Steering the Drive with Co-creation: Local Motors Case Study
How does the idea of being a partner in the designing of things you use strike you — isn’t it an excitingly new way to approach things and one that embraces your ideas in what you ultimately use — well that’s precisely what we are about to embark on. So, let’s think of designing a car from scratch the way we would design our wardrobe, shoe rack, or even a house (illustrations galore can be given, but we feel the point has been taken home). Many of us have done a lot of DIY projects such as painting our home, making a furniture and so on to bring in a touch of our unique design insights on something that we can call ‘MADE BY ME’, ‘VISUALIZED BY ME’ or ‘DESIGNED BY ME’. With a lot of options available in market, it can be a draining experience to finalize a product that caters to all our needs and car buying shopping is no exception. Many of us have experienced situations, where the salesperson in each and every company will have cars which are his favorite but there will always be some car or a feature of particular car model which he would always want to incorporate in his own personal favorite car. With 3D technology, virtual reality and augmented reality emerging, it is actually technically possible to design and customize and co-create absolutely anything in today’s world. So, it’s definitely possible to design and build our own cars. So far, this has remained largely confined to re-building the body of the cars, or redesigning its interiors. Now we step beyond that.
In today’s cut throat competitive world, the consumers are well informed and crave for real time information for sharing concepts and ideas. Shopping behavior is constantly changing and customers are much more demanding as they have a world of choices available at their disposal. Hence, it becomes very critical to cater those products that would be a perfect fit into the needs of the customers. Local Motors, an Arizona-based car manufacturer is, by choice and strategy, a low volume manufacturing company. The company is known for its USP of co-creation of automobiles. The ideas are submitted online and the most voted idea for the car design goes into production stage. The concept of co-creation is yet to catch up as a mass- produced products.
What type of co-creation is Local Motors using?
In my opinion, Local Motors incorporates a combination of submitting, tinkering and co-designing type of co-creation. Co-designing being the core for its co-creation. The very first step in this whole process is submitting your very own ideas, concepts and designs in a practical format. Local Motors invites the users to share their ideas and designs how they would like the car to look, feel and perform. It also encourages tinkering, which means though the contribution is open for the online community to share but it is the firm that has the final say on which design is possible to be produced. This sets the base for basic design of the car which the firm controls. Among the many designs available, the most popular, feasible and highly demanded design is voted and selected by users in the community which is eventually developed by the company on a small scale in the micro-factories. Though the car can be entirely tailor-made to a customer’s specifications, yet it has some things that are standard like the body and chassis which are made by Local Motors themselves. For accessories and other parts, it can depends on Honda and others. Once the buyer places the order for the car, he is invited to any of the local micro factory for co-building the car from scratch. It is a 6 days process which means 2 weekends (Friday-Saturday-Sunday). The buyer/owner of the car actually does the labour work with the professional to co-build their car. The exterior of the car was built through the idea generation process while the interior of the car was built through competition with a prize.¹ Around 160–200 plus people have contributed their ideas over time for Rally Fighter.²
The idea was to ‘build an experience’ of building one’s own vehicle and knowing inside out of the car you co-built. Rally Fighter definitely opened the door for a two way dialogue among the key stakeholders and created awareness for the Local Motors. The company was able to leverage on maintaining healthy relationship with the dealers through co-creation. From customers point of view after sales service is the key to maintaining long term relationships. This eventually leads to higher engagement level and a positive vibe and buzz in the industry, which results in positive partnership. All the stakeholders involved are benefited in varying degrees in the process as there is constant improvement and innovation which results in revenue growth, higher retention leading to increased satisfaction and loyalty while maintaining lower operating cost.
What do you think of the Rally Fighter? Will this new car be successful? Why or why not?
The design and look of the car is indeed outstanding and unique as is, the experience of learning how to build your own car from scratch and customize it based on your personal specifications. It is indeed a novel and thrilling experience especially for car enthusiasts. Not just car, but in general also whatever we design be it a car or a dress or a shoe, developing the product from scratch gives us a sense of ownership. With that ownership comes the responsibility to be the best. It is like a DIY (DO IT YOURSELF) project wherein every decision related with car is taken based on our personal experience which is reflected in our choice of specifications. When we look at the positive side of the picture, Rally Fighter has couple of things that works in its favour and that is what creates the difference in the already crowded and competitive marketplace.
- Rally Fighter is believed to be the first production vehicle to be designed through crowd-sourcing, the process of drawing inputs from a global community of interested people via the Internet.³
- When you open the homepage of the Rally Fighter, you will see the quotes in bold as ‘BORN IN AMERICA’ and ‘Build by you in the U.S.A.’. It also specifies in bold letters that it is ‘RAISED IN THE DESERT’.⁴
- Through crowd-sourcing, Local Motors was able to build the cheapest automobile in the most efficient way. Local Motors produced Rally Fighter in 18 months, about five times faster than through conventional processes.⁵
- Local Motors had spent $3 million on the car’s development, which is much less than what is spent on commercial models by the major automakers.⁶
- When a buyer opts to buy Rally Fighter, he/she is given a kit and not a readymade assembled car. So, the car can be completely tailor made to one’s preference.
- Special orders are taken and Rally Fighter can be shipped to any part of the world. It has all legal lighting and smog compliance for it to be sold within US and globally.
- Rally Fighter has coupe-like profile but can be converted into a family car as well.
