As a follow up to my post Thoughts on the Automotive Industry – Do we really need dealers? where I wrote my thoughts about the role the dealers play in the automotive industry business model and wondered about a different model, I would now like to elaborate on alternatives to the franchise model as we know it. After all, if you don’t come up with a solution, you are part of the problem.
But before I do, I would like to reinforce 2 of the premises I outlined in that initial post:
1. The power of a strong brand
2. The power of an awesome product.
The alternative model I am about to outline relies on the power of an awesome product, a product that people just GOT TO HAVE. A product they would do anything to buy. Very much like the iPhone and the Apple stores.
It also relies on the power of a strong brand, a brand that draws consumers beyond the products it sells. A brand people want to be identified with, learn more about and, ultimately, become its ambassadors.
THE PROBLEM. Today’s model is inefficient, expensive and conflictive.
Dealer franchises are independent business, which eventually makes dealers from the same brand, direct competitors. While competition might be healthy, it is not if it is detrimental to the customer and to the brand.
Geographic coverage (network planning) is a delicate thing and customer (and lead) allocation to dealers become a tricky practice.
Coverage it key, so it is very important to have dealerships located at key spots. These key spots are at times very expensive ones. It is like the old marketing model, where it was all about exposure. Lots of media dollars bought more exposure on TV. We all know that is an old model and we are seeing the evolution of it to a more sophisticated, targeted and personal marketing. But, why is the dealer network approach stagnant? Why is it not evolving to the evolving customer? Coverage is only needed if you are weak and you need to buy your way into the consumer’s mind.
You could argue convenience is what drives this pursuit for full coverage, but I would counter argue 2 things:
1. Is coverage what drives sales of Apple products? I don’t think so. You want their products SO BAD that you are happy to drive anywhere just to buy them or even see them.
2. If you want to talk convenience, as a customer I want a car delivered to my doorstep (or picked up for service). Now that is convenience, not forcing me to go to a dealership.
Another problem is the actual experience at the dealership. It is well known that customers dread going to a car dealership. It is up there with “going to the dentist” on the list of least favorite places to go. So why do brands keep on wanting to draw people to their dealerships? And once there, there is no chance to learn more about the brand itself, the heritage, what it stands for. They are sterile hard selling spaces. Not pleasant…
And this network is pretty expensive to maintain. For the brand, the amount of costs in the form of sales allowances and sales persons’ commissions they have to bear makes the margin in each car tiny. Let alone the marketing materials, campaigns, media dollars, training, qualified employees, signage, stock management costs… I could go on and on…
THE SOLUTION – The way I envision it to be
If a brand is strong and its cars are awesome, the manufacturer should build, own and manage directly macro Brand Experience Centers.
These centers would be bigger than a typical dealership and would play several roles;
- Car show. All models, colors and trim levels would be in stock.
- Brand experience center. Where customers could learn more about the brand, enjoy brand content and build a stronger like towards the brand.
- Test drive centers, where all models, colors and trim levels would be available for test drives.
- Complete service points. With service bays for maintenance and repairs.
The employees at these centers would be brand enthusiasts and product experts, but not necessarily salesmen. The purchase decision is often made outside the dealership and sometimes the customer who walks into a dealership finds out he knows more about the product and its competitors from what he has gathered on the Internet than the salesperson himself.
These employees would be young, energetic, web savvy and passionate about cars and people. This profile sounds much easier to recruit…
There would be an army or drivers who would deliver and pick up a test drive car or a car due for service from and to customers’ doorstep should the customer decide to.
A customer wouldn’t need to come in for service as his car would be picked up and delivered back. I see lots of dealers investing money in a better waiting room (internet connection, vending machines, free food, Wii for the kids…). But what they don’t realize is that the customer does not want to go back to the dealership ever, let alone wait there while the car is being serviced! Instead, investing in a picking up and delivering program would be a much better experience that would build a stronger loyalty and, ultimately a better customer experience.
I envision these centers to be great looking places where people WANT to go to check out cars and brands, and there is no fear of being harassed or ripped off.
I envision these centers to be the Apple stores of the automotive industry. Why not? After all Apple is much more profitable that many car companies and that many dealers.
They must be doing something well….
Copyright Jaime del Valle 2010
Agree?
Nov 08, 2010 @ 16:57:55
There are so many things about the auto industry that are being driven by the wrong stakeholders, that, in my opinion, a big disruptive change is imminent in many of it’s aspects.
This change, as I see it, will come from smaller, more nimbler and aggressive players.
