The Future of Automotive: Less Steering, More Software
As digital research and interactions becomes the common thread across the car shopping and buying experience, the traditional dealer-buyer relationship is being rapidly diminished. This dynamic, while challenging for automotive retail, creates immense opportunity for the entire industry. Automotive manufacturers in particular, who have been traditionally distanced from the direct consumer relationship due to legislation and franchise terms, have the opportunity to develop deeper relationships with consumers and enhance their alliances with dealers as the process moves into the sales funnel. As vehicles themselves become more complex, adding new metrics for consideration beyond fuel efficiency, horsepower, and price point, the cognitive load on car shoppers increases. The evolution of the automotive industry suggests a larger role for OEMs in informing the buyer’s decision and purchase.
It’s not just the existing auto buying process that is changing. The entire perception of automotive ownership and transportation is changing. The rise of car-sharing services like Uber, Lyft, and RelayRides have subtly shifted the transportation landscape and changed consumer perception of the value of car ownership and vehicle sharing. As the next generation of car buyers rethinks the benefits of car ownership, automakers need to reevaluate their marketing, sales, and service to cater to the expectations of these potential purchasers. While 64 percent of millennials report they love their cars, they are also three times more likely than other generational cohorts to abandon their cars if the costs of ownership increase. As technology transforms the transportation industry the question remains, what does that mean for the future of automotive digital marketing? How do automakers remain relevant to a generation that seems to value ownership less and experiences more? And how can OEM’s own as much of the consumer e-commerce relationship as possible while remaining compliant with current legislation?
Key Questions.
► What will the automotive retail experience look like in the next five years?
► How will mobile technologies alter the car buying experience?
► What does the showroom of the future look like?
Key Finding.
Digital technologies are transforming the car buying and ownership experience. The ability to more fully own the customer’s experience should lie at the heart of OEMs’ digital strategy. The future of the automotive industry lies as much in software as it does in mechanical engineering. As the top automakers begin to position themselves as “mobility companies” that means an increasing focus on software development and experimentation to find new business models, new insights, and new customers. Acquiring actionable data today, preparing for greater regulatory oversight, and cultivating technology talent will be the key to successful automotive marketing and sales in the future.
Today.
Looking at the automotive industry today, technologies such as mobile, personalization, and onboard telematics have finally gained mainstream traction. The impact of digital technologies on each piece of the value chain is already deeply felt within the automotive industry. Following are some of the ways technology is impacting the car buying process today.
Awareness, Consideration & Trial.
People are already shopping differently for cars. The process of buying a car has been fundamentally altered by the advent of digital technologies. Greater price transparency, model configurations, and comparison tools have changed the sales funnel for car buying irrevocably. Today, car shoppers are highly dependent on digital research. According to McKinsey, 80 percent of new car buyers and 100 percent of used car buyers do their research online before setting foot in a dealership. A recent report by research company Millward Brown found that 56 percent of car shoppers first check with automotive review sites and while only 13 percent navigate to a manufacturer site first. However, as car buyers move down the purchase funnel, 86 percent of shoppers’ last online behavior before visiting the dealership is visiting the manufacturer site.
With manufacturers as the last touchpoint before the dealership (and today often while a car buyer is in the dealership), there is a better opportunity for OEMs to provide a digital experience that is highly informative, offers greater value, and provides more transparency than shoppers are used to today. Building a better digital experience not only creates more brand loyalty, but also allows OEMs to control more of the sales process, lessening the pain point of visiting the dealership. Over time, the dealership acts more as a fulfillment platform while the primary consumer relationship shifts to the manufacturer. It’s a model somewhat similar to Instacart or Google Express, which allows users to shop for groceries from multiple supermarkets. Long term, consumers are less likely to care if their bread and eggs come from Whole Foods or Safeway, opting instead for the convenience provided by Instacart’s service.
Car owners will increasingly rely on agnostic third-party providers for reviews, ratings and purchasing assistance. The majority of shoppers rely heavily on third-party review sites like traditional sources Edmunds and Kelly Blue Book as well as newer pricing resources such as TrueCar to arm themselves with information. This will further the comparative shopping and price wars, forcing OEMs to capture visitors in other ways such as superior customer experiences, both online and in person. Others are forgoing the shopping experience altogether with the help of car-buying concierges who do the research, comparison shopping, and negotiating with dealers on behalf of car buyers.