- Rally Fighter is currently made with GM’s engine, Volkswagen’s turning signals module and Honda Civic’s tail light assembly. So, the components are easily available and easily serviceable.
- The body is made of fibre glass and panels are easily replaceable if the gets damaged while racing.
- The design was submitted by Sangho Kim and voted through community of car enthusiasts.
- The production of Rally Fighter is on a per-order basis, so the future owners can decide on which type of finishing design they would want in the exterior and what type of colors would they prefer for its interior, the type of seat material they want and so on.
- According to Justin Fishkin, Local Motors’ chief strategy officer, the Rally Fighter was profitable around its 60th unit. He also estimated that a micro-factory costs an average of $20 million to build, a fraction of the billions that go into opening traditional auto plants.⁷
But the big question is, how many people will ultimately buy such an expensive car? The ultimate objective of any business is to be profitable. So, let’s explore the negative side of buying this vehicle.
- The price of the car is so high that it would be bought only by the super-elite class of users for adding them into their collection of cars. For the super-elite class users price is not likely to be a topic of concern because for them the value they get is that they have a car that is totally customized to their needs and the fact that only 2000 units will be out in the market so it is like a limited edition, hence it is in fact a matter of extreme pride to some.
- Less than 100 odd units were sold till January 2014 as they are built based on orders only.⁸ How much sales will pick up in future is a question to be raised?
- There is continuous change in technology, so are they updating the car accordingly?
What is Local Motors’ value proposition?
Every business entity is moving towards being a customer oriented institution wherein the customers form the centre of all major decision making and Local Motors is no exception; in fact, they are a step ahead. Internet as a platform is heavily used by companies to enhance their products as customers openly share their experience. By including and involving all the stakeholders in the designing and developing the car, Local Motors had opened a two-way and on-going communication and Rally Fighter is the result of one such communication process.
Local Motors’ value proposition:
- Local Motors aims to target only a niche market and produce/sell just 2000 units before retiring that model. Their focus is NOT to build a million units; instead their focus is on an “economy of scope” instead of an economy of scale.⁹
- Being an open source vehicle company, Local Motors openly shares chassis and body data. Hence, it can be easily downloaded and parts can be easily modified as per one’s preference.
- Keeping the niche target in mind, they also have opened up micro-factories in Knoxville and Washington, D.C. for 3D printed cars. Their plan is when a customer walks into their store, all they have to do is to go up to a screen, choose one of nine or 10 unibodies, choose powertrains which they buy from other manufacturers, choose wheels and tires and colors — and they will print it while the customer waits or by the next day when the customer comes back.¹⁰
- Local Motors are innovative in the way they retain their customer loyalty, for example if the customer wants to upgrade the hardware within a year then they would strip it down and melt it and give the credit to put towards your next vehicle. The other option is if the customer comes back within a month then they can swap in a new battery technology that has just comes out.¹¹ Their focus is to integrate technology as quickly as it comes to the market rather than waiting seven years in order to give an entirely different experience to the consumer.
- The experience of walking into the factory and watching your car get customized right in front of you is exceptional. For such an unique and unmatchable experience, people will not hesitate in paying a higher price. Designing your own car is a like a unique DIY project. By involving the buyer in designing his own car from scratch, Local Motors can significantly build up the strong customer base and brand loyalty for the company.
- Local Motors has an online community which has been steadily growing and consists of engineers, designers and enthusiasts. The idea is when you contribute to a vehicle, Local Motors brings the vehicle to the market and you get paid a royalty on every unit they sell. However, not all vehicle designs people work on comes to the market but community continues to work over a range of products making Local Motors not just [an automaker] but a vehicle-technology company.¹² In any case it just adds to the in-house inventory of ideas to fall back on, as and when you may need them.
- It is worthwhile to note that Local Motors were profitable even with their very first car, in terms of the variable costs. They were able to bring a vehicle to market at about 1/100th the cost and five times faster as they brought in the expertise from diverse background.¹³ The capital costs got taken care of, by their 60th odd vehicle and that portends good signals for the way ahead.
- The design of the car is quite unique and it is something that one does not see on street on a daily basis. This presents a sense of pride for the owners of this type of car as they showcase their economic status with this type of limited edition cars.
- Local Motors has incorporated regular and continuous feedback which has enhanced the value of its products giving it an enviable competitive edge over others.
- Local Motors has tried its hands on bringing new innovative vehicles. They are working on a prototype military vehicle — the XC2v — for the Defense Advanced Research Projects Agency, a research arm of the Pentagon. They have launched best pizza delivery vehicle for Domino’s Pizza and the best shoe for driving for Reebok. They planned to build a crowd-sourced motorcycle, a boat and a more affordable $10,000 car.¹⁴
- Local Motors’ own first vehicle, the Rally Fighter, took just 18 months to go from a 2D drawing to a vehicle ready for pick-up. That compares to the industry standard of 3 to 5 years. The company wants to streamline this even further, with a goal of a 12 month timeline.¹⁵
Remember as kids we all had kits through which we could build anything. In the cartoon series Jetson, we see many futuristic cars flying in space which is the imagination of the creator. Likewise, Local Motors has made those dreams of building a car on our own come true. Local Motors have proved that it is not necessary that only your customers are the ones who can give you valuable tips and suggestions. Non-customers can be very valuable input givers too. Local Motors have ventured into futuristic consumer — involvement strategies, primarily through cars making it possible for any layman to customize it and breaking the traditional way of building cars. This is only the beginning.