By Francis Farrelly
With extreme disruption comes the need for foresight and informed decision-making. For marketers there are few things more informative than converging trends. Earlier in this series I canvassed the extreme disruption being faced by the global automotive industry and how it is occurring on a number of levels. Any one of these disruptive forces – electrification of vehicles or connected cars at the product level, or digitisation, urbanisation and environmentalism at the macro level – would signal a need for marketers to reassess their strategy. When the forces are converging and influencing one another, however, strategic realignment becomes vital.
Convergence also offers clues as to the sequence and speed of change and adoption, and illuminates what is required from a marketing perspective. For example, the development of the connected car is likely, in turn, to drive the development and use of shared and autonomous cars – the connectivity will be a crucial element of the sharing platform in the first case and the safety and viability of autonomous operation in the second. It is also clear, for example, that the desire for mobility options in a world of increasing congestion, coupled with connectivity and shared vehicle options, will propel new transportation systems. In the simplest of terms, the multiple and overlapping trends mean dramatic change is inevitable. Like all change, while it will be erratic, there will also be patterns and sequences.
Another crucial clue to the future of the automotive industry is the flow of money. In Australia, automotive businesses should monitor where global players are investing, then reorient themselves accordingly. While there are many unknowns, there are plenty of factors at play that offer considerable insight for marketing decisions in Australia:
- the nature of the change both at a macro-environment and industry level
- the converging trends, and
- the scale and focus of current investments both by international automotive manufacturers and new players.
New technology, global competition, high costs of local labour and changing consumer behaviours are all affecting the profitability of established operations, but there are opportunities for companies that are ready to adapt. The research that I am conducting with the financial support of incentive group Destination has identified a number of strategic marketing implications of the anticipated market disruption. They fall into the following areas:
- Understanding the consumer
- consideration of strategic sequences
- consumers’ view of brands, and
- specific implications at the automotive dealer level.
Understanding the customer
Automotive businesses will need to spend a lot more time analysing consumers and value propositions, rather than simply serving up the latest product ‘improvements’. This will range across all aspects of the car offering including performance, comfort, safety, design, entertainment and interactivity, reliability, aesthetics, autonomous and self-driven, electric or petrol/diesel, outright ownership or another form of purchase. Companies will need to understand mobility from a user-centric perspective, which may mean that features previously valued by buyers or pushed by car companies become less appealing.
New offerings will be competing for consumer validation. The connected car offers a wealth of opportunity to enhance both driver and passenger experience while also providing practical solutions to everyday problems. In the automotive industry it is known that Australian consumers are early adopters (shown, for example, by their enthusiastic take-up of SUVs), so manufacturers and other players including dealers that understand their customers will be best placed to develop offerings that hold market appeal.
Many consumers will prefer not to own their own car, or at least a second family car, and will see subscription as attractive. We know that about 30% of car users (a figure constant since 2017) are questioning ongoing car ownership. Nevertheless, while subscription offerings may become increasingly popular, car manufacturers can be expected to continue to offer private ownership options, as many consumers will still see significant practical, personal and psychological benefits of traditional car ownership. Rates of private ownership will vary by customer age, income, attitude, use etc.
Overall, CASE (connected, autonomous, shared and electric vehicles) technologies suggest a whole host of positive and transformative changes that will only add great value to private ownership and to the types of cars we currently buy, whether family, sports, SUV, or luxury cars. There will also be mobility experiences of an entirely new kind.
The evolving market
Understanding how the market will evolve is of great strategic importance and involves analysing a host of factors such as understanding current industry investments, government actions, buying patterns, infrastructure issues, various other tipping points, and how one development in CASE may trigger another.
Market adoption of autonomous fleets (robo-taxis), for example, will be an indicator of how quickly regular drivers may adopt self-driving cars. Fleet operators are looking at developing a centralised system controller (similar to air traffic controllers in the air travel industry) who would oversee as many as 50 cars. This sort of innovation would reduce costs and thus enable mainstream consumer diffusion.
Similarly, the way consumers value technology and safety improvements led by the connected car will have an important flow-on effect on future product development, and inevitably also have implications for the success of autonomous vehicles. The way the connected car changes buyer perceptions of the vehicle as an experience will also be a major indicator of future value positions and customer experiences.
There are many elements that are difficult to assess such in relation to the use of big data. The connected car will harvest a significant level of data which will provide diverse insights about what additional services customers can be exposed to. However, we can expect disputes over who owns this data (manufacturer, service, parts, finance, dealer), as well as concerns over data privacy. An advantage for car companies is the significant trust consumers have in them.
Car users are more likely to trust car companies rather than others in a connected ecosystem (such as insurance agencies and energy providers) which means manufacturers are in a position to form stronger relationships and move quickly to present new products and services for the connected car owner.
The importance of brand
Extreme disruption will redefine how consumers see value in a car and therefore will have profound implications on how manufacturers present their brands. My research suggests major companies are likely to revert to existing strengths in their brands to attract customers, including the heritage they have in these brands.
