69% of millennials are planning to buy or lease a car in next 1 to 5 years and most of them (57%) would prefer to inform online, ideally ready to shift to a complete digital experience
An analysis by Ensight Management Consulting is casting some light into the uncertain future of automotive industry and its actors, the car dealerships.
The analysis is based on a 2016 study undertook by network partner, Eurogroup Consulting [*] and ESCP Europe, mainly in Western Europe region and it’s composed of: desk research, mystery visits, online survey, benchmarking and a focus group. The time horizon for this project is 10 Years and the focus of analysis was based on two product segments: New vehicle sales and After Sales for the premium segment of the car market having the entry price in the range of 20 – 40k €.
The future premium-cars customers are the millennials, which have different expectations on a car dealership than previous generations. They expect a digital, transparent and adventurous experience when buying a car. The analysis highlights the context of automotive industry which has to face two major trends: digitalization (which will impact the choice of the channels which will be used to sell cars in the future and the supporting tools) and the change in consumer demand (a shift from high brand loyalty to a rational view of a car as a means of transportation).
The Consumer purchasing journey is revealed to be changed. In the past was linear: Awareness – familiarity – – consideration – purchase – – loyalty and at present is considered to be a cycle, a multitude of different touch points.
Car buyers nowadays with digitalization can access diverse information and design purchase journey individually from different touch points starting from pre-purchase research, to test-drive, to financing, to ownership and aftersales experience to maintain loyalty. Also there is a clear digitalization trends: Seamless integration of online and offline and the emergence of carsharings and ecommerce platform.
As margins from selling cars are shrinking the challenges for car dealerships will increase. There is a shift from large suburban dealerships. The dealerships are introducing now city digital showrooms with 360 screens for advertising the models without the need for parking, 3D simulations, museum, dinning and café.
The mystery visits component identified one important tool concerning the current car sales process, the online configuration of cars. Customers are able to specify their dream car online, which connects them further to the product and the brand. This tool also enables customers to obtain a detailed knowledge of the product they are looking for. It will actually help sales persons to convert an interest into a sale. But most dealers have no direct way in involving the pre-selected configuration in their sales process.
During mystery visits there were no further indications of digital processes during the car sales whatsoever. It is clear that in order to adapt to these young, flexible and international consumers, car manufactures need to offer customized contracts and leasing products.
Another interesting fact is that about two third of the respondents of the online survey haven’t bought a car yet but majority of them (69%) are planning to buy or lease a car in next 1 to 5 years. People want to buy or lease a car in the future, so it is not going to be easy to replace the ownership of a car with other means of transportation.
Also people are less likely to go to the dealer, because dealership has become less attractive nowadays. Anyway, potential customers are willing to go more than once to the dealer, because the purchase of a car is still an offline process. In order to attract a large customer base it’s better for car brands to invest in the online platforms improving the service and making easier the interaction between customers and the brand.
The option of buying a car online and getting info offline is not a viable option. But the future is more likely to be online-offline. The offline-offline (traditional users) would be the majority moving to the online channel. So, the biggest challenge for car dealers will be to create a marketable option to make this shift possible and to attract the online people to the dealer.
Benchmarking component revealed that capital intensity slows the innovation. Car dealership is a capital intensive investment: it requires a large investment at the source to build the physical retail space and the cash conversion cycle. Summing up all the operational costs related to the dealership activity we could see that the margin (Net income) of a car dealer is extremely low. This feature is important to understand why dealers are usually resistant to innovation. Indeed, moving to the online channel, rethinking the retail spaces and reshaping them into a digital way will be too costly for dealers.
Customers of different retail industries are changing their behaviors and some retailers are performing better segmentations in order to suit their will. Probably, the customer base will be smaller in the near future and some customers will move to different means of transportation (such as Uber, car sharing). Therefore, the challenge for dealers will be to retain the actual customers (traditional users and new digital users) through aftersales efforts.
The main categories are the new digital users (60%) and the traditional users (33%), but in 10 years’ time it is likely to see an increase in the digital trendsetters segment (6%). Hence, in order to approach new young customers, dealers should enrich the dealership experience focusing on the brand image and awareness. The challenge in this case is related to the sustainability of the increase of marketing efforts.
Surprisingly, the 43% of the people who bought a car spent less than 1 hour to look for info online and just 4% of the surveyed has bought a car entirely online. Anyway, most of the interviewed answered in a positive way when asked if they would have accepted a switch from offline to online resources in their purchasing process.
The Digitization Index is equal to 0.81 (which is really close to 1) showing that customers are ideally ready to shift to a complete digital experience. However, comparing this result with the previous data we can see that customer’s hypothetical demand is still far from their actual behaviors. It is a weighted index based on the values coming from the answers of more than 150 people on the digitization of the purchasing process.
The outcome of the focus group session is double-edged. On the one hand there are possible scenarios where an actual dealership in the neighbourhood is not necessary. On the other hand however an actual test-drive, a real life encounter with the product a trustworthy and competent salesperson and an easy and direct contact to the salesperson are desired.
And in the end, an important aspect is that all the focus group participants used car sharing in some sort of way (Uber, blablacar, Drivenow, Car2go). The strongest argument towards these use models was that it is cheaper than to own a car, especially as one only uses car sharing if needed. But it was pointed out that car sharing is good if going from A to B but somehow limited in use.
[*] Source: Imagine tomorrow’s car dealership, Eurogroup Consulting, ESCE Europe, 22.06.2016. The study sample is not statistical representative to the population.