough to enable an evolutionary multichannel approach for both premium and volume segments.

1. Be open about exploring the right formats – but in the end choose a manageable portfolio

Audi City London
Audi City London

We have compiled a library of interesting formats for retail innovation, which can address various targets – but not all can be met at once. For example, stationary formats like brand stores increase brand accessibility and exposure and support the premium brand experience. Differentiated, yet complementary stationary formats, such as inner-city sales outlets, offer a different approach: they help to bridge white spots in the network.

It may also be necessary to redefine the role of the dealer network if OEMs do not consider a transition to direct sales. Automotive dealers have a unique position within the traditional sales process. Instead of circumventing them by offering direct purchases from the OEM, e.g. via the Internet, they should be integrated into a multichannel model. A first online sales experience may even exclude the transaction itself. OEMs could allow buyers to make most choices along the way online – including model configuration, test-drive booking, trade-in evaluation and credit check. For the final price negotiation and contract closure, the customer may then be handed over to a branch office or dealer. Moreover, after sales and service are key tools for an OEM to maintain customer loyalty, so dealers remain an essential part of the equation.

2. Base your multichannel concept on the customer journey – but focus on connections and governance

Implementing new retail formats alone will not be enough to capitalise on the benefits of a multichannel retail approach. The new landscape has to enable a seamless customer journey. Implementing stable, systematic linkages between the various formats and adapting the governance system to new technological developments are key to success, but often ignored by practitioners as they are less visible than new stores or digital touch points.

In order to avoid creating multiple silos, all formats must be interconnected in an intelligent way. This is a prerequisite for actively guiding customers to the next step across various formats (i.e. from configuration to test drive). This necessitates generating and distributing consistent data at all touch points linked to the customer. This is a true challenge for OEMs because it entails changing one’s perspective on the ownership of customer data between manufacturer and dealer, and it requires specific competencies in analytics and customer handling. One other crucial factor: it involves employing new technologies.

BMW Brand Experience Center in Shanghai
BMW Brand Experience Center in Shanghai

It is also important to ensure that multichannel activities work as an integrated system. Therefore, the overall issue of governance must be revisited, including processes, organisational structure and for example also a realignment of dealer compensation. Today, only the dealership that successfully concludes the contract receives the full remuneration (“the winner takes it all”). This is not really a problem in today’s world as only standard dealerships with comparable ranges of services compete with each other. However, in a multichannel environment this may change. Retail formats are then set up to fulfill specific and complementary services along the customer journey and may sometimes even not include a sales functionality. Brand or pop-up stores may only be directed to lead-generation and not cover contract conclusion. Test drive centers will be focused on a very specific step in the purchase experience. How can they be remunerated for their contribution to the overall sales success in a way that allows for profitable individual business cases? We recommend a more differentiated approach. In the future, formats should be provisioned for the service they have offered (e.g. test drive or consultation) when they contribute to a successful sale of a car or service – no matter in which format the customer finally concludes the contract.

3. Be open to significant changes but remain realistic about top-line benefits

Mercedes Me Store, Hamburg
The Mercedes me Store in Hamburg offers vehicle presentations, food catering, events,
information and advice as well as digital interaction

We believe that multichannel retail operations can lead to a more effective and profitable retail business than traditional structures. However, the financial success won’t come in every case, nor without comprehensive measures. To realise benefits instead of sitting on additional costs, OEMs have to realign the structure of sales partners and points of sale. The set-up of a multichannel organisation cannot be efficient if new channels are established on top of old ones. Apart from additional investment costs, the competition between sales activities of the same brand would increase. In most cases, this calls for reducing and even replacing old structures with new ones.

Often neglected, the real potential of a multichannel approach lies in its lower cost of retail: OEMs can offer more qualified support to their dealers. A Customer Interaction Center could prequalify prospects and forward hot leads to the dealer, for example, while a centralised test drive hub could cut financing costs for demo cars at dealerships. Higher operating costs for these new formats can be offset by retaining a share of the dealer margin or charging commission fees from dealers. As a consequence, we believe that multichannel business cases should be calculated without the pressure of generating additional top-line benefits, such as immediately increasing sales volumes or prices. A business case should not take this for granted, but rather view it as upside potential and focus on increasing efficiency of the sales system first.

In the end, automotive customers should be able to enjoy buying a car or car related services again. Car manufacturers should become benchmarks for customer experiences and offer consumers the convenience they expect. They should re-connect with their customers through tailored retail formats and individualised interactions while not losing sight of the efficiency of their retail system.

Jan-Philipp Hasenberg and Philipp Grosse Kleimann

This article appeared in the Q2 2015 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.

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