Automakers are borrowing brand equity via partnerships with lifestyle brands. Over the past few years, the automotive industry has arguably been at the forefront of co-branding strategic partnerships. Ford and Eddie Bauer were one of the first, sealing their co-branding deal in 1983 and continuing for 26 years. Expect to see more retail partnerships that draw on lifestyle synergies or shared target markets, particularly in the luxury sector. In 2013, Bergdorf Goodman featured classic Cadillacs in its fall fashion magalog — the first time the apparel retailer partnered with a non-fashion brand for its direct mail campaign. In the future, a luxury car could conceivably be sold at high-end department stores such as Neiman Marcus or Barneys.
The role of the dealership is evolving. If OEM’s are able to own more and more of the purchasing process, the transaction point remains the dealership. The major pain point for car buying remains the dealer interaction. Despite the best efforts of Elon Musk and Tesla to change the state-based dealer franchise laws to allow direct sales from the manufacturers, the entrenched structure of the industry is unlikely to change in the near future. With that in mind, OEM’s should model their approach that controls as much of the sale as possible, and as mentioned previously, consigns the dealers to a fulfillment and service role. This approach better protects the manufacturer’s brands, maintains shopper loyalty, and improves the overall experience (though admittedly is unlikely to please dealers).
There are several trends emerging that try to address the dealership pain points, with varying degrees of success. However, Huge believes these will accelerate in the next 12–24 months, gaining traction as consumer expectations rise. Automotive retailers such as CarMax and Sonic and aggregators like TrueCar.com are standardizing the concept of no-haggle pricing, taking much of the stress out of the dealership experience.
Home delivery is also becoming more frequent, rather than taking delivery at the dealership. Essentially, a salesperson drives the new car to the owner, bringing the sales documents for signing. Today trade-ins can also be negotiated (though that process is still often analog requiring both parties to work out the details by phone) and finalized with home delivery of the new vehicle and driving away with the trade-in car. Home delivery creates not only a more efficient process (typically 20 min in contrast to three hours at the dealership) but also a more personalized and luxurious experience.
Solving for the most difficult piece of the purchasing process — the test drive — is still a challenge. Some individual dealerships allow car shoppers to arrange for a test drive at home and work, but that is mostly a piecemeal solution. The test drive, for the most part, is still closely tied to the dealership. Removing the test drive process requires a substantial amount of logistics and scale. Nonetheless, there are startups such as Tred. Carvana, and Beepi that are trying to bring the test drive (and thus the purchase) closer to the buyer. These startups aim to disrupt the traditional dealership by eliminating all the pain points associated with visiting dealerships.
In addition to these trends, showrooms are another way for manufacturers to more closely control the buyer’s experience. Digitally-enhanced showrooms will increasingly offer virtual explorations of cars and trimmings without having a car lot of inventory. Audi has already seen a great deal of success with its boutique-like showroom in London and Beijing, with car buyers forgoing the test drive experience in favor of a digitally enhanced retail experience. As OEM-owned retail experiences, the showrooms provide an alternative to dealers and relatively new touchpoint for consumers. Tesla’s boutiques hint at the future retail experience. In the showroom itself, digital displays are becoming more integral to shopping. For instance, the static window sticker will evolve into an interactive interface, tailoring its content to driver preferences, habits, and desires.
Purchase & Beyond. Car manufacturers are reassessing the dealership experience. BMW currently offers more than 40 different models with a limitless number of potential configurations. Not only is it difficult for consumers to navigate the maze of choices, it’s a challenge for the company’s dealers. To address this complexity, BMW is taking a page from Apple’s playbook, and hiring non-commissioned “product geniuses” whose job it is to guide buyers through the purchasing process. Rather than recruit from within the automotive industry, BMW is looking at hiring talent from the hospitality, electronics, and technology sectors.
While salespeople initially resisted the incursion from non-commissioned specialists, customer satisfaction scores have increased when buyers didn’t feel pressured. Additionally, while the geniuses concentrate on product attributes and explaining the complex choices a customer needs to make, the salespeople are able to focus on financing, negotiating trade-ins, and finalizing the transaction.
Mobile and location-based tools are changing the dealership experience. Increasingly customers are armed with better information and lean toward self-service at the dealership. Mobile technologies such as RFID and augmented reality will aid in self-service and deeper information at the dealerships. On-board technologies are continuing to rapidly gain adoption, helping drivers with navigation, finding a restaurant, and avoiding traffic. Telematics have begun to expand into other applications, with live weather, parking info and social media integration.
Technologies such as GPS are also becoming more integrated into backend dealership operations, assisting with lot management challenges such as helping to locate a vehicle, recover stolen cars, and gauge battery health.