Volvo, for example, is likely to leverage its strong track record on safety and market this aspect in its engagement with consumers. Safety is likely to be a key focus of consumers who are looking to adopt technology-advanced and autonomous cars.
BMW, on the other hand, is known for performance and so may well recode how it represents the performance-related attributes and meanings of its evolving products.
As the inventor of the car, Daimler and Mercedes-Benz have a particular claim to the hallmark of quality and know-how, and could be expected to emphasise a superior understanding of the new automotive world. A type of ‘we knew then, and we know now’ approach may be used to persuade consumers to trust the German manufacturer. Whatever the approach, the power of the brand will be at the fore.
Brands and branding will be especially important – and competitive – for new players in the industry such as Dyson and Tesla. They face an enormous challenge because of the size and widespread consumer acceptance of incumbent players – moreover they cannot match the economies of scale enjoyed by existing operators in the industry. New players’ ability to integrate through partnerships and alliances will be important.
A related curious challenge is the willingness of incumbents to work together despite a history of competitiveness. The tie-up between BMW and Mercedes around shared and subscription offerings will, if successful, have massive implications for the mobility industry and make it more difficult for new players to steal market share.
Lastly, many suggest with the coming of electric, shared and autonomous cars that the vehicle will become a commodity as people will merely want to get from one place to the next. While this may be the case to some degree, brands will still matter greatly and with CASE vehicles will come very powerful evolving brand identities supported with differentiated offerings. In fact, brands and brand building will likely take on an even more important role in the disrupted automotive industry than we are accustomed to at present.
The dealer landscape
Extreme disruption and the changing market suggest that the physical presence and structure of the dealership environment will need to evolve especially as the CASE innovations and digitisation become more mainstream.
Dealership spaces will need to be more flexible and adaptable as the product will be changing at a faster rate than ever and across more levels than simply product design. Traditionally structured dealership environments, with large numbers of cars on the lot, will need to adjust given the constant pipeline of new products and mobility related services. Dealers, more than anyone, will need to embrace change and see it as an opportunity.
There are a number of possible dealer environments, and their suitability will depend on the nature of the dealer business model. This includes a strategic understanding of its link into the ecosystem/s, their target market and capacity to differentiate, and its sources of revenue now and in the future. Some possibilities are:
- Existing model, showroom, many cars on the lot. Consolidation may mean this continues, but is much less likely to be the dominant approach as the mix of product and service mobility options evolves and competition increases.
- Retail shop, two or three cars, digital interface (ordering). In the shopping mall, potential to position brand according to nearby outlets. Mercedes-Benz, for example, may seek to be positioned near premium fashion designers.
- Lifestyle dealership precinct and mobility hubs. Dealers are located in lifestyle centres offering a mix of mobility products and services, and are situated among complementary brands, products and services such as high-end fashion, homewares, fine foods and health centres. An early example of this is the Mercedes-Benz Breakfast Creek Wharf Lifestyle Precinct in Brisbane.
- Manufacturer direct. Some manufacturers like Volvo have entered the manufacturer direct sales channel. Given the increased role of digital platforms, savvy digital buyers, high product quality and reliability even in non-premium vehicles, it is probable that this channel will continue to expand.
- Hybrid. Fewer cars, digital, customisation and with added services like bundling of mobility options (ownership and subscription packages, for example), dealers may become a focal point for different mobility solutions.
Ultimately, dealers are likely to hold fewer cars because of the associated costs, while salespeople will increasingly require specialised technology knowledge beyond pure mobility aspects. Online retailers like Kogan who play an aggregator role searching hundreds of dealerships to find better deals and deliver direct to people’s homes (sometimes with significant savings) will expand.
Taking an aerial view of extreme disruption, one thing is clear: the converging trends and the sheer scale of investment and change within and across ecosystems means that dealers will increasingly need to position themselves not just as a retailer of cars but as a route to market for mobility solutions. This likely means they will need to sell a different combination of products and services than they do currently. They will need to form closer relationships both with manufacturers and corporate (including fleet) and private consumers with changing preferences and needs. This will include becoming part of new digital and hybrid sales channels, and thinking in very different ways about customer experience and how it can evolve.
Given the magnitude and protracted nature of change, there is a very real prospect that dealers who do not move with the market will find it difficult to compete. Investing for the future is a way of protecting what they have in the present.
Disruption of the automotive industry will occur at an unprecedented level in terms of the scale of investment, its longevity, and in the multiple areas of change. Most particularly, changes will occur in product, service and new and existent stakeholders. The industry is still at the investment phase of this evolution, with the extreme disruption still to come. While some aspects of disruption will be drawn out – for example mainstream use of the autonomous car – other aspects will happen quickly, such as the developing sophistication of the connected car and more integrated shared mobility options.
The convergence of a number of market trends, coupled with the scale and nature of investment, helps paint the picture of what the future may hold. Savvy market players will need to refine their strategies as the direction and pace of evolution becomes clearer. This is true not just for manufacturers and other product and service developers, but also for dealers who face particularly turbulent times.
Francis Farrelly is professor of marketing at RMIT University.