When I was in the Logistics and supply chain industries working to offer integrated supply chain solutions to the major auto assemblers in Mexico, we proposed (back in 2001) an innovative approach to radically reducing supply chain costs for the assembly plants and improve competitiveness among their brands. These costs would translate to direct profits that would enable each brand to increase it’s share value.
The plan, in summary, went like this:
Mexico is a major location for auto assembly for the US market. There are over 400 auto parts manufacturers located in that country that supply all the brands not only assembling in Mexico (Chrysler, GM, VW) but also the plants in the US (Tenn, Ala, S.C., Detroit, California etc). The major Auto assembly plants for ALL BRANDS in Mexico, share approximately 30-40% of the supplier base. In other words, a PT cruiser (Chrysler, Toluca) has components that are manufactured by the same supplier that serves a New Beetle (VW, Puebla) or a Chevy Suburban (GM, Silao). However, EACH PLANT pays for, manages and maintains it’s OWN transportation network. In other words, each company pays for a proprietary IT solution and disburses cash to track, manages, pay, and penalize Just in Time (JIT) network for inbound parts to each of their production lines. This is an IMMENSE area of opportunity for these automakers to band together and squeeze additional efficiency from the inbound supply chain.
As direct positive effects would be:
- Increased control on fewer, more professional transportation companies
-Increased leverage and buying power to reduce transportation costs that would be shared by ALL AUTOMAKERS at the same time
-The AUTOMAKERS compete at the Market level, not in the supply chain level. Supply chain tends to be commoditized and liberates the cash for Automakers to compete where they need to compete: In the marketplace with cost, design, functionality and marketability of their vehicles, NOT IN THE SUPPLY CHAIN!
-Increased control of parts and quality
Nov 09, 2010 @ 00:41:30
Gracias Jaime. Obviously, there are opportunities to revisit the business model throughout the entire value chain. From the product design all the way to distribution and service. And the key for a more optimized model is around becoming a solutions provider, instead of a product and services seller. Assembling different elements to provide the optimal solution, in your example, for logistics, instead of relying on self developed processes, products and services.
Long way ahead, but someone will make the first move…and win.
Nov 09, 2010 @ 16:04:27
Good thought Jaime. Looks a good model but, as you said, depends basically on an awesome product that pulls the consumer to the brand center. In the current marketplace, we see there are such a little differences between products that just a very exclusive brands can do this and are effectively doing it: Rolls- Royce or Ferrari do, but in a franchise-combined model, in which the brand controls every step that the dealer do.
Also, there is something that we should consider: brands as Apple have these brand centers but stills selling their products in most common retailers, so they have completed the geographical coverage. Not even brands as Apple want to renounce to sales volume in favor of brand identity or brand experience.
And last but not least, never forget that a car complies a basic role: transportation. This means that today my car is at home but tomorrow is 500 miles away, where it can have a problem that need to be fixed as quick as possible to go back home, otherwise its role disappears. So, I need: 1.- Parts to repair my car near enough, 2.- A person/garage and tools that can fix it in the fastest, easiest, and cheapest way.
Therefore, in addition to your thoughts, and being completely agree with your opinion that a new model is essential due to the meager margins for each sold car, I would propose an amendment in your model. This model would consist in brand centers with all functionalities described, but with a small repair centers that can cover that geographical problem in the most effective way. These centers wouldn’t be never visited by the customer, and the car would be sent there just in case of emergency, taking the brand the control of sending the customer back home in a proper transportation and sending the car back to the customer’s home once repaired. It’s something really easy to manage with an insurance partner and the cost is nothing comparing with all margins the brand gives to the dealer in all this process.
With this model I think that it’s not necessary to have an excellent product cause nowadays, the main problem for the customers is not the product but the service given by dealers. The first brand doing this well and with a reliable quality during all the process would get something essential to the brand experience: differentiation.
Nov 10, 2010 @ 00:36:27
Thanks Alvaro.
I completely agree and, in fact, that was going to bt the topic of my next post, that I will call “Flip the Funnel”, where I would lay out my thought about the customer experience during the ownership period.
The brand experience centers would serve, in addition to as brand experience spaces, as logistics centers and service centers. But the experience would be totally different as it is today when you ahve to bring your car in for service. The “flip the funnel” model focuses on investing most of the resources in the ownership experience (like what you described where the customer’s car that has broken down or needs maintenance is picked up by a driver and serviced at the brand center while the customer is provided with an alternative mean of transportation) and making your current owners your brand ambassadors, leveraging them to capture new customers.
But that will be the topic of a next post… Stay tune and don’t forget to subscribe