Digital helps automate the purchasing process. Digital technologies are not only profit drivers, but can also be used to improve bottom line cost savings by automating much of the purchasing process at the point of sale. Dealership tools such as payment modeling and e-signatures make the purchasing process more efficient. Others are experimenting with digital storefronts to automate as much of the buying process as possible upfront. For instance, AutoNation has rolled out an initiative in Florida that allows car buyers to lock in pricing online and use their credit card to secure the car for pickup. As digital storefronts catch on with car buyers, new features will be integrated into the experience such as facilitating trade-ins, getting financing quotes, auto bill payment, arranging for service appointments, and getting notifications on repairs.
Automakers and dealers will increasingly segment their customer service strategy. More customer care will deployed through social channels such as Twitter and Facebook. The automakers are already reliant on social tools for mass service. Most auto manufacturers have launched standalone twitter accounts purely for customer service by now, including @FordService, @HondaCustSvc, and @NissanSupport.
For luxury buyers, digital tools help carmakers scale high-touch customer service. Auto manufacturers are taking a page from the luxury travel industry and launching concierge programs. For instance, Lincoln’s concierge program is staffed by people trained in the hospitality industry and offers personal service to potential purchasers. Audi’s concierge service includes locating the nearest hotel and making reservations, making ticket reservations, and locating available alternative transportation options for A8 and R8 owners.
Likewise, BMW offers its Assist Safety & Convenience Services for $199 annually and offers drivers hands-free access to a live representative who can look up movie times and ticket information, fuel pricing, and hotel and restaurant recommendations. Increasingly, these features will be enhanced by digital technologies that can offer a more personalized experience, learning drivers’ preferences for food, hotels, and taste in theater.
Digital has changed the onboarding experience. Post-purchase, the traditional new owner kit was heavily print-based, with welcome guides and the owner’s manual. While there was a great deal of content for owners to wade through, there was very little face-to-face follow up. Today’s onboarding experience is very different, with OEMs providing an onboarding experience more akin to Apple’s strategy. Rather than inundate new owners with too much reading material, today’s onboarding experience should be minimal, digitally- powered, and designed to show utility from the get-go. The best experiences guide new owners through activation, engagement, and personalization so their cars feel like an integral part of their lives. For instance, BMW’s brand promises the “ultimate driving experience.” Every pillar of the brand supports that idea, from its concept cars to the delivery experience. In Europe, new BMW owners have the option of picking up their cars at their famed headquarters in Munich which includes a tour of the factory, the company’s museum, and complimentary refreshments. Likewise, BMW (as well as Porsche) have built stateside locations that include test tracks and performance driving classes, replicating the as much of the Munich experience as possible. Each part of the experience is designed to create and cultivate long-term BMW fans.
Tomorrow.
Technology has the potential to remake the auto industry, and is already affecting how cars are marketed to consumers. But the implications for digital disruption go far beyond marketing, and have the potential to affect the economic model. As McKinsey has pointed out, whereas in the past the auto manufacturers have focused on realizing cost savings from more efficient mechanical features such as horsepower, today consumers expect better mileage, lower emissions, and higher safety without a willingness to pay more for those features. With higher consumer expectations, automakers need to create new opportunities to lower costs and improve revenue. The good news is that automotive retailing innovation correlates with automotive technology innovation, and the pace of that innovation is rapid. Following is a look at some of the trends we believe will emerge in the next three to five years.
Awareness, Consideration & Trial.
Real time road data will improve sales and marketing. Since the 1980s, the focus of innovation for intelligent highways has been on the car itself. Yet there are now more experiments on the road infrastructure itself as the Internet of Things (IoT) provides the potential to reshape roads, measure a system’s efficiency (or lack thereof), and optimize traffic flow. While the experiments have been fairly limited to date, Huge expects road infrastructure will continue to become more intelligent as not only traffic patterns become optimized but so can air quality, emissions, and even pedestrian crowding. With smart vehicles transmitting more and more data on driver behavior, preferences, and interactions with infrastructure, OEM’s can begin to use that data to optimize the sales and marketing funnel. As automakers become more adept at Big Data modeling and simulations, development costs should decrease while time to market speed should increase. The timetable for innovation in the auto industry will look more and more like consumer electronics — a welcome change for audiences accustomed to upgrading their smartphones every two to three years.
The test drive will not involve a salesperson. Inventory management, advanced logistics, and smarter distribution tactics will allow automakers to offer drivers a more on-demand and elaborate test drive experience without requiring a salesperson to serve as a chaperone. Car shoppers will increasingly be able to engage with the dealer or other automotive expert in real-time via video chat Source: engadget.com prior to visiting the dealership, be able to have digital keys delivered to their mobile device for the vehicles they’ll be test driving, and be able to set up personalized preferences like test drive playlists tailored to their tastes.
