Sophus3 Forum 2017 | What automotive can learn from retail
What Automotive can learn from retail
Hugh Fletcher, Global Head of Consultancy and Innovation at Salmon.
Hugh Fletcher was previously in charge of digital marketing at Audi UK. In this presentation to the 2017 Sophus3 Forum he reflects on his experience within the car industry and suggests that there is much that it urgently needs to learn from the digital transformation of the retail sector.
... the longer the resistance, the greater will be the revolution when it eventually hits...
Previous generations, like my parents’, have obviously been through some huge revolutions: car ownership, colour televisions, the introduction of computers at work being just a few of them. For our generation, the big revolution has been the Internet and connectivity. This has changed the way we search for and share information, the way we purchase things and it has also changed our relationships with brands.
But when it comes to buying a car, our experience remains almost the same as for our parents’ generation. Is that because somehow the automotive industry is immune to change, or is it because it is resistant to change? I would argue that it is in fact the latter: that the industry is hugely averse to change. And this represents a major risk, because the longer the resistance, the greater will be the revolution when it eventually hits – because the gap between what the customer wants, and what the customer gets, will be even larger.
Resistance to change
The industry, I believe, resists change for many key reasons. Firstly, the franchised dealer business model is strangling progress. The industry is heavily entrenched in this single-channel retail model – with a vested interest in keeping it that way. By contrast, in every other area of retail, those businesses that have survived have all done so by moving to an omnichannel model.
In addition, decision making in the car industry is non-democratic, driven not by the customer but by a small number of “experienced” executives. What customers want plays second fiddle to what these executives think the customer wants. When I talk to other retail clients, they ask “what would the customer do?”, they talk objectively – not subjectively about what they think personally is right.
But probably the biggest resistance to change comes from the fact that “there is no burning platform” forcing the industry to change. Vehicle registrations continue to grow, so why make difficult, long-term decisions when short term success is happening right now?
And, lastly, the industry is heavily product focused – it’s always about producing the “best” car not the best customer experience, or producing the best omnichannel experience.
So, what is it that other retailers have learned that perhaps automotive needs to take notice of?
First of all, they are realising the need to innovate because competition can now come from anywhere. We are seeing what has been described as “aggressive horizontality”: successful businesses that think about expanding by moving into other verticals. Amazon for example is spreading into grocery and is now talking about how it will increase its presence within fashion. Uber has looked at its transportation model and is thinking it can apply that to the area of food, hence UberEATS.
Secondly, they are prepared to innovate and take risks, to try things and risk failure. Retail is experimenting with store formats, with delivery and payment methods and customer relationships. Without taking risks, it is very hard to build for the future. But automotive is very focused on manufacturing excellence – getting the perfect car off the end of the production line. Car companies are constricted by fear and use ‘edge cases’ to resist change rather than seeing that benefiting the majority is the best way forward.
Locking in the customer
The big tech companies are all trying to consolidate their offer and ‘lock in’ their customers. They want to occupy the space between the manufacturer and the customer in a move described as ‘interface imperialism’. The thinking here is as follows: “He who owns the interface, owns the customer, he who owns the customer owns the data, and, he who owns the data owns the future.” So, if you can sit between the producer and the customer, you own the relationship with them. The tech giants are busy buying up new software, such as messaging allowing them to own the interface with the customer, and at the same time are creating whole ecosystems of complimentary products allowing for cross and upsell. If you think about automotive, then there is an enormous opportunity. The ‘ecosystem’ around the car has fantastic possibilities, because there are so many touch points through its frequency of use. There are so many other services you could expand into and sell through the car – exactly the type of ‘aggressive horizontality’ described. But currently, you buy your car, get it serviced and not much else is offered to you: a huge missed opportunity.
Another emerging trend is programmatic commerce, where machines understand what we need and order it on our behalf. This may sound like pie in the sky but there are many developments pushing us towards this programmatic future. For example, the emergence of ‘zero UI’ where we no longer use screens, the rise of ‘subscription’ models of continuous payment, and the beginnings of semi-automated, just-in-time replenishment systems like Amazon Dash. In automotive there are some things that could be programmatically ordered through vehicle telemetry – tyres for example – whilst vehicle finance could easily shift to more of a programmatic model.
What now drives retail innovation is the principle of “what the customer wants”. Innovation is focused on getting the products to the customer more quickly and with less hassle. Amazon Prime is now defining what the consumer “finds acceptable” – if anything takes more than a day to be delivered we become irritated. Other innovations are ‘buy-online-pick-up-in-store’, and the beginnings of droid and drone delivery. But again, in automotive, little has changed in terms of this ‘last mile’ of customer service.
What now drives retail innovation is the principle of “what the customer wants”.
Democratised data undermines brands
Another big change that threatens automotive is what is being called ‘democratised data e-commerce’. This is an objective, unmodifiable public layer of data (which is essentially what blockchain is trying to achieve) which could ultimately feed zero UI devices like Amazon Echo and Google Home, and connect these to our stored personal preferences. This objective data, much of it crowdsourced, will displace many of the myths that we have about brands, such as ‘which car is safest?’, or, ‘which car is the most reliable?’. This will make everything very commoditised and will challenge brands, particularly premium brands, to differentiate themselves. Years of brand building could be undermined by the truth held in the data.
Not all bad
We all know digital is central to future commercial success of businesses, and with over 20% of all retail coming through e-commerce we are seeing lots of retail CEOs wanting to be ‘brought up to speed’ about digital for fear of being left dead in the water. The car industry however has a lot of ‘generalists’: people who have worked ‘in the field’, that is within the traditional franchise dealer model, and are knowledgeable about this. This is self-perpetuating, with senior people few of whom are digitally ‘savvy’. This in turn makes revolutionising the industry a challenge, and opens it up to new entrants with a more customer centric and digitally driven strategy. In many industries, the ecommerce illiterate CEO is dead due to the importance of the ecommerce channel. How long can this lack of ecommerce knowledge hold back the automotives before Amazon, Apple or Google take advantage of automotive management’s inability to embrace this new online sales channel?
However, it is not all bad, automotive remains at heart profitable. We are seeing innovations like Hyundai Rockar and Audi City stores where automotive is leading the way in what is effectively ‘productless retail’. The connected car has great potential for selling programmatically and to create relationships with customers that protect you from the ‘interface imperialism’ of the tech giants.
So what are our conclusions? Retailers have been forced to change and innovate; automotive, as yet, hasn’t. Retail has been forced to put the customer at the heart of the experience and to change its business model. (And those that haven’t – BHS and HMV for example – are no longer with us.) If automotive should learn anything from retail, it is that the customer, not the automotive industry, should define the future of the industry.