Showrooms will fulfill new needs. Dealer inventory integration may become not just desirable but necessary by this time, allowing users and OEMs to see availability in real time. Other assistive sales technologies, such as 3D browsing and augmented reality, will continue to enhance the dealership experience. Showrooms and car lots will change dramatically. Digital will have a significantly expanded presence in the showroom, while the showroom itself will retract in size, as we’re already seeing with Audi, or may disappear altogether as less physical real estate is required for the purchasing process.
As a side note, the evolution of the showroom will also have real estate implications as dealerships move from giant auto malls that depend on cheap real estate in suburbs to urban hubs, and thus closer to the buying population. This will also require altering local zoning and planning regulations that may be resistant to the concept of a car dealership. Showrooms such as Tesla’s, located on densely populated pedestrian retail strips such as the Third Street Promenade in Santa Monica and using less square footage while highlighting technology and design, will likely be more successful at overcoming community resistance.
Purchase & Beyond.
Cars become seamlessly connected to non-driving experiences. Via connected cars and cloud technologies, car owners will have a deeper and more data-driven relationship with their vehicles. Technologies that help optimize fuel efficiency, routing and safety will all increase as well as integrated technologies that connect the car to other aspects of life. They will represent a seamless extension of the owner’s out-of-car digital experience to support an always-connected, multi-platform lifestyle. Social media is a large part of that lifestyle and will be more tightly integrated into the driving experience. Cars will know their drivers even better. Voice recognition, social graphs, and driving preferences will become standard as data services and technology is further integrated into the vehicle. Driving will feel more like a symbiotic relationship with a sentient being.
Cars will become smarter about their surroundings.
Car-to-Infrastructure.
► Speed warnings.
► Road hazards.
► Red light violation warnings.
► Real time kinematics.
Car-to-Car.
► Forward collision warnings.
► Intersection collision warnings.
► Do not pass warnings.
Cars will also be even smarter about the context of their surroundings. From identifying safety hazards to routing around real-time traffic jams to finding the nearest drive-through Starbucks with a dollar off coupon, cars will be much smarter about displaying geo-spatial intelligence. Additionally, cars will be more intelligent about self-diagnostics for maintenance and repair and better able to communicate with other vehicles as well as a smarter roadway infrastructure. Earlier last year, in Europe standard-setting agencies have already established a set of common protocols for cars and traffic infrastructure to communicate with each other.
Cars become mobile wallets. Just as mobile commerce is increasing, the car itself will be a point of purchase through digital wallet and subscription services. Purchasing gas, monthly car payments, car amenities, maintenance service and even new cars will happen directly from the car. The car will become an extension of a person’s digital profile and will present new monetization opportunities.
Cars will drive themselves. Further out on the horizon is the adoption of driverless cars. Google has already piloted a test project for autonomous cars, with about a dozen self-driving cars currently roaming the streets of San Francisco and its environs and plans to test a fully functioning prototype this year. Similarly, Tesla predicts driverless cars will become the norm by 2023 and Apple is believed to be working on an autonomous car by 2020. It’s conceivable that in five years car owners will be able to sit back, watch movies, check Facebook, and share photos while en route.
While the technology for autonomous cars continues to improve and it’s likely the autopilot skills will soon outstrip human drivers, there are several significant barriers. The first is building the wireless infrastructure that can link heterogenous cars, interfaces, and OS’s to each other. The second is regulatory as states struggle to adapt the legal code for these types of vehicles. Today, just four states allow companies to test drive driverless prototypes on the road including Nevada, Florida, California, and Michigan. There are even tougher obstacles, such as the cognitive barrier for drivers who are accustomed to complete control of their vehicles. There are also technical hurdles, as the computing and bandwidth requirements for these kinds of cars is substantial as well. With these kind of barriers, we believe it will be several years before driverless cars become commonplace.
Recommendations.
The U.S. automotive industry is unquestionably headed for a transformation. The only question is how fast and who will lead — manufacturers or retailers. The delicate balance that exists between manufacturers and retailers is a relic born of protectionist legislation. The codependence and tension it breeds reduces value for the consumer. And consumer tolerance for subpar experiences that cost them time and money is at a historic low.
The opportunity is ripe for manufacturers to innovate the marketing and overall user experience with the same diligence they use to improve vehicle performance and engineering. Otherwise, both manufacturers and retailers will become vulnerable to technological innovation from startups that will finally disrupt the category by offering superior user experiences. With transformation or disruption on the horizon, there are several immediate actions, Huge recommends auto manufacturers take today.
Get as close as possible to the transaction point. While startups such as used car marketplace Carvana and others are focused on making the car purchasing process as digital as possible, manufacturers are beginning to move towards that model as well. Last year GM launched its Shop-Click-Drive online purchasing platform. With participating dealers, GM has built a bridge between online buyers and dealerships. Creating a transparent, efficient and more seamless experience while at the same time eliminating some of the more stressful components of car buying is a win-win for both consumers and manufacturers. Manufacturers also need to transform their marketing, with a stronger emphasis on the discourse of e-commerce. The goal is to introduce language that drives consumers through the purchase funnel and into retailers. Retailers will need to also address consumers in similar ways.
More software, less steering. As consumers purchase fewer vehicles and drive less, the large automotive manufacturers are experimenting more and more with new software. Ford’s already looking into shared ownership programs in London and India. Similarly, Daimler launched Car2Go, a carsharing service in European and North American cities that eschews the centralized rental office for pick up and drop off, but allows customers to access the cars wherever they’re parked via an app. Ford is also experimenting on its own employees, allowing them to participate in a car-swap program that lets them borrow other employees’ cars, such as a truck to haul furniture for the weekend, via an app. As the top automakers begin to position themselves as “mobility companies” that means an increasing focus on software development and experimentation to find new business models, new insights, and new customers.
Cultivate talent from Silicon Valley, Tel Aviv, and Bangalore. As technology becomes more and more essential to the car researching, buying, and ownership experience, the automakers need to look beyond traditional manufacturing talent pools. It’s not an accident that many of the most significant automotive innovations that have emerged the last few years have been developed by Silicon Valley companies like Apple, Google, and Tesla and engineers in Tel Aviv who have built apps like Waze. Traditional manufacturers such as Daimler have had a presence in Silicon Valley via a research center for two decades. Ford was considered a straggler when it opened a research center there in 2012. Over time, those relationships will be strengthened as traditional automakers compete for Silicon Valley talent.
Acquire actionable data. Big Data is already impacting automotive marketing. Manufacturers are using it to personalize the sales cycle, as the buying cycle between purchases reaches an all-time high of nearly six years on average. They’re also using it to identify issues sooner in order to avoid potentially large warranty claims. And owner feedback both in the form of direct communication and social sentiment helps OEM’s plan future car design, marketing campaigns, and messaging. Better data is also helping automotive companies create more appealing financing programs. But these are just the first steps. Car companies that collect and effectively analyze customer data will be able to create new revenue streams as well as develop new services. Companies today are already finding new ways to monetize data. For instance, fleet management software company Fleetmatics plans to sell driver data to insurance companies, who may in turn offer lower premiums to customers with safe driving records. Likewise, Progressive and Allstate Insurance both offer devices in certain states that drivers can install on their dashboards that track metrics such as mileage, speed, braking rates and time of day. The data can be used to offer eligible drivers a discount on their insurance. And startup Automatic provides an on-board diagnostics application that drivers use to improve their driving habits. The app provides recommendations to improve fuel efficiency and help drivers save money on gas.
These products hint at the future of automotive personalization. Manufacturers, retailers, and startups have the opportunity to create new ways for users to absorb, appreciate, and understand the data their habits, preferences, and behavior generates. While the Monroney sticker, which lists fuel economy metrics as required by federal law, was updated in 2013, it is still a one-size-fits-all approach. OEMs can go beyond these basic requirements to provide more personalized recommendations, prioritizing buyers’ needs based on lifestyle (such as better MPG for commuters versus roomier interiors for large families).
Prepare for regulatory oversight. The increase in technology offers new opportunities for more personalized customer experiences, new revenue streams, and better engagement with both prospects and owners. Yet the increase in data generated opens up new concerns about user privacy and security. At the same time, the emergence of on-demand transportation businesses such as Lyft and Uber pose challenges to local regulators. Last year a proposed Driver Privacy Act died in Congress after the election but previously had bipartisan support to limit the retrieval of data collected by in-car technologies and explicitly state that the data is the property of the owner or lessee.
Additionally, AAA has introduced guidelines to protect consumer driving data last year. The organization lays out three principles: provide transparency on what data is collected and its usage, give consumers the ability to choose who to share their data with and why, and take steps to ensure the data is secure.
Car companies should expect Congress and state legislatures will increasingly work to regulate their industry, including how they collect and use data. Offering greater transparency and control to consumers is a first step. The automakers should look to analogous industries, such as financial services and healthcare, to better understand how to balance user privacy with data collection and security. They should also be active participants in shaping potential policy to ensure there is a greater equilibrium between business needs, regulatory oversight, and consumer protection.
Originally written for Huge Inc. April 2013. How did we do on predictions? Let me know here.
